Issuu on Google+

JULY 2011 4th EDITION

Students & Alumni Citizen & the State

2

Letter from the Editors

7

Welcome to the fourth edition of Obiter Dicta!

European 22 Perspectives Commercial 47 & Litigation Letters to the Editor

65

We are delighted to bring to you another fresh crop of choice fruits from the fertile

loins of the BLC student body, staff, friends and alumni. We are extremely grateful to all those who devoted their free

time to preparing pieces for this edition, and we are sure that you will enjoy reading the results of their labours.

British Law Centre prepares to celebrate 20th anniversary

News

The British Law centre will be celebrating its landmark 20th anniversary in 2012 and a special event will take place in Warsaw during September 2012. This will be open to all our alumni, current students and friends. Details of the BLC anniversary event will be published on the BLC website as well as being distributed to current Obiter Dicta subscribers. We are keen to rere-establish contact with many more of our alumni. If you have a friend who is also a BLC alumni we would be pleased to hear from them at britishlawcentre@gmail.com


JULY 2011

PAGE

2

Students & Alumni

It’s been an interesting six months for the EU legal professions, both in terms of case law and proposed draft legislation.

OBITER

DICTA

Firstly a number of Member States might have been rather indignant to find that their long held belief that notaries were exempted from the full rigours of the free movement provisions was not in accordance with the views of the Court of Justice to the European Union (CJEU note no longer ECJ following Lisbon Treaty). On 24th May 2011 the CJEU had no problem in agreeing with the Advocate General that notary activities were not connected with the exercise of official authority within the meaning of the EC Treaty and that therefore the nationality condition required for access to the profession by the legislation of the six Member States against which the Commission had initiated infringement proceedings, constituted discrimination on grounds of nationality (see e.g. C-47/08 Commission -v- Belgium et al). So are we to expect a more open profession in these countries or simply a rewriting of national rules to limit the impact of this judgment?

Those who see but are not seen CEEMC 2011 in Vilnius from the perspective of the ushers Tomáš Pavelka and Tomáš Elbert Bratislava Centre, BLC alumni This short report from CEEMC might disappoint readers who expect accounts of merry moments or funny episodes that happen during the mooting weekend (although there were many). Rather, the team of Ushers would like to offer some remarks of technical nature might be interesting for the reflection of past mooters and perhaps as an inspiration for mooters in the future. The thing is that a person in the shoes of usher is in a unique position within the mooting party; he or she is neither nervous like individual mooters preparing themselves to plead, nor absorbed in deep legal thoughts as judges. Usher’s task is simple – to keep things orderly and timely.


JULY 2011

PAGE

3

And from that position, he or she can observe many subtle details which others may fail to notice. In that spirit, two interesting points will be touched upon below. The first point goes back to a sort of mooting experiment that took place on Saturday morning. It might be said that Ushers are responsible for preparation of the battlefield (even if pleadings before panel of judges are rather friendly and constructive discussions) and it is a simple historical fact that often the choice of battlefield decided the course or the result of the struggle. The way the court room is arranged plays a huge role in the manner how pleadings take place later on. While we were preparing the largest court room for the first morning rounds on Saturday, The CEEMC Participants we realized that the reading desk (or lectern) for speakers was rather far from benches where the rest of the team was seated. That basically precluded all discrete ways of communication between the speaker and his or her buddies who usually, as the speaker presents arguments, vigorously fly through the mooting bundle of documents in search for authorities and other arguments which in return communicate to the speaker by way of small papers etc. Since one of the teams relied on a very sophisticated system of communication, it was decided that speakers should not address judges from the lectern but rather from the bench from among their colleagues. What happened was a simple result of one technical problem that was initially overlooked by all. While standing in the bench, the paper with notes and the text to be recited was too far from speaker’s eyes, while it was lying deep down on the table. However, the change in style of pleading was miraculous. Speakers could not rely on their pre-written text that heavily and were able to speak up and rather focus on replies to questions from the panel of judges. Instead of delivering a paper, the speakers engaged in a brilliant discussion. Just like that. The solution was, however, abandoned later that day for the sake of equality of arms between teams pleading in different courtrooms as well as for sake of utmost similarity with proceedings before the Court of Justice, where parties usually speak from the lectern. Second remark would be a sort of advertisement. Being the usher is simply the best moot-job you can get. The usher is not stressed, when he does not understand the case nor when he does not understand what is happening in the court room (or on the dance floor). At the same time, the usher in his total ignorance has a perfect opportunity to gain the most profound understanding of the case. That is because the usher has, in contrast to the judges and to the pleading parties, the perfect position of an undisturbed observer. Nobody is asking him any questions and nobody wants him that he asks questions. Moreover the usher has an opportunity to listen to arguments of different teams and questions of different judges up to four times a day. At the same time, the usher is granted with enormous power. Not only that he tells the pleading parties to stand up, but he also tells the judges what to do, or at least that the time is up. So take your stopwatches and grab the opportunity to become an USHER.


JULY 2011

PAGE

4

My College Experience Svetlana Chobanova Sofia Centre, BLC alumna, class of 2009 The initial flame was kindled by attending lectures as part of the Cambridge diploma in English and EU law programme I followed during my law degree studies in Bulgaria between 2007 and 2009. From that time on my interest in EU law has only grown stronger and when one day a friend of mine whispered ‘Bruges’ into my ear something must have definitely stirred somewhere in the universe. Two years ago, an average tourist wandering through the misty walks of a picturesque medieval town, I said – I’ll be coming back here. And here I am now. The ‘ancient’ traditions of the College of Europe – the oldest university institute for European studies – dating back to 1949 when, its founders, including such luminaries as Salvador de Madariaga, Winston Churchill, Paul-Henri Spaak and Alcide de Gasperi, had the idea to create a place to établir les fondements solides et les bases morales stables afin de bâtir un avenir meilleur et plus heureux non seulement pour l’Europe, mais pour le monde entier. Nowadays the students experience the famous ‘esprit du Collège’ on its two campuses in Bruges and Natolin (Warsaw) where, according to the College’s first rector Hendrik Brugmans, they have ‘for a task’, firstly, to get to know the economic, political, institutional and psychological sociology of our continent; secondly, to familiarise themselves with the problems of the hour, those of tomorrow and those of the day after tomorrow, taking as a guideline the principle of subsidiarity (understood as a multiple authority as opposed to a unitary power); and finally, in their capacity of future executives of Europe, to face the indispensable moral imperative of fundamental rights inherent in European history. The four programmes in Bruges (European Legal Studies, International Relations and Diplomacy, Politics and Economics) and the European Interdisciplinary programme in Natolin ( Warsaw) unite young graduates from around 50 countries in Europe and beyond , all sharing a common passion to learn about and perhaps even work for the EU. The objective of the European Legal Studies programme as described by the current Rector of the College Paul Demaret is to present the young jurists/lawyers/ law students with a knowledge of both the law surrounding the European integration process (institutions, internal market, competition law, external relations), as well as of the law produced by this process (harmonisation, coordination of national laws). Its ultimate goal is to develop within students both the spirit of synthesis and analysis, coupled with teaching a method of induction and the precision of deduction, arousing the capacity to connect the details to the totality and to teach students to confront the dogmas and the facts. There are a significant number of courses to choose from


JULY 2011

PAGE

5

reflecting the different backgrounds and professional interests of the students which vary with the years in accordance with the national, European and international trends. The famous ‘flying faculty’ of the College brings together visiting professors who are amongst the best in their fields – as university lecturers or professionals – and are attracted by the reputation of the College and the quality of the students and teaching assistants. It would be difficult to summarise ‘the College experience’ as I saw it but there are several highlights which are particularly important to me. The first thing that strikes one in Bruges is the unique harmony of nature and architecture. The whole town seems to be overcast by a mysterious and yet enticing cloak which no tourist can penetrate, and I was thrilled to have the opportunity to explore its secrets. You feel even more honoured by the welcoming ceremony organised in a gorgeous mural-painted wedding hall of the municipality (accompanied by local beer, naturally) and even start getting close to the local people through the ‘host family’ programme organised by the College (a chance to meet Bruges families over dinner in the atmosphere of their homes) and through the every-day breakfast chats with the residence ladies (who take care of the student residences but also, with thoughtfulness and consideration, of our needs). The speech for the opening of the academic year delivered by Chancellor Angela Merkel already brought us a sense of common purpose – reminded us that we bear a shared European responsibility for the long-term stability of the EU and the importance of the peoples’ support backed up by stable institutions which render the Union capable of acting; presented us with a vision of Europe founded on the values of freedom, responsibility and dignity of the individual in which old rivalries are put behind and democracy, as the opportunity to be presented with a diversity of opinions from which then one course of action can be chosen by majority; a Europe of rational thinking but also a Europe of the heart. And these two sides indeed complement each other in every aspect of our lives here: the fervour and positivism with which the professors would introduce their knowledge and experience to us, the inspiration with which we would continue discussing the hot legal topics even after classes. The dilemma before me was an immense range of subjects to choose from and not enough time to do everything that interested me. But the methodology of the courses was thorough and I had an opportunity to follow an interdisciplinary and practical approach throughout. I was touched by the enthusiasm of certain professors and sometimes three hours long lectures would pass unnoticed. The current issues were part of our schedule involving analysis of the latest Court decisions and Advocate General opinions. Problems like the financial sanctions imposed on individuals, the accession to the European Convention on Human Rights, the consequences of the financial crisis, the interaction of the EU legal order with international law were discussed in different seminars giving us a broader understanding of the stakes and of the possible solutions. For me personally, the opportunity to visit the institutions and to actually sit in court rooms in Luxem-


JULY 2011

PAGE

6

bourg and Strasbourg was also a crucial complement in creating a dimensional situation of my knowledge. Important parts of the common College spirit were the national weeks. The idea of having 7 days to recreate your country’s politics and culture translated into a magnificent quilt of traditional costumes, songs, dances and food, together with intriguing conferences on hot regional issues. In the role of a receiver you are given a unique in-sight into ancient Belarusian and Ukrainian ethnic holidays, you run from ‘bulls’ on San Fermín’s day, you learn salsa, waltz, belly-dancing, sirtaki. As a giver you share your precious time, efforts and sponsors with your co-workers from neighbour countries to make a week to remember. And when you see what great collaborators France & Germany or Turkey & Greece might be, you cannot help but smile at the possibility of a future without fear. The effect that the multicultural environment had on us was amazing – in less than one year we not only made a trip around the world without even leaving the Ring (the central part of Bruges where the spirit of the College wanders) but also intimately conversed with all these countries’ nationals, exchanged ideas and passions and lived together through political issues like the Libyan and Egyptian revolutions, the Belgian elections, the Turkish accession, the Macedonian question. We shared and related to our colleagues’ personal and national values which in the end are always reflected in the political events of their states. And all this in an informal atmosphere of a coffee break or a bar evening, before we would dive again into the vast expanse of the library. You would often hear the remark that all the national stereotypes were confirmed by the national representatives. Naturally in this miniature model of Europe similar inter-nations conflicts could also be observed. But stereotypes were more than confirmed, they were embraced and appreciated and even where differences could not be overwhelmed by some, the grand majority of people would support a firm position of principle and would stand behind the weaker party. The differences, when uncomprehended, might be scary but when we know each other they are not threatening anymore, and this is part of the beauty of communication between people and between peoples. One of the common symbols created by the College would always bring back this feeling of unity and affiliation – the patron of our promotion Albert Einstein. And it is him that said:

“We lived together through political issues like the Libyan and Egyptian revolutions, the Belgian elections, the Turkish accession, and the Macedonian question”

“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius – and a lot of courage – to move in the opposite direction.” I believe my College experience taught me to see things ‘simpler’ and I believe this process of not just watching but seeing one another went beyond tolerance – it created a shared understanding of the world and a desire to work and build our future in Europe together.


JULY 2011

PAGE

7

The influence of the new Polish Criminal Code regulations concerning stalking – article 190a – on the working operations of companies vindication departments and banks. Anna Roberts Warsaw Centre, 1st year student The newest amendment of the Polish Criminal Code, which comes into force on 6th of June 2011 in Article 190a, concerns the issue of stalking.

Citizen & the State

Stalking is a term commonly used to refer to unwanted, obsessive attention by individuals to others. Such behaviour is related to harassment and intimidation.

OBITER

DICTA

According to the Polish Criminal Code wording, the offence is committed by a person who persistently harasses another person or his next of kin and causes him, justified by circumstances, insecurity, (frightening behaviour) and/or seriously invades his privacy. If the perpetrator is found guilty he/she is subject to the penalty of deprivation of liberty for up to 3 years. The same penalty is subject to whoever uses another person’s image and/or his other personal data for the purpose of causing pecuniary or personal damage. If the consequence of the acts specified above is a suicide attempt by the injured person on his life, the perpetrator is subject to the penalty of deprivation of liberty for a term of between 1 and 10 years. Prosecution for the aforementioned offences is by private accusation. As the grounds for such an amendment defined by Poland's Justice Ministry concerning reported incidents of stalking – apparently one in ten Polish citizens claim to have been victims of stalking (almost 61 percent of those repeatedly), according to a report the Institute of Justice (IWS) – the purpose of introducing the aforesaid regulations was to penalize numerous behaviours which include harassment by abundant phone calls and text messages daily, shadowing and also showering the victim with gifts he or she “one in ten Polish does not want. citizens claim to have been victims As opposed to other crimes typically committed by one of stalking and act, stalking is a series of actions that occur over a period of time. Also actions that contribute to stalking are almost 61 percent usually legal, like gathering information, calling someof those one on the phone, sending gifts, emailing or instant repeatedly” messaging. Such actions by themselves are not usually abusive, but can become abusive when frequently repeated over time. Most of the time, the motive of stalking is to attempt to force a relationship with someone who is reluctant or unavailable due to other reasons or


JULY 2011

PAGE

8

motivation. The question whether such socially beneficial regulations can be abused by dishonest debtors has been raised a number of times in the Polish press recently. The apprehension concerned common practices used by companies which deal with vindication and banks. Such institutions typically call their clients several times a week and remind them about rates to be paid and usually unpleasant financial consequences of delays as well as regularly send written remainders, emails and text massages. As a result, the novelisation of the Polish Criminal Code might give the non-payers an instrument to take legal action against employees of vindication departments and banks by finding themselves as victims of their stalking. Internet forums for debtors were full of rather boasting statements of people looking forward to 6th of June 2011 when they’ll be able to take revenge on their vindicators. Should numerous companies which deal with vindication or banks have any reasons to change their working policies concerning debtors or other parties involved? It is quite obvious that while performing their work obligations, most vindicators contact their clients frequently and remind them of certain obligations arising from binding agreements pointing out all consequences (financial and factual) of the lack of terminal payments. The threat of any kind of revenge on the vindicator initiated by the debtor wouldn’t most likely found on the grounds in the amended Polish Criminal Code Article 190a, if vindication employees perform their work by proper means . Causing both insecurity (frightening behaviour) as well as serious invasion of someone’s privacy - to be found stalking should be justified by circumstances. The intention of introducing this offence to the Polish Criminal Code was to criminalize repetitive, manifold actions characterized by absolutely bad intention when performed. For that reason calling the debtor daily, but only within working hours, or sending him remainders, emails and text massages in proper, professional standard only reinstating his obligations and consequences of their breach shouldn’t be found as persistent harassment described in the new regulations. Such acts don’t concern the non-payee personally, but are only due to his responsibilities taken on deliberately. Additionally, using somebody else’s personal data wouldn’t apply to any company’s vindication department or bank as all their clients reveal such data when concluding contracts willingly. Therefore when someone decided to conclude certain agreement or take some money from the bank, the person should have been prepared for the consequences of not paying them to the creditor as well as taking aboard being reminded of such obligations and consequences of their breach. Consequently, vindication departments and banks employees position as representatives of the parties of binding agreements with the debtors would deny any likelihood of finding them responsible for stalking as long as non of mentioned vindicator’s acts can be found persistently or malicious, repetitive molesting or/and pestering.


JULY 2011

Of course, when vindicators decide to extend the professional means of contacting the debtor and start approaching him outside of working hours, (late and night or early in the morning as well as at the weekends), giving him constant and often notices/ monitories via phone, communicating with a raised voice, texts message or paper, formed in improper, or offensive language, threading him as well as otherwise seriously invading his personal life by (notified) visiting him at home , at work or by his family, the case might be diametrically different because any vindicator liable of such actions performed repetitively could possibly be prosecuted for stalking. By all means any legal action against an alleged stalker in Poland would be possible only when the Prosecutor finds grounds to accuse a certain natural person of it. The prosecutor should judge such actions and the legal steps against someone can be taken only when she/he finds that in a certain case all the requirements of stalking are fulfilled. With vindicators working for companies or banks it would be firstly necessary to individualise a certain perpetuator whose actions caused someone insecurity or serious invasion of privacy justified with circumstances. Also, to charge the vindicator with stalking it should be proven that he intended to nag and hurt the victim personally. As vindicator’s obvious work purpose would be to motivate the non-payee to compensate his debts it seems the most difficult premise to prove. Stalking actions should to the extent of repeatedly and seriously invading the debtor’s personal life and must directly cause the victim to feel menaced. As debtor’s subjective feelings of insecurity, (or frightening behaviour), or his sense of serious invasion to his privacy are not sufficient or adequate to find someone liable for stalking, the likelihood of abusing this institution by dishonest debtors is limited. Another restriction in that matter is that to place charges on anyone for stalking, the responsible employee/employees of the vindication department or bank should be individualized as perpetrator/s. As most of the vindicators acts on behalf of their employer – a commercial person – it’s quite difficult that a single person/persons acted far beyond their work duties, personally and maliciously against a particular debtor. Subsequently, charging any actual vindicator with stalking seems unpredictable. Nevertheless finding the vindicator liable for stalking is not impossible where he uses means of his working actions which might cause someone insecurity or serious invasion of privacy. Therefore the amendment of the Polish Criminal Code in Article 190a is even more desirable as it might help to protect people struggling with financial problems from unlawful and harmful execution of their debts.

PAGE

9

JUST THE FACTS: ECtHR judgements in 2010 finding at least one fundamental rights violation EU Member state Breaches Romania Poland Bulgaria Italy Greece Slovakia Germany France

135 87 69 61 53 40 29 28

Hungary Austria Finland Portugal

21 16 16 15

United Kingdom Czech Republic Lithuania Spain Luxembourg Belgium Sweden Cyprus Latvia Malta Slovenia Ireland Netherlands Estonia Denmark

14 9 7 6 5 4 4 3 3 3 3 2 2 1 0

Total

636

Source: Annual Report 2010 of the European Court of Human Rights, Council of Europe, 2011 pp. 150-1


JULY 2011

PAGE

10

Pitfalls when you break a love match! Denise Ashmore Director, BLC June is the season of Wimbledon tennis, strawberries and champagne and all the traditions of a tennis club celebrating its 125th anniversary, so bringing to mind words such as courtship, fair play and ‘winning to love’ (a specialised tennis term meaning that the other player received no points in a tennis game). Yes yet more strange English terminology I hear you saying.... Although these terms still hold true in tennis there seems some doubt as to whether the English rule of ‘fair play’ applies equally in family law for those couples whose ‘love matches’ go sour.... ! Unlike many other EU legal systems England does not set out precise and defined rights as to the financial provisions to which divorcing couples would be entitled but rather leaves it to judges to exercise their discretion and so decide on the appropriate level of property or maintenance orders to be made on the breakdown of these ‘love-matches’. Married Couples Modern English law does however ensure that both parties are fully entitled to seek appropriate financial relief on the breakdown of their marriage; by means of the mechanisms set out in the Matrimonial Causes Act 1973. This Act finally brought equality to both genders when claiming financial provision on the breakdown of a marriage and finally laid to rest the concept that ‘fault’ should be the predominant criteria applied, setting out a list of considerations that should now be weighed which specifically includes the needs of the divorcing parties. Not surprisingly the ‘fault’ concept (e.g. in a divorce based on the ground of adultery) often indirectly led to one party having no financial claims at all when the other held the full legal title to assets. You will also surely not be surprised to hear that until the latter part of the 20th century such assets were normally in the sole name of the husband.... not the wife! In contrast a wealthy husband (particularly one whose wife doesn’t work and takes care of young children) might view the prospect of divorcing in England with great trepidation. A cautious suitor would be well advised to seek legal advice before marrying in order to find a way to protect his/her assets, but will then be told that England, unlike the USA and a number of other European countries, does not recognise the pre-nuptial agreement as a legally enforceable instrument. This will substantially reduce available mechanisms that might protect a spouse’s assets to devices such as the trust; which perhaps will bring its own complexities and problems as well as being no automatic guarantee of success. This difficult lesson was recently learnt by Paul McCartney of the Beatles in 2008 when he fought to retain his vast fortune intact following the breakdown of his short marriage to former model Heather Mills.


JULY 2011

PAGE

11

Not surprisingly she, and any wife in a similar situation to hers, would doubtless greatly welcome English jurisdiction with open arms. “Although these terms Yet as Lord Denning famously said ‘Someone must be trusted... let it be the still hold true in tennis, judges’ so let us assume that the judges will indeed ensure a reasonable there seems some doubt balance between the rights of both a husband and wife in cases of divorce that the English rule of and so rather turn our attention to the ‘love matches’ which may not yet “fair play” applies equally benefit from so-called ‘fair play’ in family law. in family law for those Same-Sex Couples couples whose “love matches” go sour” What of the ‘same sex partnerships’ the subject of much recent national and European Union non-discrimination legislation and therefore much discussed by the media in recent years. In fact such partnerships can now benefit from identical rights and entitlements in England to those of a married couple, both during the course of their relationship and when seeking financial relief upon any breakdown of their relation or separation, that is if they have become a ‘registered civil partnership’ enabling them to benefit from the equality provisions introduced by the Civil Partnership Act 2004 (CPA). Unmarried Cohabitees So which ‘love-match’ remains... well it is the rather shadowy area of family law regulating the rights of unmarried opposite sex couples generally known as cohabitees; those couples who for one reason or another do not choose to marry and are also not entitled to seek the safety of the status of a civil partnership as they are not the ‘same gender partners’ required by the CPA. How are these partners guaranteed equal rights under English family law? And remember that here we are not only considering the rights of the couple themselves but also the consequent rights enjoyed by or affecting their children. Perhaps the best way of highlighting the seriousness of the problem they face is to pose and answer some basic questions concerning what rights family law does provides for cohabitees:1. Can a man seek automatic custody or access rights to his child upon the breakdown of his relationship with the mother of that child?Answer: not automatically unless he is formally registered as the father on the birth certificate although he will still always be liable to contribute to the child’s maintenance. 2. Can an person who has cohabited for 10 years and is without employment or on a low wage seek maintenance from her wealthy former cohabitee? Answer: no, not unless there is a minor child of the family in her care and she seeks the maintenance for the child rather than herself. 3. Can a cohabitee seek rights against the property in which he has lived with his/ her cohabitee for the last 25 years but which is registered in the sole name of the other?


JULY 2011

PAGE

12

Answer: no not unless he/she can prove acquired rights under the provisions of English property law using the principles of the implied trust or of proprietary estoppel; again there may be an exception if there are any minor children of the relationship when rights can be claimed in the name of the child although this seems unlikely in a relationship of this length) 4. If a cohabitee dies can he/she remain in the house that has been shared with his/her cohabitee for the last forty years? Answer: this is not at all automatic unless a claim can be made under another area of civil law such as property or contract law or unless they are left the estate by the deceased’s will or can persuade a court to grant a right of occupation as reasonable provision from the estate as a dependant of the deceased under the Inheritance (Provision for Family and Dependants) Act 1975 . Not surprisingly this realisation comes as a great shock to many cohabitees who had no idea of the unwillingness of the English parliament to grant them equivalent family rights to those enjoyed by our other two’ love-matches’. When seeking legal advice following the breakdown of their relationship they are often told to seek to claim rights to their home through their children or by relying upon the principles of the implied property trust where some may hope to benefit from the wider discretion exercised in favour of cohabitees by the House of Lords/ Court of Appeal in recent cases such as Stack –v-Dowden [2008] and Jones –vKernott [2010]. Those who have come across these difficult cases however will know that these courts, led by Baroness Hale, were attempting to use property law to fill those gaps left by Parliament’s inactivity in the family law sector. But when this means asking judges to decide parties rights by searching for “the result which the parties must, in the light of their conduct, be taken to have intended” it is not surprising that many critics feel that these cases rather serve to bring complexity and uncertainty into an already difficult area of property law. In addition it should be remembered that a Stack claim is only possible in limited circumstances. If therefore the house is registered in the name of one of those cautious suitors mentioned earlier who had obtained legal advice before entering into the relationship, then it is doubtful that the necessary written or oral evidence would exist that the courts still require to admit any claim. Conclusion A warning note therefore to any visitors to the UK who seek to find their love match there. Before committing yourself to the match, make sure that you fully discuss all elements of your resulting legal and financial position with your proposed partner (which might of course also scare them off) and if you do not plan to marry or register a civil partnership then make sure that your discussions are always recorded in writing and witnessed.... or the end of your love match may not result in champagne and strawberries but rather game set and match to them!!!


JULY 2011

PAGE

13

The House of Lords Reform Bill: Commons to drag Upper House down to their level Alexander Lovelady BLC Lecturer and Tutor This article works off several contestable presuppositions. The first is that complete control of the legislative procedure by private political parties, as opposed to elected representatives acting purely in that capacity, is detrimental to an ideal of democracy. The second presupposition is that such a state of affairs currently exists in the UK House of Commons, and to some extent in the political system in general. The most inherent and “taken for granted” suppositions in this article are that democracy is a desirable ideal and that the role of the UK Parliament is to act as a democratic organ. There is insufficient space to establish these points in this article, but the author would be happy to discuss this with any interested persons. Proposed changes to the House of Lords (the White Paper hinting that this name might soon become archaic) would introduce for the first time a significant majority of elected members, but does present an opportunity to examine the somewhat incoherent basis for the British constitution. The draft Bill proposes some attractive looking reforms for the House of Lords. The current position is that it is impossible to expel a Lord from the House, it is only possible to suspend them from the present sitting. The proposed changes would bring the Lords into line with the Commons in terms of expelling members, and allow for members of the Upper House to be “fired” by order of Parliament. It also suggests that elected members of the new Lords be elected under a different voting system to MPs. The notes to the draft bill seem to favour a more proportionate system of voting than would be used for elections to the Commons. This sounds good for British citizens, but would be even better for the interests of the Lower House as a locus of power. This is because one political party would struggle to control a proportionately elected Upper House, and thus keep it less cohesive and less decisive as a political entity, whilst not decreasing the influence of the main political parties throughout parliament. At present, the House of Lords is somewhat more difficult for political parties to control, partly due to the reduced number of party members sitting in the House, partly due to their appointed or inherited status, and partly due to their indefinite tenure in office. The proposed changes, however, looks likely to signal the destruction of these last vestiges of independence, and convert that lordly chamber into nothing other than a glittery House of Commons. At present, of 829 Peers, 555 are allied to one of the three main political parties, the others being ei-


JULY 2011

PAGE

14

ther unallied, Lords Spiritual or members of a smaller party. It is presently impossible, even in the current coalition, for a presiding government to command a majority in the House of Lords, thus ensuring that the Lords are capable as a House of acting outside of the normal pressures of party politics. Of course it does not follow that this means that the Upper House always makes up its own mind, and voting along party lines is very much evident for most routine matters (presumably because there is no -one to whip the non-aligned Lords out of bed). This is of course not a particularly helpful state of affairs in a legislative body, one of whose fundamental purposes is to “hold the government to account.” The ability of the House to act impartially however does at present exist, and has been exercised on some matters of particular interest to the people (or of course the Lords themselves). The proposed changes however would transform the House into a chamber of only 300 members, 80% of them being elected for 15 year terms. This would mean that party lines would become more significant, as being part of a political party is likely to be important for voters who, in practice, need to associate a candidate with a “brand” (i.e. political party), being in the vast majority of cases unwilling or unable to investigate or understand an individual candidate’s merits, qualifications and policies. Additionally, under the current proposals, Lords would be prevented from sitting for re-election in either House. So essentially, once the newly-elected Lord (or whatever new title is devised for these lucky politicians) has been elected, they have a guaranteed 15 years of highly desirable employment and status, and once this is over no opportunity to sit again (although there are provisions for a pension plan in the Bill). This means that, in the (yes, highly unlikely...) event that a candidate is elected who does not have a genuine interest in representing his constituents, the only serious influence on the new Lord will be from his political masters.

“The envisaged change would be from a chamber working from a centuries-old brief with established traditions, to one which can only work off the existing template of the Commons”

There is an argument to say that this degree of autonomy may have a similar effect on party control over a Lord. If we look at the reality of the situation however, it is obvious that governmental powers of appointment to various roles, offices, and honours – along with the usual social dynamic of the “workplace” (i.e. parliament) – will act as powerful incentives for the new politicians sitting in the upper house to toe the line. The change in the nature of the role will naturally have an impact on the approach of the Peers. Whereas currently there is an element of titular honour in the role of Lord – with its members appointed for life, and its historical and cultural roots as an opposing force to the Commons – the proposed changes would alter this and put the House on a far more political footing. It seems difficult to conceive how a new culture may develop in the “clean slate” proposed, but there is no reason to assume that politics in its mainstream form wouldn’t flourish in exactly the same way as in the Commons. Therefore the envisaged change would be from a chamber working from a centuries-old brief with established traditions, to one which can only work off of the existing template of the Commons.

With the changes in the democratic nature of the Lords, however, one would expect some greater degree of responsibility. After all, if we are voting in order to make the Lords more democratic, and democracy implies a public mandate (as is the basis for the current sovereignty of the Commons), then surely the Lords should gain some powers commensurate with this mandate? In the draft Bill, such an eventuality is specifically precluded. The role of the Lords will be the same. And this, in a way, seems to the author to undermine the basis of democratic legitimisation of governments. It should be re-


JULY 2011

PAGE

15

membered that the proposed reforms will provide for a smaller Upper House, with much longer terms of office, and retaining a minority of unelected members (20%). Does democracy give legitimacy or not? If not, what other property of the House of Commons gives it such an exclusive right to power? If democracy is legitimacy, then what is the purpose of the reforms? It cannot be to legitimise the House of Lords, because if it was, this should be reflected in the power held within it. Before, it was undemocratic – therefore it had no right to block legislation, though it was able to provide scrutiny. If the proposals were to be implemented the House would be largely democratic, yet hold no greater rights. Perhaps the proposed level of “democraticness” will be the “correct” level for the role it plays. If so, this reform is inexcusably overdue, the House of Lords has simply been an instrument of an illegitimate timocracy for the entire modern age, and the Commons has been a party to that illegitimacy. Additionally if this scenario is the correct interpretation, it implies that the Lords may be being kept less democratic for some specific reason. In conclusion, this author smells a rat in the proposed reform to the House of Lords. It is submitted that in their present form, the proposed changes manage simultaneously to weaken the political independence of the House of Lords and to ensure that there is no constitutional change in influence between the two Houses of Parliament. It is a measure which ought to be of constitutional significance, but is mainly of political gain. It is yet another cynical attempt by those in power to exercise it more comprehensively and less accountably under the false banner of democracy. Please find full details of the proposed reforms here: http://www.dpm.cabinetoffice.gov.uk/sites/default/files_dpm/resources/house-of-lords-reform-draftbill.pdf

Drugs-free wings in UK prisons? Dr Steve Terrett Kierownik, BLC Centre, Warsaw The Justice Minister, Kenneth Clark, is currently weathering a storm of criticism following his proposal for the introduction of “drugs free” wings in English prisons. The idea is that certain parts of a prison would be completely free from the presence of drugs. This has caused numerous commentators to question why the Justice Minister seems to think that only some parts of a prison should be free from drugs. Even members of Mr Clark’s own Conservative party have criticised him for this proposal. Conservative MP Edward Leigh openly challenged Mr Clark in Parliament and said: "To [the general public], this sums up the

irretrievably soft attitude of our entire prison system.”


JULY 2011

PAGE

16

Help yourself to these “Cookies!” Dr Katarzyna Klafkowska-Waśniowska European Law Chair, Faculty of Law Adam Mickiewicz University Local Programme Director and alumna, Poznań Centre cookies technology, website The offer is broad: oatmeal cookhosts do not respect user’s priies, butterscotch cookies, raisin vacy and their actions may viocookies, chocolate cookies not to late the EC Directives on data mention the whole variety of Polprotection, and privacy and elecish-style cookies. One might tronic communications sector. have doubts whether the famous One notable example of using Polish “kremówka” would qualify information gathered from cookas a cookie or cake. This quesies is the relatively new form of tion, however, is irrelevant to the advertising called online behavlegal problem presented in this ioural advertising. It has been article. The problem lawmakers introduced by some major interare currently trying to deal with Not that sort of cookie... net players such as Google in is how to protect internet users 2009. At about the same time, the EU Commisfrom the dangers of unordered “cookies”. In sion started proceedings against the UK followthis case, cookies are definitely tasteless and immaterial. A “cookie” is a small text file, which ing complaints from internet users with regard is placed on a user’s hard drive by the, generally to the problem of targeted advertising. Online speaking, host of a visited website. It may have behavioural advertising is a form of advertising some positive effects such as customizing the based on the observations of user’s ‘behaviour’ visited website by identifying the user. Identifiwhile surfing the net. Marketers study the charcation of a user is the primary role of cookies. acteristics of users’ online actions, i.e., which Cookies can be read only by the host who sites were repeatedly visited, keywords, acplaced it on the user’s hard drive. The client cessed content etc., which enables them to taithus may be identified as a particular user, i.e. lor the adverts to the specific data subjects. by a code hidden in a cookie, which further allows for some information gathering about the This problem goes beyond the scope of the Data history of visited websites, adverts that he or Protection Directive. The information gathered she may have paid attention to and other with the use of cookies may be, but not neceschoices that the user has made. The informasarily have to be, personal data. If it is considtion serves to create a user profile, and by cateered to be personal data, then the rules on the gorizing visitors as e.g. young, female, mother, processing of such data and the data controlbooks lover, or middle aged, male and interler’s duties apply. The use of cookies itself howested in gardening. The big question then is ever seems to have escaped that regulation. how, and by whom, this individual profile can be Therefore the Art. 29 Working Group on Data used? And what if a user does not particularly Protection (composed of national data proteclike the idea of being tracked on the net and tion authorities and advising on European data categorized for somebody else’s profit. These protection rules) concerned with the problem, questions have raised concerns that by using has pointed out that Art. 5. 3 of the Directive on


JULY 2011

privacy and electronic communications should apply. This provision has been amended in the 2009, and the amendment aims specifically to improve the position of internet users. It is now clear that the user must consent to storing the of information, or gaining access to the information already stored in the terminal equipment of the user, after being provided with clear and comprehensive information. The user has to be informed why the information is gathered and how it will be processed. What this regulation aims to achieve is to make the user aware of the tracking technology being used and the subsequent use of his data. What is left to be discussed in view of this provision is how one should consent. Is it enough to use an opt-out model, or does it have to be an opt-in model? In the first model the user can change the browser settings, or visit the website of the ad network provider, but if he does not that implies his consent. In the other, the user has to act in a positive sense, not only rely on the settings. The opinion expressed by the Art. 29 Working Party is that only the opt-in model satisfies the criteria from the Data Protection Directive. This would apply also to interpretation of Art. 5. 3 of the Directive on Privacy in Electronic Communications Sector.

Secondly not such good news for in-house lawyers. They had sought equal rights of standing to present their employer’s case before the General Court to that enjoyed by their fellows in the Commission and Member States, but it appears that their employers must still instruct external counsel to plead their case (Case T -226/01 taken by Polish telecoms regulator UKE)!

PAGE

17

...the bad sort of cookie

The term of the implementation of these amending provisions was May 2011. From that date on, the question whether or not you would like a “cookie” has apparently become more than a question of manners.

"You seem to be in some distress," said the kindly judge to the witness. "Is anything the matter?" "Well, your Honour," said the witness, "I swore to tell the truth, the whole truth and nothing but the truth, but every time I try, some lawyer objects."

“A lawyer is a gentleman who rescues your estate from your enemies and keeps it for himself.” - Lord Brougham


JULY 2011

PAGE

18

Life not worth preserving? – English and Polish approaches towards the wrongful life concept Agnieszka Tomczyk Warsaw Centre, 2nd year student On 21 September 2010, awarding damages for a child who had been born with a severe inherited disease, the Brussels Court of Appeal introduced the legal concept of ‘wrongful life’. The court has ruled that the disabled child, through the vote of his parents, may claim compensation from physicians who failed to diagnose its serious disabilities, and thus, hurt its ‘legitimate interest’ to be killed through an abortion. Little Rukiye was born on 14 September 1999 with Sanfilippo B syndrome – a rare, incurable inherited biochemical disorder. Such affliction manifests in a rapid and severe regression of child’s psychotomimetic development. Rukiye’s older sister suffers from the same disease, hence, her parents had asked for a Prenatal diagnosis. The result was negative. However, when Rukiye was 2 years old, she was diagnosed with Sanfilippo B syndrome. Despite the fact that ‘certainly, the misdiagnosis did not cause the child’s disability, which existed before the error and which could not be remedied’, the court stated that ‘the injury that must be compensated is not the disability itself, but the fact of being born with such disabilities’. The Brussels Court of Appeal stressed that if Rukiye’s mother had been informed of such disabilities during her pregnancy, she would have decided for the abortion. It was the first time when Belgium appellate court had received such a wrongful life action and allowed it. The ruling has evoked a stormy discussion as in most jurisdictions wrongful life actions encounter stiff resistance. Brussels court ruling and a growing importance of Prenatal tests bring a great opportunity to conduct a brief comparison of Polish and British law dealing with wrongful life conception. There is no legal definition of ‘wrongful life’. The notion of ‘wrongful life’ initially appeared in American case Zepeda v. Zepeda [1963]. The plaintiff, a grown healthy man born out of wedlock, sued his father for the deprivation of his right to be a legitimate child, to have a normal family, to inherit from his paternal ancestors and ‘for being stigmatized as a bastard’, that altogether lowered his comfort of life. The court found all elements of a tort to have been satisfied, even though it dismissed the claim due to the ‘floodgates’ concern. The court worried that many circumstances into which the children were born (eg. colour, race, hereditary disease, unfortunate family characteristics) would be considered as injuries. Later on, change of comprehending ‘wrongful life’ took place and nowadays it refers only to physical or mental disorders. Wrongful life is the name of a legal action brought by a deformed or mentally retarded child against a doctor who negligently misdiagnosed or did not inform his pregnant mother about his condition, thereby denying his mother the opportunity to abort. Wrongful life is classified as a tort action. In England, in order to bring successful tort action, the plaintiff needs to plead and prove the duty of care, breach of that duty, causation and loss suffered. The most controversial thing about a wrongful life action is defining an injury as a life with disabilities and then, putting a value upon the child’s loss which requires comparison between life of a disabled child


JULY 2011

PAGE

19

and not being born at all. If not for the failure of physician to inform parents about the foetus disabilities, the pregnancy would have been terminated and the child would not have been born. Thus, the only alternative for wrongful life is non-existence. That approach was unacceptable to many observers. However, it is no longer troubling as the problem of wrongful life claims has been resolved in a statutory way. The Congenital Disabilities (Civil Liability) Act 1976 excludes the possibility of wrongful life action when the child was conceived in a natural way. “The most controversial There is still an open discussion whether wrongful life action would be admissible in case of disability resulted from a negligent selection of embryo thing about a wrongful to be placed in mother womb. Such a case has not been examined by the life action is … putting a courts yet. It should be noted that the Congenital Disabilities (Civil Liabilvalue upon the child’s ity) Act refers only to children born after 22 July 1976 (the day when the loss which requires act came into force). The issue of wrongful life actions brought by children born before that date was left to the judiciary. In the leading case McKay comparison between the v. Essex Area Health Authority London Court of Appeal rejected a wrongful life of disabled child and life action on the grounds that recognising the claim would ‘make a furnot being born at all” ther inroad on the sanctity of human life [...] [and] would mean regarding the life of a handicapped child as not only less valuable than the life of a normal child, but so much less valuable that it was not worth preserving’. The plaintiff, who was born in 1975 and suffered from severe disabilities resulted from rubella, her mother having been inflected in early pregnancy, sued both the hospital laboratory and her mother’s doctor. The laboratory was alleged of failing to make the tests of her mother’s blood samples and inform doctor of the results, while the doctor was charged with failure to advise her mother to seek an abortion. Due to the precedent doctrine, McKay v. Essex Area Health Authority still remains the applicable law. Polish courts have not had an opportunity to discuss typical wrongful life action. However, in a particular stage of a famous ‘łomżyńska wrongful birth’ case courts seemed to recognise a wrongful life claim. In that case parents sued severely and jointly hospital and doctors, who despite the high possibility of foetus’ genetic defects, refused to conduct Prenatal tests on the plaintiff and thereby deprived her of her right to abort. The mother claimed damages for the harm suffered as a result of unlawful depravation of her patient rights, physical and mental sufferings during the pregnancy, nervous breakdown after the delivery of a disabled child and loss of earnings. Both parents claimed for compensation of costs associated with rising an unhealthy child, therein a monthly pension. Both a District Court and an Appeal Court in Bialystok stated that it is a disabled child who is entitled to claim damages and pension for the treatment expanses, rehabilitation and the cost associated with rising an abnormal child. Those arguments were not supported by a Supreme Court (IV CK 161/05) which remanded the case stating that only parents are entitled to claim damages. The final judgement of the Appeal Court in Bialystok confirmed that only parents may seek compensation for additional costs of upbringing of a disabled child that they did not plan, did not accept to bear and would not have had to bear if their right to family planning and taking the decision to abort had not been deprived. In Poland, compensation for non-material damage may only be granted in cases described by statute. It should be stressed that the only possibility of granting remedy in wrongful life cases may arise on the grounds of art. 448 of Polish Civil Code (PCC). Under Art. 448 PCC the court may grant an adequate sum as pecuniary compensation for non-material damage suffered to anyone whose personal rights


JULY 2011

PAGE

20

have been infringed. Alternatively, the person concerned, regardless of seeking any other relief that may be necessary for removing the consequences of the infringement sustained, may ask the court to award an adequate sum for the benefit of a specific public interest. However, admitting wrongful life action on the grounds of Art. 448 PCC seems to be very unlikely, because it is necessary to indicate which personal right has been infringed, harm suffered by a negligent conduct of a doctor and causation between those two prerequisites. There is no legal definition of a personal right in the Polish Civil Code. Art. 23 contains a nonexhaustive list of personal rights, such as, in particular, health, liberty, honour, freedom of conscience, name or pseudonym, image, secrecy of correspondence, inviolability of the home, scientific or artistic work, as well as inventions and improvements. In the light of Polish doctrine, personal rights should be defined as goods recognised by a legal system which consist of physical and psychical integrity of a human being, his individuality, dignity and social position. Then, does the Polish legal system recognise the right to be born as a whole functioning human being? It is highly controversial as the acknowledgement of right to non-existence would be contrary to the basic principle of the legal order expressed in Art. 38 of the Polish Constitution which provides that the Republic of Poland shall ensure the legal protection of life of every human being. Recognising such a right would have wide-ranging consequences. Disabled children, whose parents have even never considered abortion, may allege their parents to have violated their right to be born without any defects. On the other hand, parents would request abortion in anticipation of their children’s potential claims. The second prerequisite that needs to be satisfied is the indication of non-material damage. Nonmaterial damage is defined as negative psychical or physical experience caused by the infringement of legally protected rights. Perceiving life as damage also comes across many objections. Examining wrongful conception and wrongful birth cases Polish Supreme Court stated many times that a child’s birth, even with abnormalities, can never be considered as damage. Last, but not least, in order to receive compensation on the grounds of Art. 448 PCC, the plaintiff needs to prove adequate causal link between doctor’s negligence and damage suffered. That requirement results from Art. 361 § PCC which provides that the wrongdoer is liable only for damage which was the normal consequence of his act or omission. Firstly, regardless of the fact whether birth of a disabled child may be considered as damage, it should be decided if the doctor’s conduct was unlawful, thus, was there a legally admissible possibility to abort. In Poland, abortion may be conducted only in cases expressed in the statue. According to Art. 4a s 1(2) of Law on family planning, protection of the human foetus and conditions for legal abortion, abortion of a disabled child may be conduct when Prenatal tests and other medical rationales show high likelihood of severe and incurable disabilities of the foetus or life-threatening incurable disease. Time limit is set at the point when the unborn child would be able to survive outside the mother’s body. Thus, causal link would not be possible to demonstrate if there is no statutory right to abort or the time limit has gone beyond. If the abortion was lawfully admissible, it should be stressed then whether damage is the normal consequence of the doctor’s negligent conduct. The doctor’s mistake increase the likelihood of damage only if the mother would have decided to abort. That problem seems to be insoluble. It cannot be simply assumed that taking a wrongful birth action means that mother would have aborted. Taking above into consideration, it seems that in Poland there is no legal basis for wrongful life actions. However, the discussion remains still open. The supporters of the wrongful life concept state that it is unfair for disabled children to suffer the consequences of their diseases without any financial


JULY 2011

PAGE

21

support. On the other hand, opponents refer to the sanctity of life and non-existence paradox. Those less radical reproach problems with the estimation of damage and the pressure placed upon doctors to advise abortion in doubtful cases in order to escape from potential liability. Some of them also raise that wrongful life conception is the invention of the greedy lawyers and insurance companies. Which side do you stand?

Indeterminate Public Protection Sentences – does a convicted person have the right to know how long they will be imprisoned for? Dr Steve Terrett Kierownik, BLC Centre, Warsaw Indeterminate Public Protection Sentences (IPPs) were introduced in the Criminal Justice Act 2003 (CJA 2003) and allow a convicted defendant to be detained in prison if they pose a significant risk of causing serious harm to the public through further serious offences. Such defendants are nt informed of any release date from prison and are only entitled to be released when they can convince the prison parole board that they no longer pose such a risk. When people, teh trial judge indicates a specified part or tariff (‘the minimum term’) that the prisoner will have to serve before he/she can be considered for release by the Parole Board. An IPP may be imposed on any person where the crime for which they were convicted crries a minimum sentence of two years imprisonment, or where it was committed by someone with a previous conviction for a specified violent or sexual offence. The indeterminate nature of the “punishment” led some convicted prisoners to challenge IPPs as a breach of Article 5 ECHR, in particular Art 5 (1)(a) which states that “No one shall be deprived of his liberty save in the following cases and in accordance with a procedure prescribed by law.” However, the House of Lords, in the case of R (Lee and Wells) v Secretary of State for Justice [2008] EWHC 2326 concluded that

English law did not breach the Convention. At the present time, over 6,000 prisoners are subject to IPPs, over half of whom have already been in prison for longer than the minimum tariff date passed by the trial judge. Parliament is currently debating whether to replace IPPs with longer, but determinate, sentences for serious criminal offences or for offenders who pose a risk to the public. Much of this debate has taken place against a “human rights” background, but many suspect that financial issues are the real concern – no one is able to predict how much it will cost to imprison a person subject to an IPP, since no one knows the real length of time they will be imprisoned for. Do you think IPPs are a good idea? Why not write to us with your thoughts and whether your country would 4be likely to adopt such an approach to criminal sentencing?


JULY 2011

PAGE

22

Liability of an air carrier and rights for passengers under EU law Michał Roszczynialski

European Perspectives

Trainee Barrister, Gdansk Centre Alumnus class of 2008

OBITER

DICTA

“Flight delayed”, “Flight cancelled”- probably most of us found ourselves in such a situation, when our travel by air seemed to be very difficult and problematic. Denied boarding and cancellation or long delay of flights causes serious trouble and inconvenience to passengers. Additional stress and nervousness can spoil holidays, vacation leave etc. That is why it is important to be aware of EU law which provides a level of protection for passengers transported by planes, under national legislation in Member States. In order to strengthen the rights of passengers and to ensure that air carriers operate under harmonised conditions in a liberalised market, the European Parliament and the Council adopted on 11 February 2004 Regulation (EC) No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91 (hereinafter referred to as “the 2004 Regulation”). Even though the operating air carrier is obligated to inform us of our rights under the 2004 Regulation (art. 14), which is most often realised by providing access to this act during online check-in, we don’t pay attention to this law. So let’s have a closer look at this act. The 2004 Regulation shall apply to passengers departing from an airport located in the territory of a Member State to which the Treaty applies and to passengers departing from an airport located in a third country to an airport situated in the territory of a Member State to which the Treaty applies, unless they received benefits or compensation and were given assistance in that third country, if the operating air carrier of the flight concerned is a Community carrier (art. 3(1)). The European Court of Justice (hereinafter referred to as “ECJ”) was considering the scope of the 2004 Regulation and stated on 10 July 2008 in case C-173/07, Emirates Airlines Direktion für Deutschland v Diether Schenkel that art. 3(1)(a) of the 2004 Regulation “must be interpreted as not applying to the case of an outward and return journey in which passengers who have originally departed from an airport located in the territory of a Member State to which the EC Treaty applies travel back to that airport on a flight from an airport located in a nonmember country. The fact that the outward and return flights are the subject of a single booking has no effect on the interpretation of that provision” (OJ C 223, 30.8.2008, p. 14–14).


JULY 2011

PAGE

23

According to the title of the 2004 Regulation, this act establishes minimum rights for passengers when: (a) they are denied boarding against their will; (b) their flight is cancelled; (c) their flight is delayed. If boarding is denied to passengers against their will, the operating air carrier shall immediately compensate them (compensation amounting EUR 250, EUR 400 or 600 EUR depending on flight’s distanceart. 7 of the 2004 Regulation) and assist them. The assistance involves passengers right to choice between reimbursement of the full cost of the ticket at the price at which it was bought or re-routing, under comparable transport conditions, to their final destination (at the earliest opportunity or at a later date at the passenger's convenience, subject to availability of seats). Additionally passengers have a so-called right to care. It means that passengers shall be offered free of charge meals and refreshments in a reasonable relation to the waiting time, hotel accommodation (in cases, where a stay of one or more nights becomes necessary or where a stay additional to that intended by the passenger becomes necessary) and transport between the airport and place of accommodation. In addition, passengers shall be offered free of charge two telephone calls, telex or fax messages, or e-mails. It is very useful when we have no opportunity to inform our relatives about changes connected with our journey. In case of cancellation of a flight, passengers have right to assistance (described above) and have the right to compensation on the conditions unless they are informed of the cancellation by the operating air carrier in proper way (stated in the art. 8(1)(c)) of the 2004 Regulation). It should be emphasized that the operating air carrier is not obliged to pay compensation in all cases of cancellation. The operating air carrier is not liable if it can prove that the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken (art. 5(3) of the 2004 Regulation). Question is how these circumstances can be interpreted according to the 2004 Regulation. Very often air carriers try to explain that cancellation of flight was caused by aircraft’s defect. ECJ on 19 November 2009 in jointed cases C-402/07 and C-432/07, Christopher Sturgeon and Others v Condor Flugdienst GmbH and Stefan Böck and Cornelia Lepuschitz v Air France SA stated that: “Article 5(3) of Regulation No 261/2004 must be interpreted as meaning that a technical problem in an aircraft which leads to the cancellation or delay of a flight is not covered by the concept of ‘extraordinary circumstances’ within the meaning of that provision, unless that problem stems from events which, by their nature or origin, are not inherent in the normal exercise of the activity of the air carrier concerned and are beyond its actual control” (European Court reports 2009 Page I10923). Also ECJ on 22 December 2008 in case C-549/07, Friederike Wallentin-Hermann v Alitalia Linee Aeree Italiane SpA stated that: “The frequency of the technical problems experienced by an air carrier is not in itself a factor from which the presence or absence of ‘extraordinary circumstances’ within the meaning of Article 5(3) of Regulation No 261/2004 can be concluded. The fact that an air carrier has complied with the minimum rules on maintenance of an aircraft cannot in itself suffice to establish that that carrier has taken ‘all reasonable measures’ within the meaning of Article 5(3) of Regulation No 261/2004 and, therefore, to relieve that carrier of its obligation to pay compensation provided for by Articles 5(1)(c) and 7(1) of that regulation.” (European Court reports 2008 Page I11061). Due to above-mentioned judgements it is not easy for the air carrier to avoid its legal liability. Air undertakings are professional participants of a trade and have to meet the higher standards con-


JULY 2011

PAGE

24

nected with performing flights and maintaining the aircrafts and the other equipment in the proper condition. Furthermore the air carriers must reasonably, at the stage of organising the flight, take account of the risk of delay connected to the possible occurrence of extraordinary circumstances, such as failures in the power supply leading to a breakdown in radars and air navigation systems. Such conclusion we can draw from the ECJ judgement issued on 12 May 2011 in case C-294/10, Andrejs Eglītis and Edvards Ratnieks v Latvijas Republikas Ekonomikas ministrija. When an operating air carrier reasonably expects a flight to be delayed beyond its scheduled time of departure for 2 hours or more (flights of 1500 kilometres or less), 3 hours or more (intra-Community flights of more than 1500 kilometres and other flights between 1500 and 3500 kilometres) and 4 hours or more (other flights) we have right to free of charge meals and refreshments, two telephone calls, telex or fax messages, or e-mails. When the delay is more than five hours we are entitled to reimbursement within seven days of the full cost of the ticket at the price at which it was bought. Additionally when the reasonably expected time of departure is at least the day after the time of departure previously announced passengers have right to hotel accommodation and transport. ECJ in above-mentioned jointed cases C-402/07 and C-432/07, Christopher Sturgeon and Others v Condor Flugdienst GmbH and Stefan Böck and Cornelia Lepuschitz v Air France SA also stated that: “a flight “It is not easy for the air which is delayed, irrespective of the duration of the delay, even if it is long, carrier to avoid its legal cannot be regarded as cancelled where the flight is operated in accordance with the air carrier’s original planning”. liability... Air undertakings are It is worth remembering that according to the art. 12 of the 2004 Regulaprofessional participants tion, this act shall apply without prejudice to a passenger's rights to furin a trade and have to ther compensation. Thanks to that provision every passenger dissatisfied meet the higher with damages received from the air carrier has right to bring an action against him. But which court is competent? This matter is regulated by standards connected with Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction performing flights and and the recognition and enforcement of judgments in civil and commermaintaining aircraft...” cial matters. According to he ECJ judgment issued on 9 July 2009 in case C204/08, Peter Rehder v Air Baltic Corporation this regulation shall apply “in the case of air transport of passengers from one Member State to another Member State, carried out on the basis of a contract with only one airline, which is the operating carrier, the court having jurisdiction to deal with a claim for compensation founded on that transport contract and on Regulation (EC) No 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91, is that, at the applicant’s choice, which has territorial jurisdiction over the place of departure or place of arrival of the aircraft, as those places are agreed in that contract” (OJ C 205, 29.8.2009, p. 8–9). Finally, it must be stressed that passengers who believe that they have not been treated correctly by the air carrier, can find on the European Commission’s website a list of national competent authorities (http://ec.europa.eu/transport/passengers/air/doc/2004_261_national_enforcement_bodies.pdf) as well as EU complaint form to be sent to the airline or competent body (http://ec.europa.eu/transport/ passengers/air/doc/complain_form/eu_complaint_form_en.pdf). I believe that this article helps readers with exercising their rights as regards air transport.


JULY 2011

PAGE

25

The preliminary ruling procedure and the national judiciary hierarchy Dr Michal Bobek Researcher, European University Institute BLC alumnus A request for a preliminary ruling under Article 267 TFEU is traditionally portrayed as a tool of judicial cooperation. Provided an issue of interpretation of an EU act is raised, a lower court may and a court of last instance must seek guidance from the Court of Justice. In cases concerning the validity of an EU measure, all national courts must refer the question to the Luxembourg court. There can be a number of motives why a national court stays proceedings and submits a request for a preliminary ruling in an individual case (and does not do so in a number of others). There is no doubt that in a great number of cases, the national judge genuinely feels that s/ he is addressing a matter of principle, on which the Luxembourg court should have a say. In other cases, other factors come in play: wishes of the parties; personal judicial dislike for a particular piece of legislation; level of cross-border activity; costs of litigation and many others. After the 2004 and 2007 enlargements, yet one additional reason emerges in the referencing patterns of the courts of the new Member States: the preliminary ruling as a tool of judicial disagreement with superior courts within the Member State in question. It is well known that the decision of the Court of Justice, rendered in the reply to a request for a preliminary ruling, is binding at least for the particular dispute in which the request for the preliminary ruling was submitted. This means that it is not just the referring court itself which is bound by the decision of the Court of Justice, but also all other courts within the national judicial hierarchy, which might hear the case after the referring court (on appeal, on cassation, on constitutional complaint etc.). Elaborate appellate structures in today’s European judiciaries often contain three levels of jurisdiction (first instance, appeal, cassation/revision; in countries with individual constitutional complaint also a fourth “level” jurisdiction in the form of the national constitutional court). The various judicial levels occasionally disagree as far as the interpretation of a given piece of legislation is concerned. Traditionally, internal disagreement would be possible only up to a given moment: once the superior court quashed the decision(s) of the lower court, the lower court is forced to accept and in the future apply the legal opinion of the superior court. European Union law and the preliminary rulings procedure are inherently at odds with such national judicial hierarchy. Any court, within any type of judicial proceedings, can request the guidance of the Court of Justice. Consequently, even the lowest national court, provided that it is entitled to submit questions to Luxembourg, can de facto “bind” the national supreme or constitutional court, provided it


JULY 2011

PAGE

26

asks the right question or asks the not so right question in the right manner. The requests for preliminary rulings coming from the new Member States after the 2004 and 2007 enlargements are characterized by the number of indirect or direct challenges to the authority of national superior courts. This is not to claim that an occasional challenge to the national superior judicial authority has not been present in the old Member States. It has, but not in such quantities. An indirect challenge to the national superior judicial authority is primarily aimed at merits of a case: a national lower court does not agree with previous rulings of a national higher court. It waits for a next case in the row on the same matter to be filed and, once such a case arrives, it submits that case to the Court of Justice in the hope of de facto reversing the previous rulings of the national superior court. This was the scenario in the first Hungarian reference (Case C-328/04, Vajnai, in which the Budapest Municipal Court disagreed with previous rulings of the Hungarian Constitutional Court); in the first Slovak reference (Case C-302/06, Kovaľský, in which the Regional Court in Prešov indirectly challenged previous decisions of the Slovak Constitutional Court); and also in several Czech references (in Case C-399/09, Landtová, the Supreme Administrative Court disagreed with the case law of the Constitutional Court; in the pending Case C-17/10, Toshiba, the Regional Court in Brno disagrees with a previous decision of the Supreme Administrative Court). There have been, however, also recent cases, which amounted to a head-on attack on the national higher judicial authority and the binding force of its decisions. In the Hungarian case Cartesio (C210/06), the referring court asked whether or not it would be bound by a decision of its appellate court quashing its order for reference to the Court of Justice. The answer was “no”: a lower court is not bound by such an appellate decision. In the Bulgarian case of Elchinov (C-173/09), the question of the binding force of national appellate decisions in the same case was posed directly. The answer of the Court of Justice was also direct: “[…] European Union law precludes a national court which is called upon to de“European Union law and cide a case referred back to it by a higher court hearing an appeal from being bound, in accordance with national procedural law, by legal rulings the preliminary rulings of the higher court, if it considers, having regard to the interpretation procedure are inherently which it has sought from the Court, that those rulings are inconsistent with at odds with ... national European Union law.” (para. 32 in Elchinov). judicial hierarchy”

Similar yet slightly different line of recent case law is concerned with the status and functions of national constitutional courts. Their functions and their authority have also been put to the test, this time not only from the new Member States. In the Polish case Filipiak (C-314/08) as well as in the German case Winner Wetten (C-409/06), the Court of Justice stated that the national finding of unconstitutionality cannot defer the setting aside of the national measure, which is also incompatible with EU law. The French preliminary ruling in Melki and Abdeli (C-188/10 and C-189/10) was a direct attack by the French Cour de cassation on the newly introduced type of constitutional review before the Conseil constitutionel. To sum up, in matters of EU law, a national court is not bound by its national superior courts, including the national constitutional courts, but by the Court of Justice. It may disregard any previous decisions (or precedents) of higher national courts, including those rendered already in the same case, if it thinks that they are incompatible with EU law.


JULY 2011

PAGE

27

Whether such a vision of national judicial function and the institutional and procedural coexistence of the EU and national legal orders is feasible and helpful, is open to question: even some Advocates General argued that it may not be the best way forward (see, for instance, AG Cruz Villalón in his Opinion to the Elchinov case). The side-effect of such case law might be, however, greater incentive for higher courts to submit themselves requests for a preliminary ruling in contentious issues, where they expect “disagreement” from within their jurisdiction. As any good story-teller would confirm, the key is not always “what the story is”, but “how the story is told” and by whom.

What price are we willing to pay for equality? Dr Steve Terrett Kierownik, BLC Centre, Warsaw On March 11th 2011, a Grand Chamber of the Court of Justice to the European Union (CJEU) concluded that it was unlawful for Belgian law implementing an EU Directive (prohibiting sex discrimination in the provision of services) to permit gender to be taken into account when calculating the cost of motor insurance.

accurate actuarial and statistical data. The Member States concerned shall inform the Commission and ensure that accurate data relevant to the use of sex as a determining actuarial factor are compiled, published and regularly updated. These Member States shall review their decision five years after 21 December 2007….

The relevant EU secondary legislation is Council Directive 2004/113 of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services (OJ 2004 L 373, p. 37). This Directive was adopted on the basis of Article 13(1) EC and intends to “…lay down a framework for combating discrimination based on sex in access to and supply of goods and services, with a view to putting into effect in the Member States the principle of equal treatment between men and women.” Generally speaking, it prohibits sex discrimination within the scope of freedom of services, whilst permitting some exceptions to this general rule. The relevant exception in this case was contained in Article 5(2) of the Directive, which states as follows:

This constitutes an exception to the general rule contained in Article 5(1) which states that Member States shall ensure that in all new contracts concluded after 21 December 2007 at the latest, the use of sex as a factor in the calculation of premiums and benefits for the purposes of insurance and related financial services shall not result in differences in individuals’ premiums and benefits.

Member States may decide before 21 December 2007 to permit proportionate differences in individuals’ (insurance) premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and

The national proceedings were initiated by two Belgian men, supported by the Belgian Consumers Association, who were disturbed by the fact that insurance premiums for women drivers were consistently lower than for male drivers. Such differences were permitted by Belgian law which stated that “...a direct proportionate distinction may be drawn on the basis of gender for the purposes of calculating insurance premiums and benefits where sex is a determining factor in the assessment of risk on the basis of relevant and accurate actuarial and statistical data.”


JULY 2011

Mr van Vugt and Mr Basselier (the applicants) sought to have the 2007 Belgian law annulled on the basis that it contravened the EU law general principle of sex equality. Most national laws have, for many decades, varied the rates of premium payments for motor insurance on the basis of gender, with women benefitting from lower insurance costs. Such differences have typically been justified by national insurance companies on the basis of statistics which indicate that women tend to have fewer car accidents than men. The applicants argued, however, that such statistics represented nothing more than a formalized generalization of assumptions based exclusively on the gender of the insured. Having worked its way through the Belgian court system to the Cour constitutionnelle (Constitutional Court), that court decided that since the national law was based on Article 5(2) of the Directive, it needed a ruling from the CJEU to confirm that the Directive itself was compatible with EU law on gender equality and, more specifically, Article 6(2) TEU which states that the EU is to respect fundamental rights as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, as general principles of Community law. Those fundamental rights are incorporated in the EU’s Human Rights Charter, which, as of 1st December 2009, has the same legal status as the Treaties.

PAGE

28

The CJEU began it brief judgment (constituting only 36 paragraphs) by considering Articles 21 and 23 of the Charter which state that any discrimination based on sex is prohibited and that equality between men and women must be ensured in all areas. The Court noted that male and female drivers were ina “comparable position” since it was clear that Article 5(2) of the Directive was stated to be an “exemption” from the general principle of non-discrimination. In other words, if the positions of male and female drivers were non-similar, there would be no discrimination which required exempting. Having noted that, the Court considered the precise wording of Article 5(2) and noted that, although it required Member States (who had chosen not to adopt unisex insurance premiums) to reconsider their approach in 2012, there was no requirement for them to change this approach, nor was there a time limit by which all EU countries would be required to have unisex insurance premiums. Accordingly, the Court concluded that Article 5(2) of the Directive applies without temporal limitation which would be contrary to the achievement of the objective of equal treatment between men and women, which is the purpose of Directive 2004/113. In short, therefore, this provision was incompatible with Articles 21 and 23 of the Charter and was declared invalid, which had the knock-on effect of invalidating the Belgian legislation which had implemented this rule. Given the fact that this ruling would have an enormous financial impact for Belgian (and other) insurers who had sold “unlawful” insurance policies, the CJEU decided to postpone the date on which the EU law would cease to have binding force, until 21st December 2012, at which time it will no longer be possible for gender to be used as a factor for calculating the price of car insurance. Of course, the CJEU has not dictated what should be the appropriate response of insurers when the new rule enters into force. The re-


JULY 2011

quirement for “equality” is fulfilled not only by improving the situation of the discriminated group (i.e. lowering car insurance process for younger male drivers) but also by worsening the situation of the group currently favoured (i.e. increasing car insurance for female drivers). Levelling can be equally achieved in an “upwards” or “downwards” direction. Most observers have concluded that insurers will “equalise” the situation of men and women with a combination of price changes that will cause the cost of insurance for a women under 25 to rise by an average of almost 25%, while male drivers in the same age group will benefit from a typical 10% reduction. An alternative approach which insurers may pursue is to target

PAGE

29

cars which are typically bought by young male drivers and to increase the insurance on them – for example, statistics from the Association of British Insurers show that 70% of Mini drivers are women but only 30% of BMW drivers. Further estimates indicate that, on average, a 17-year-old female driver will now have to pay an extra £4,300 in insurance premiums by the time she reaches the age of 26 whereas the equivalent male driver will only save an estimated £3,250 over the same period. So, despite the CJEU’s good intentions, the age-old truth seems likely to continue – insurance companies never lose, regardless of the verdict!

Free Movement of Capital – Single Market for Financial Services Tea Turčániová Bratislava centre alumna, class of 2010 The idea of an area without internal frontiers where there are no obstacles to the free movement of goods, persons, services and capital was one of the reasons for establishment of the European Community. Considering different historical backgrounds and legal practices of every single Member State of the European Community, it took more than 40 years after the signing of the first founding treaty – Treaty establishing the European Coal and Steel Community (1951) until single (internal) market within the Member States of the European Community (or later used term European Union, or EU) which is based on four mentioned freedoms, became a reality. This article focuses on free movement of capital as a forth freedom of the internal market and as the freedom that covers not one, but two areas – free movement of capital and free movement of payments. These two areas are closely interconnected and together they enable EU citizens to open bank accounts in every EU Member State, to pay not higher fees for cross-border payments than for domestic payments, to invest in real estate across the EU and they also give companies possibility to establish branches throughout the EU Members State, protect their invested funds and ensure equal competitive conditions. Legal Framework Forasmuch as the free movement of capital is a basic freedom, it´s legal framework had already been established in the Founding Treaties of the European Community. In consequence of the changes on international financial markets and other affecting factors particular provisions regulating this freedom had been amended several times, but the fundamental idea is immutable – “all restrictions on the


JULY 2011

PAGE

30

movement of capital and payments between Member States and between Member States and third countries (within the framework of the provisions set out in the particular founding treaties) shall be prohibited.” Treaty of Lisbon Treaty of Lisbon as a currently effective revision of the Founding Treaties of the European Community was signed in Lisbon on 13 December 2007, entered into force on 1 December 2009 and it amended the Treaty on European Union and the Treaty Establishing the European Community (the title of the “Treaty Establishing the European Community” is replaced by “Treaty on the Functioning of the European Union”). Free movement of capital and internal market are codified in several provisions of the Treaty and it is convenient to cite at least some of them. Establishment of an internal market in general is mentioned in the Article 3 (3) (ex Article 2 TEU) of the Treaty on European Union according to which “The Union shall establish an internal market....”. Article 3 (4) also states that “The Union shall establish an economic and monetary union whose currency is the euro”. More particulars are set in the Part Three of The Treaty on Functioning of the European Union whereby it is codified in the Article 26 (2) (ex Article 14 TEC) that “The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties“. Title IV, Chapter 4 of Part Three is titled “Capital and Payments” and in Articles 63 – 66 are given common principles for application of this fourth freedom. As mentioned above all restrictions on the free movement of capital and payments shall be prohibited - Article 63 (1,2) (ex Article 56 TEC) sets that “Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital (payments) between Member States and between Member States and third countries shall be prohibited”. However, Article 65 (1) (ex Article 58 TEC) “allows” Member States a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested; (b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security. Measures and procedures above “shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63” (Article 65 (3)).

1.1.2 Definition of capital Although primary law sets fundamental principles of free movement of capital, neither Founding Trea-


JULY 2011

PAGE

31

ties, nor Treaty of Lisbon define terms “capital” and “payments”. There is therefore only an “indirect explanation” of these terms which can be found in the Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty. Annex 1 of this Directive classifies capital movements and they shall cover: - “all the operations necessary for the purposes of capital movements: conclusion and performance of the transaction and related transfers. The transaction is generally between residents of different Member States although some capital movements are carried out by a single person for his own account (e.g. transfers of assets belonging to emigrants), - operations carried out by any natural or legal person, including operations in respect of the assessor liabilities of Member States or of other public administrations and agencies, subject to the provisions of Article 68 (3) of the Treaty, - access for the economic operator to all the financial techniques available on the market approached for the purpose of carrying out the operation in question. For example, the concept of acquisition of securities and other financial instruments covers not only spot transactions but also all the dealing techniques available: forward transactions, transactions carrying an option or warrant, swaps against other assets, etc. Similarly, the concept of operations in current and deposit accounts with financial institutions, includes not only the opening and placing of funds on accounts but also forward foreign exchange transactions, irrespective of whether these are intended to cover an exchange risk or to take an open foreign exchange position,

“The scope of the free movement of capital is very extensive and it is therefore surprising that Member States’ attitude to harmonisation in this field was initially quite reserved”

- operations to liquidate or assign assets built up, repatriation of the proceeds of liquidation thereof or immediate use of such proceeds within the limits of Community obligations, - operations to repay credits or loans”. As it is clear from the given list of capital movements, scope of the free movement of capital is very extensive and it is therefore surprising that Member States’ attitude to harmonisation in this field of internal market was at first quite reserved. Legislation in particular Member States was, however, significantly different, so without unified regulation it was impossible to achieve planned functioning of single market. Firstly, recommendations as legally not binding instruments were issued in 1980s and early 1990s and only after introduction of common currency situation radically changed. Second half of 1990s was period of first regulations and directives in field of payments and gradually, also with widening of the EU and especially euro area, people started to trade on possibilities of free movement of capital. 2.1 Single Market for Financial Services Financial services sector includes three major areas – banking, insurance and securities. Payment services as “oil in the wheels of the Internal Market”1) are closely connected with all these three areas and considering that there are considerable changes in field of payments, the rest of this article is devoted to this rapidly developing part of free movement of capital.


JULY 2011

PAGE

32

2.1.1 Legal framework of payment services Since smooth functioning of (above all) cross-border payments is crucial for European economy, most of the legislation in area of payment services is adopted at EU level, so that there are same principles applied in all Member States (or there are only minimal differences where European legislation allows so called national options and discretions). There are two main types of legal acts which are used in payment services´ sphere – regulations and directives. Regulations are directly applicable, so once they are published in the Official Journal of the European Union, Member States must follow them and they “become” a part of their national legislation. Directives, on the other hand, do not have this direct effect (they do not automatically become binding as a part of national law) and Member States are required to implement them in some time period (usually in 2 years time). The way how they do it (either by adapting existing national legislation or by adopting new acts) is up to their discretion. Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the Community and repealing Regulation (EC) No 2560/2001 (further only “Regulation”) and Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC (further only “Directive”) are two currently effective acts of secondary law which together form a basic legal framework for payment services. It was already the Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December 2001 on cross-borders payments in euro where one of the crucial principles of free movement of payments was established – principle that there shall not be any differences in charges for cross-border and national payments in euro (the principle of equality of charges), but because of the changes brought by Directive, it was necessary to amend previous wording. Regulation now in the Article 3 (1) sets that: “Charges levied by a payment service provider on a payment service user in respect of cross-border payments of up to EUR 50000 shall be the same as the charges levied by that payment service provider on payment service users for corresponding national payments of the same value and in the same currency” providing that IBAN (The International Bank Account Number, an international standard for numbering bank accounts consisting of a two letter country code, two check digits and up to thirty alphanumeric characters for the domestic bank account number) and BIC (The Bank Identifier Code, the unique identification code for both financial and non-financial institutions consisting of 8 or 11 characters - 4 letters - for bank code, two letters – for country code, two letters/digits – for location code and optional 3 letters/digits – for branch code) of the payment recipient (beneficiary) are used by payment originator when giving the order. Additional conditions which must be satisfied so that the payment can be subsumed under the provision of the Regulation are - the cost option (payment instruction) used for a credit transfer in euro shall be SHARE (it means that the payer (originator) and the payee (beneficiary) shall cover the charges applied by their respective payment service providers (banks) for sending or receiving the transfer) and no special instructions (e.g. urgent or express transfer) shall be given. If these conditions are not satisfied, the payment service provider may levy additional charges on the payment service


JULY 2011

PAGE

33

user (Article 4 (3)). The Regulation applies to all electronically processed payments, including credit transfers, direct debits, cash withdrawals at cash dispensers (ATMs), payments by means of debit and credit cards and money remittance. The Regulation and the Directive complement one another, but the scope of the Directive is much wider. It “shall apply to all payment services provided within the Community” (i.e. EU, Article 2 of the Directive) and payment services as business activities are listed in the Annex of the Directive and they are: - “services enabling - cash to be placed on a payment account as well as all the operations required for operating a payment account - cash withdrawals from a payment account as well as all the operations required payment account

for operating a

- execution of payment transactions, including transfers of funds on a payment account with the user's payment service provider or with another payment service provider: - execution of direct debits, including one-off direct debits, - execution of payment transactions through a payment card or a similar device, - execution of credit transfers, including standing orders, - execution of payment transactions where the funds are covered by a credit line for a payment service user: - execution of direct debits, including one-off direct debits, - execution of payment transactions through a payment card or a similar device, - execution of credit transfers, including standing orders, - issuing and/or acquiring of payment instruments, - money remittance, - execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.” The Directive establishes coherent and modern legal framework for payment services and at the same time forms a legal basis for the Single Euro Payments Area (SEPA). SEPA is currently the biggest project of the European banking industry with an obvious aim – to eliminate all differences between domestic and cross-border payments in euro (payments by credit or debit cards, or payments in sense of credit transfers and direct debits) within SEPA countries, so it will be possible to make payments from one


JULY 2011

PAGE

34

single account under the same conditions throughout the euro area. 3.1 SEPA In 2002 the European Payment Council (“EPC” for short) as the decision-making and coordination body of the European banking industry in relation to payments had been established and together with the European Commission and the European Central bank they support and promote the creation of SEPA. EPC defined three SEPA schemes – for credit transfers, direct debits and for payment cards. Each of these schemes has its own rulebook where the technical and commercial principles and rules are set out. Introduction of common SEPA financial instruments which will completely replace contemporary used payment instruments (insofar as that is the only way how full integration of the payment market can be achieved) lasts longer then it was expected at the beginning and therefore there are changes also of end-dates for implementation. Mostly used are SEPA Credit Transfers (“SCT” for short) based on the principles set out in the Regulation; at the end of 2010, almost 4500 banks representing close to 100 percent of SEPA payments volumes offered SCT services. Direct debits´ legal framework is established in the Directive and as a first step all banks in the euro area had to be reachable for cross-border direct debits since 1 November 2010. For payment cards, the SEPA Cards Framework has been agreed and is in the process of being implemented by banks, card schemes and card processors (Shortcut to SEPA, EPC, March 2011). Establishment of a market based on the free movement of persons, goods, services and capital gradually becomes a reality. Development in area of payments is massive and it will not take long until all advantages of the internal market will be part of our daily business.

Liability for Securities Offering Documents: Beyond the Province of the Prospectus Directive Martin Mojzis, Bratislava Centre alumnus class of 2008

Introduction In accordance with the provisions of the Prospectus Directive (Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC, as amended (the “Prospectus Directive”)), the Member States are obliged to implement into their national law provisions which oblige the issuer or other offeror to draw up a prospectus in relation to the offering of the relevant securities if such offering falls within the circumstances defined in the Prospectus Directive. The Prospectus Directive has been implemented in the United Kingdom by the adoption of the Prospectus Regulations 2005 by which certain provisions of the Financial Services and Markets Act 2000 (the “FSMA”) have been amended so as to give effect to the requirements of the Prospectus Directive.


JULY 2011

PAGE

35

Accordingly, pursuant to s 85 of the FSMA “it is unlawful for transferable securities to which this subsection applies to be offered to the public in the United Kingdom unless an approved prospectus has been made available to the public before the offer is made”. The prospectus has to be approved by the UK Listing Authority which is a division of the Financial Services Authority (the “FSA”). The aim of the Prospectus Directive is to protect investors into the offered securities and to ensure that they are provided with sufficient information in order to allow them to make an informed decision as to the investment into such securities. This is especially the case in the circumstances where the offering is conducted as a public offer of securities and thus persons considered more vulnerable given their possible lack of experience and knowledge in this area may gain access to the securities that are being offered. The protection of investors is reinforced by a special statutory regime of liability for loss suffered by the relevant persons as a result of any untrue or misleading statements contained in the prospectus or omissions of information required to be contained in the prospectus which was implemented in s 90 of the FSMA. (The required contents of the prospectus are prescribed by the Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements, as amended) However, there are a number of exceptions to this general rule which are contained in s 85 and Schedule 11A to the FSMA. Further exceptions may pursuant to s 85(5)(b) of the FSMA be specified in the prospectus rules. Many transactions that take place in the marketplace take advantage of these exceptions in order to avoid the cumbersome process of having to have the prospectus approved by the FSA. One of the implications of the fact that the offering documents (such as offering memoranda or offering circulars) do not constitute prospectus approved under s 85 of the FSMA is that these documents are not subject to the same regime of statutory liability under s 90 of the FSMA. If follows that the investors are left to other remedies. In particular, unless investors are able to rely as against the managers of the offering or the issuer on an express or implied term of the contract on the basis of which the securities were bought by the investor, it would appear that investors would be confined to basing the liability of the manager or the issuer on misrepresentation, the tort of deceit or the tort of negligence. This work shall focus as on analysis of the potential liability under the tort of negligence, as it would appear to be most relevant to the any potential claimants in this area. The Conditions of Liability As is the case with any liability in the tort of negligence, three fundamental elements have to be established: (i) that there existed a duty of care owed by the defendant to the claimant, (ii) that there the duty was breached by the defendant and (iii) that a loss was suffered as a result of such breach. In addition the claimant has to prove that the damage is not too remote and the defendant must fail raise a


JULY 2011

PAGE

36

relevant defence. This work will be primarily concerned with the first element as it is probably the most difficult to establish and is an aspect that is most influenced by the peculiar context which is being analysed. The basis for establishing the existence of duty of care in instances of negligent misstatements in the current law can be found in the famous case of Hedley Byrne (Hedley Byrne & Co. Ltd. v Heller & Partners Ltd. [1964] A.C. 465). It appears from that case that in order to establish the liability two elements need to be established: (i) an assumption of responsibility by the defendant and (ii) reasonable reliance by the claimant. It should be noted that these two elements are necessarily intertwined (M Lunney & K Oliphant Tort Law: Text and Materials (3rd edn Oxford, Oxford 2008) 411). Furthermore, in later cases it has been doubted whether really there is a necessity of an assumption of responsibility. Lord Oliver in Caparo v Dickman stated that the term ‘voluntary assumption of responsibility’ was “the nearest one gets to the establishment of a criterion for the creation of a duty in the case of negligent misstatement” (Caparo Industries Plc. Respondents v Dickman and Others Appellant [1990] 2 A.C. 605, at 637). He continued by noting that although it was a convenient phrase “it was not intended to be a test for the existence of the duty for, on analysis, it means no more that the act of the defendant in making or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted on” (Ibid.). The general principle that can be discerned from Caparo v Dickman is that in order for a duty of care to exist (i) the damage to the claimant has to be foreseeable, (ii) there has to be a relationship of proximity between the claimant and the defendant and (iii) the situation is one in which it is fair, just and reasonable to impose a duty of care (E Ferran Principles of Corporate Finance Law (1st edn Oxford, Oxford 2008) 451). Application of these principles can become very difficult in relation to securities transactions because of the way the offering documents are created and used. Firstly, although the offering document is basically an extensive disclosure about the issuer, it is usually not prepared solely by the issuer, but investment banks that manage the offering as well as legal counsel and auditors are usually involved in the process. Furthermore, the issuer rarely has any direct contact with the investors. In fact, in ordinary circumstances the offering document would only be provided to investors by the investment banks, there being no direct contact between the investor and the issuer. Furthermore, it would appear that given that the offering document is many times the largest piece of coherent and publicly available information about the issuer, investors in the secondary market may well base their investment decision on the contents of such document (at least shortly after the date of the offering document). The analysis of the existence of the duty of care shall be divided into two parts. The first shall deal with the identification of persons to whom a duty may be owed and the second shall with the persons by whom the duty of care may be owed. Potential Claimants It would appear that the investors who participate in the primary offering of securities and purchase the securities as part of that offering are in the best position to establish that that a duty of care is owed to them by the relevant parties. In line with the threefold test it would appear that in relation to this group of potential claimants it is clearly foreseeable that a misstatement might cause damage to such investors, it can be argued that given that they participate in the primary offering of the issuer’s securities there is a ‘relationship of proximity” between the issuer and the claimants and it would also appear to be just to impose such duty on the issuer in such circumstances. Furthermore, one of the most emphasised aspects to be taken into account in Caparo v Dickman, the purpose for which the


JULY 2011

document was drawn up, is clearly satisfied in this case as the very purpose of the offering document is to provide investors participating in the primary offering with the sufficient information upon which they may base their investment decisions in relation to the securities concerned.

PAGE

37

“It would appear that given that the offering document is by far the largest piece of coherent and publicly available information about the issuer, investors in the secondary market may well base their investment decisions on its contents”

The issue is more complicated in case of purchasers of securities in the secondary market, where the securities are bought by persons who did not participate in the primary offering or where those securities are not bought as part of the primary offering, even though the purchaser might have participated in the offering. It was held in Peek v Gurney (Peek v Gurney (1873) LR 6 HL 377) in relation to the potential liability under the tort of deceit for misstatement contained in a prospectus that the purpose of the prospectus was exhausted by the completion of the initial allotment. Similar tendency to curtail the range of potential claimants in relation to offers of securities was shown in Al-Nakib Investments (Jersey) Ltd v Longcroft (Al-Nakib Investments (Jersey) Ltd. And Another v Longcroft and Others [1990] 1 W.L.R. 1390) where the court held that the rights issue prospectus was held to have been drawn up only to encourage shareholders to take up their rights and not for the purposes of purchasing further securities in the secondary market. In that case Mervyn Davies J noted that he “would suppose that a duty of care would not be regarded as arising because [the claimant] made use of the prospectus for a purpose otherwise than that for which it was issued” (Ibid, at 1397). It therefore appears that the courts are reluctant to extend the benefit of the claim in negligence to the subsequent purchasers of securities in the secondary market.

However, it should be noted that in Possfund v Diamond the court declined to strike out a claim on the basis that in the court’s opinion it was arguable that persons responsible for drawing up of a prospectus owed a duty of care to purchasers in an aftermarket and that whether any such person intended to assume such a duty towards any particular claimant or class of claimants was in all cases to be objectively established by the plaintiff proving either express communication to him of such intention or that he reasonably relied on the material representation and believed that the representor intended him to act upon it (Possfund Custodian Trustee Ltd. and Another v Diamond and Others Parr and Others v Diamond and Others [1996] 1 W.L.R. 1351). Lightman J in particular referred to the 5th edition of Gower's Modern Company Law, where in relation to the abovementioned case of Peek v Gurney, the author noted that the notion “that an investor who, in reliance on a false prospectus, bought shares on the market had no remedy seemed outmoded once prospectuses specifically stated that one of their purposes was to lead to admission to listing on the exchange”. The latest, 8th edition, of the same book, appears to continue to support this view by acknowledging that the statutory regulation of prospectus liability recognised the force of this argument by allowing such claimants to pursue action against the persons responsible for the prospectus and further by stating that “perhaps the way forward in the common law would be for the courts to take a more inclusive view of the issuer’s purposes” (P Davies Principles of Modern Company Law (8th edn Sweet & Maxwell, London 2008) 891). The Possfund case has also been greeted as ‘being in tune with the commercial reality’ (J Payne ‘Possfund v Diamond: a reassessment of the common law duty owed to subsequent purchasers who rely on a company prospectus’ (2011) 1 JIBFL 17) and has been praised by Professor Alistair Hudson and other authors (See A Hudson Law of Finance (1st edn Sweet & Maxwell, London 2009) 1067 and J Counsins & A Charman ‘Misrepresentation on bond issues: liability in the secondary market’ (1997) J.F.C., 4(3), 253-254, at 254).


JULY 2011

PAGE

38

There are thus several strong arguments that can be made in favour of imposing a duty of care also in relation to purchasers in the secondary market. Firstly, the offering document, even if it does not comply with the Prospectus Directive, is many times used for admission of the securities to trading on various markets, such as Professional Securities Market of the London Stock Exchange and thus they become available to market participants nearly simultaneously with the commencement of trading in the securities. Furthermore, the offering document is often the only substantial piece of disclosure about the affairs of the company that is available to the market and thus it is probably reasonable for the market participants to rely on information contained therein as well as for the issuer to expect that this would be so. It is also true that the existence of sound secondary market has positive effects on the demand that can be observed in the primary offering (there being little chance there would be any secondary market had there not been appropriate information available about the issuer). Furthermore, there is no real risk of ‘liability in an indeterminate amount, for an indeterminate time, to an indeterminate class’ (Ultramares Corporation v. Touche (1931) 174 N.E. 441 , at 444 (per Cardozo C.J.)), a phrase many times cited in various cases on the tort of negligence, including Caparo v Dickman. This is because in case of securities the result of a misstatement being made in any offering document will result in a price correction in order for the market to reflect the true condition of the issuer and resulting value of the securities. The problem is that until the relevant price level is reached (or until the falsity of the statement is discovered), the securities can change hands many times. Thus although the class of potential claimants may at the time of the offering document being prepared be difficult to define, the liability can hardly be seen as indeterminate, because the volume of securities in the circulation is limited and thus in case the liability is in fact capped in most circumstances by the maximum price of the securities reached in the relevant period. Hence there appears to be little reason for not allowing the purchasers in the secondary market to make a claim on the basis of the negligent misstatement in appropriate circumstances and it is respectfully submitted that the courts should follow and develop the reasoning used in the Possfund if a suitable case comes before them. Potential Defendants The most apparent potential defendant in the context of misstatements contained in offering documents is the issuer. In most circumstances it will not be difficult to establish that the issuer was responsible for a statement contained in the offering document because, on many occasions, the document itself will clearly state that the issuer accepts responsibility for the contents of the document and in the end the disclosure is made by the issuer about its own affairs. However, trying to establish that the duty was owed by some other person may be substantially more difficult. Such persons may include directors, auditors, legal counsels and investment banks managing the offering. In relation to auditors, so far as their opinion relating to the issuer’s financial statements is concerned, the matter would appear to be settled by Caparo v Dickman unless the peculiar facts of the case warrant a different approach. In that case the court held that the auditor’s opinion was given to the existing shareholders for the purposes of managing the affairs of the company. In relation to legal advisors and the investment banks, it would appear that they are unlikely to be held to owe a duty of care in relation to the contents of the offering document, because in most instances these include specific reference that advisers and managers are not responsible for contents of the prospectus, and it would appear that it was made clear in Hedley Byrne that the effect of similar language is capable of preventing the duty from coming into existence (Hedley Byrne & Co. Ltd. v Heller & Partners Ltd. [1964] A.C. 465, at 486 (per Lord Reid)).


JULY 2011

PAGE

39

The directors may be held liable for a misstatement contained in a prospectus that falls within the ambit of the Prospectus Directive on the basis of Rule 5.5.3 of the Prospectus Rules in relation to equity securities and on the basis of Rule 5.5.4 of the Prospectus Rules (possibly under letters (b) or (f)) in relation to other securities. Thus it might appear that the recognition of their statutory liability would also give strong backing to arguments that the directors could be made liable for negligent misstatements in the offering documents under the tort of negligence. It would appear that the courts were willing to look behind the corporate veil and hold directors liable in relation to deceit (See Edgington v Fitzmaurice (1885) 29 Ch D 459 and Standard Chartered Bank v Pakistan National Shipping Corpn and Others (Nos 2 and 4) [2003] 1 A.C. 959; E Ferran Principles of Corporate Finance Law (1st edn Oxford, Oxford 2008) 454). The most important case in the context of the tort of negligence is probably Williams v Natural Life Health Foods (Williams and Another v Natural Life Health Foods Ltd. [1998] 1 W.L.R. 830). In that case Lord Steyn held that “the inquiry must be whether the director, or anybody on his behalf, conveyed directly or indirectly to the [claimants] that the director assumed personal responsibility towards the [claimants]� (Ibid, at 835). Therefore it would appear that the key to establishing a duty care is the assumption by the director of responsibility for the contents of the offering document. The court will likely take into account the possible involvement of the director in drawing up the prospectus and in dealing with the claimant. It should, however, be noted that the test is objective and therefore it would appear that deciding factor will be how the acts of the director or persons acting on his behalf would be perceived by a reasonable claimant, rather than focusing on the state of directors mind or things done without knowledge on part of the claimant (Ibid.). This will make it inherently difficult for any participant in the secondary market to establish that a duty of care was owed by a director of the issuer, because there will likely be no such relevant dealings with the issuer or the directors, unless the offering document contains some statement that might imply the assumption by the director of responsibility for the contents of the document. The range of situations in which the directors will be held liable in the tort of negligence will therefore be inevitably substantially narrower than is the case with statutory liability under the Prospectus Directive. However, it is submitted that in this case the approach of the cautious approach of the courts in this case is well justified. They have to strike the right balance between protecting the doctrine espoused in Salomon v Salomon (Aron Salomon (Pauper) v A. Salomon and Company [1897] A.C. 22) and also refraining from imposing excessive liability that might have the effect of unduly deterring people from taking these positions within companies. That such cautious approach is warranted is also supported by the fact that the Prospectus Rules themselves directly impose liability on the directors only in case of equity securities, whilst in case of other securities such liability would be imposed only if the director accepted responsibility or was stated in the prospectus as accepting responsibility for its contents or where the director authorised the contents of the prospectus. Conclusion It would appear clear that on balance the tort of negligence provides much more constrained remedy to the affected investors compared with the extensive regime of statutory liability under the Prospectus Directive. It is submitted that although


JULY 2011

PAGE

40

in great number of circumstances the current state of law if able to provide a suitable remedy to the claimants, it would be desirable in some respects for the circumstances in which a duty of care is found to exist to be extended. In particular, given how the markets in securities currently work (with the offering documents being widely available and used as a basis for investment decisions in the secondary market) and the substantial value of transactions that are structured so as to avoid the strict regime of the Prospectus Directive, it would appear unjustified to exclude the participants in the secondary market from bringing a claim under the tort of negligence against the relevant responsible persons. It appears from Possfund case that there are good foundations to be found for such approach in the existing case law and likely it is only a matter of time when an appropriate case will come before the courts that would allow them to develop this argument further and find the existence of the duty of care for the benefit of the secondary market participants.

Nor thirdly was it good news for consumers who had contracted for legal expenses insurance and wanted to be free to choose their own lawyer. However the insurance policy contained a local lawyer clause requiring a lawyer to be instructed who practices in the district of the relevant local court rather than a lawyer from the insured’s own hometown. It appears that this clause does not breach article 4 of the directive on legal expenses insurance (87/344) which states that ‘any contract of legal expenses insurance shall expressly recognise that: (a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person’. In Case C-293/10 The Court found that : '… freedom of choice, within the terms of Article 4(1) of Directive 87/344, does not mean that Member States are obliged to require insurers, in all circumstances, to cover in full the costs incurred in connection with the defence of an insured person, irrespective of the place where the person professionally entitled to represent that person is established in relation to the court or administrative authority with jurisdiction to deal with a dispute, on condition that that freedom is not rendered meaningless..'That would be the case if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representative by the insured person” So the question to be posed for the national court is when, if ever, the inability of a person to be reimbursed by their insurers for all the legal costs they actually incur when instructing their own lawyer, will ever suffice to render the right to exercise the freedom of choice meaningless?


JULY 2011

PAGE

41

Critical analysis of the extent to which sport is regulated by Article 101 EU (previously 81 EC) with reference to, in particular, the Meca-Medina case. Neli Garbuzanova Sofia Centre, alumna class of 2008

∑m v

2 i i

1.

i

In common language the formula above means that “in nature nothing is created, nothing is destroyed, everything is transformed”(Antoine-Laurent de Lavoisier (26 August 1743 – 8 May 1794)). It applies starting from the smallest particles and spreads to everything in the universe. This concept could be equally used to analyze the development of one of the “cells” in the European Union (EU) “organism” – that of competition law. Hence, this paper aims at exploring the EU legislation and the jurisprudence of the European Court of Justice (ECJ or CJEU now) and its transformation with regard to competition law (antitrust particularly (Article 101 of the Treaty of the Functioning of the European Union)) in relation to sport. Further, it will show that the boundary between application and non-application of EU competition law in sports has changed to an appreciable extend. In addition, reference will be made to the “rule of reason” doctrine and the case-law of the ECJ and Meca-Meddina case(Case C-519/04 P) in particular. The latter plays a vital role in developing the interaction between EU competition law and sport but whether the former has an influence over it one can learn by the end of this essay. 2. From the present to the past. “It is absolutely inevitable that the EU policy on sport and competition policy will clash eventually. And for better or worse the one who should strike the balance between them is the ECJ.”

Now the word “sport” appears in the TFEU (Treaty of the Functioning of the European Union) in Part Three (Union Policies and Internal Actions), Title XII, Article 165. This systematic place (and the addition of sports provisions in contrast to the EC Treaty (Treaty establishing the European Community)) shows that the attitude towards sport has changed. The Union is now a promoter of “fairness and openness in sporting competitions”, a cooperator “between bodies responsible for sport” and a protector of “the physical and moral integrity” (Article 165, paragraph 2 of the Treaty of the Functioning of the European Union; See also Article 6 of the TFEU) of sportsmen. All this serves as a proof that a new EU policy has been established in the field of sport and accordingly implemented in the above said provision. It is absolutely inevitable that this policy and competition policy will clash eventually. And for better or worse the one who should strike the balance between them is the ECJ.

2.1 “Sport is not immunized from the supervision of EC [EU] law” (Stephen Weatherill, European Sports Law, T.M.C. Asser Press, page 132) The ECJ had already had the chance to tackle the question of application of EU law (including antitrust law) to sport in the past. Using its usual “tool” of interpretation – the teleological one – the ECJ de-


JULY 2011

PAGE

42

cided in a number of cases (See C-519/04 P, paragraph 22; Case 36/74, paragraph 4; Case 13/76, paragraph 12; Case C-415/93, paragraph 73; Joined Cases C-51/96 and C-191/97, paragraph 41; and Case C -176/96, paragraph 32) that sport is subject to Community law (thus, to competition as well) in so far as it constitutes economic activity in line with EC objectives. 3. Meca-Medina case (C-519/04 P) 3.1. ECJ v. CFI This general approach was not developed further but instead it was misinterpreted in the decision of the Court of First Instance (CFI or The General Court now) in Meca-Medina (Case T-313/02). The CFI was not willing to extend the scope to which sport is regulated under the EU provisions of competition. It merely applied a “not economic activity, not EU concern” test (Case T-313/02, paragraph 42). However, the ECJ disagreed. The Court said that in practice it is difficult to separate the sporting and economic aspects of a particular sport (Ian Blackshaw, Sporting bodies play for EU law exemption, European Lawyer 2007, page 20) and therefore other strategies should be used when facing such cases. Moreover, the application of EU competition law to sport should not be automatically excluded providing that the provisions on the freedom to provide services are not applicable (This position of the ECJ can be found in C-519/04 P, paragraphs 31-32 in contrast to CFI vision in Case T-313/02, paragraph 42) which could be seen as a step forward in comparison to Wouters and Others (Case C-309/99). This illustrates that a full “convergence” (K. Mortelmans, “Towards Convergence in the application of the rules on Free Movement and on Competition” (2001) 38 C.M.L.Rev. 613) of both freedom to provide services and competition law is not expected (because they do not always pursue identical objectives(See the comment of Stephen Weatherill in European Sports Law, T.M.C. Asser Press, page 341-342)) and that a “non-economic” sports rule under the free movement provisions could be still separately assessed in the light of Article 101. Thus, the ECJ decision in Meca-Medina becomes of immense importance for EU competition law and sports in several, on first sight, a bit contradicting aspects. 3.2. Expected and unexpected consequences of Meca-Medina case First, it can be seen as a mechanism to widen the extent to which Article 101 applies to sport. This is achieved by treating the International Olympic Committee (IOC) as undertaking (Although the misunderstanding by the applicant as the ECJ acknowledged in C-519/04 P, paragraph 37-39) within the meaning of Article 101 (1). This attitude of the Commission is not surprising having in mind the consistent case-law practice of the Court to treat as many as possible entities as undertakings (Case C-41/90 Klaus Hofner and Fritz Elser v Macrotron GmbH [1991] ECR I-1979, paragraph 21; Case C– 309/99 (Wouters); Case C – 250/92, etc.). Second, the Court ruled that “the mere fact that a rule is purely


JULY 2011

PAGE

43

sporting in nature does not have the effect of removing from the scope of the Treaty the person engaging in the activity governed by that rule or the body which has laid it down” (C-519/04 P, paragraph 27). Hence, the EU competition law is capable of application even in situations when purely sporting issues are involved. No body (sports or other) can hide behind its own rules in order to stay outside the scope of Article 101 of the TFEU. Especially when these rules have an economic impact (like unjustified, unwarranted exclusion from sporting events (See C-519/04 P, paragraph 47)) on the persons engaged in the activity. Third, after expanding the application of Article 101 enough the Court decided to put some limits to its approach by stating that the compatibility of sporting rules with EU competition law should not be assessed in abstracto (See C-519/04 P, paragraph 43, stating that “Next, the compatibility of rules with the Community rules on competition cannot be assessed in the abstract”). A contrario, they must be assessed in concreto. This line was set so obviously for the first time in Wouters and Others (C-309/99) case. It requires account to be taken on the overall context in which a decision is taken and its objectives (See C-519/04 P, paragraph 42). Accordingly, when a legitimate objective is found to justify the rules, these should not be considered as restriction of competition within the meaning of Article 101 (See C-519/04 P, paragraph 45). In Meca-Medina, safeguarding the integrity of competitive sport and athletes’ health (See C-519/04 P) were found to be legitimate objectives even when accompanied by some economic interests (See C-519/04 P, paragraph 46). Two important conclusions can be drawn from this judgment. First, the extent of application of Article 101 to sports could be limited when such objectives exist (As stated in Damian Chalmers, Gareth Davis and Giorgio Monti, European Union Law, Cambridge University Press, second edition this could be regarded as “excluding ethical rules from the scope of competition law”). Second, it seems that the “rule of reason” doctrine is already welcomed by the ECJ. They both seemed to be correct to certain degree. In this respect it must be emphasized that so far the ECJ has always applied the abovementioned approach to rules (legal in Woulter, sporting in Meca-Medina) established by undertakings subject to self -regulation (Damian Chalmers, Gareth Davis and Giorgio Monti, European Union Law, Cambridge University Press, second edition, page 971). As such, when creating their rules “in the modern society” these bodies “are required to take the public interest into account” (ibid, page 971). Apparently, such context appraisal shall be undertaken straight after Article 101 (1) assessment (See C-519/04 P, paragraph 42 and 47) which puts the application of Article 101 (3) in question. However, with regard to “regular” sporting activities and given the absence of an ECJ decision one can assume that the entity will still be required to follow the well-known pattern – from Article 101 (1) through Article 101 (3) to Article 101 (2) if applicable. Otherwise, Article 101 (3) will lose its meaning (Case T-112/99 Métropole Télévision (M6) & Co. v. Commission, pargarpah 76-77). In contrast to that, regulatory bodies such as OIC, given their function, will be expected to prove that they pursue justifiable objectives with such rules. What is more, they have to pursue them by proportionate means. 3.3. Just “reasonable judgments” (Whish, R: “The fact that the ECJ has handed down reasonable judgments does not mean that it has adopted the rule of reason”) or something more? All this suspiciously reminds of the “rule of reason” doctrine created by the American judges (Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)). From being expressly denied (Cases C-56 and 58/64 Consten-Grundig v. Commission [1966] E.C.R. 341; [1966] C.M.L.R. 48) to more readily welcomed one can wonder whether such a rule exists in the EU competition arena. Some authors (Jones and Sufrin, EU Competition law: text, cases and materials, OUP Oxford 2010) prefer to name it “regulatory ancillary” (similarly to commercial ancillary) in order to fit somehow the existence of Arti-


JULY 2011

PAGE

44

cle 101 (3). Whatever the name, not only had the ECJ relied on certain aspects (Many consider that the “de minimus” doctrine is similar to the rule of reason) of the idea behind this concept in its practice (Case C-258/78(Nungesser v. Commission); Case C-161/84 (Pronuptia de Paris); Case C-234/89 (Delimitis); Case C-306/96(Javico), etc.), but recently The Council of Ministers Regulation 1/2003/EC provided a suitable environment for doing so (Manzini Pietro in his article “The European rule of reason – crossing the see of doubt, ECLR 2002” rightly predicted that “Yet, the only solution I could see to these contrasts appeared to be the abolition of the exclusive competence of the Commission in the application of Article 81(3) and to hand back to those national bodies the entire Article 81 as it was established by the Treaty”). Their rationale is simple: in contrast to national competition law, EU competition law exists in a Union where many different objectives are pursued. Some of them could have noneconomic character (Such as environmental protection, protection of services of general interest, etc). Thus, they can contradict each other. The right balance between them can be achieved only after rigorous evaluation of the proper context. 4. Conclusion The recent ECJ practice is a proof that there is a big transformation in the EU competition law which reflects the activities such as sport. It is true that the swimmers in Meca-Medina did not win the case. However, the whole competition law and sports communities won “a Mecca” for drawing new arguments, critiques, suggestions and questions. Sports as many other activities will be considered to fall within Article 101. In line with such extension, however, certain cases will be decided in the view of their economic context and the reasonableness of their objectives.

An airliner was having engine trouble, and the pilot instructed the cabin crew to have the passengers take their seats and get prepared for an emergency landing. A few minutes later, the pilot asked the flight attendants if everyone was buckled in and ready. "All set back here, Captain," came the reply, "except the lawyers are still going around passing out business cards."

"A countryman between two lawyers is like a fish between two cats." - Benjamin Franklin.

Fourthly the widening of competences brought about by the Lisbon Treaty continues to be visible with the publication of a European Commission proposal to guarantee a suspect’s rights to speak with a lawyer or inform the family of their arrest throughout the territory of the EU. Certainly this seems to provide an essential balancing tool to set against the potential limitation of human rights created by the introduction of the European Arrest warrant. The proposal, if adopted by the Council of Ministers and European Parliament, would guarantee access to lawyers from first police questioning throughout proceedings, confidential meetings with lawyer as well as active participation of the lawyer in the interview whether in the country of arrest or that of transfer as well as rights to contact family/ embassy depending upon circumstances.


JULY 2011

PAGE

45

Thin capitalisation rules in light of EU law Aneta Skorupa Warsaw Centre alumna, class of 2010 In principle, there are two ways in which a company may be financed. One is by the issuance of shares in the equity of the company and the other is by borrowing. The way in which a company is financed may have a direct effect on the taxable capital of the company, since debt is usually deductible in arriving at the taxable amount. It may also have legal and economic implications. From a legal standpoint, the entitlements of the share owner and provider of loan capital are dissimilar in view of recovery of their investment or profit. From an economic point of view, a company which is mainly financed by equity capital can operate in a very different way from one which is mainly financed by loans. Taxation problems which may arise from the balance between these two methods of financing are collectively called thin capitalisation. This term, initially used solely in Western Europe, is also applied to describe a situation in which the principal source of corporate financing is not the equity of the company but the loan. This type of activity may allow companies to reduce financial liabilities which would be due in the case of ordinary financing. Thin capitalisation rules set the minimum rations of debt to equity capitalisation, seeking to prevent companies from financing cross-border subsidiaries with loan rather than equity and therefore escaping tax liabilities.

Within the EU law, thin capitalisation rules should be construed in the light of the European case-law. The line of ECJ cases concerning the thin cap rules of various Member States confirmed their incompatibility with community law, in particular with the freedom of establishment. In Lankhorst-Hohorst, German thin cap rules came under examination. The German resident company, Lankhorst-Hohorst, which received a loan from its Dutch resident parent company, argued before German and Dutch courts that the loan obtained was a vital support for their ailing business. The ECJ noted that the German rules introduced differences between resident subsidiaries. The interest paid by German resident subsidiary on loan capital provided by nonGerman resident parent company was taxed as a covert dividend. Accordingly, the ECJ held that the German law was contrary to the EU Treaty because it constrained the principle of freedom of establishment prohibited by Article 43 EC, and discriminated against foreign companies which might not be able to obtain tax credits under participation exemption rules. The Court also determined that a situation like this did not entail the risk of tax evasion as in any case a company was subject to tax legislation of the state in which it is established. A similar decision was issued by the ECJ in the


JULY 2011

PAGE

46

dent company. The ECJ held that a restriction on the freedom of establishment may only be justified by the need to prevent tax avoidance. As a consequence of this decision, Belgian companies which paid interest on a loan granted by non-resident companies that acted as their directors no longer faced reclassification of such interest into dividends.

Test Claimants in the Thin Cap Group Litigation case. The Court stated that the United Kingdom’s treatment of interest paid by UK resident companies related to companies not resident in the UK constituted a breach of the freedom of establishment. Although the British court put forward justification of preventing abusive practices and argued that its thin cap rules, as opposed to Lankhorst-Hohorst, were targeted at a particular form of tax avoidance that consisted of “adoption of artificial arrangements designed to circumvent the tax legislation,” the ECJ held that restriction of the freedom of establishment was justified only on the grounds of prevention of abusive practices against wholly artificial arrangements. The ECJ formulated two-part test for national legislation, to be compatible with the freedom of establishment. The first stage consisted in the examination of whether a particular arrangement was not purely artificial and created solely for tax reasons and the second stage required unambiguous demonstration that the transaction in question had the above features and that there was no commercial justification of them. The ECJ decided that national courts should determine what kind of commercial justification should be accepted. The restriction of the freedom of establishment was also observed in the case Lammers & Van Cleeff, where Belgian subsidiary had to pay higher interest on the loan granted by a director, i.e. its Dutch parent company, than it would have paid if the loan had been granted by a resi-

In the light of the above, one may conclude that national rules which restricted the freedom of establishment may be justified only if they targeted wholly artificial arrangements aiming at circumvention of the Member State legislation and failed to reflect economic reality. However, the mere granting of a loan by related company cannot constitute the grounds for the presumption of abusive practices. All unjustified national limits should be deemed as a breach of fundamental freedom of establishment. As a result of the harmonisation of the EU law and OECD model rules, thin capitalisation rules were also introduced into the Polish tax system, strictly speaking into the Law on Corporate Income Tax of 1 January 1999. As in other states, the main objective of introducing thin capitalisation regulations in Poland was to limit the tax deductibility of interest payments. As provided in Article 16, Para. 1, Point 60 of the aforementioned Law, interest which exceeds a multiple of three times above the level of issued share capital is disallowed. Subsidiary of the same shareholder also falls within the thin capitalisation restrictions. Poland was also obliged to employ nondiscriminatory treatment of taxpayers regardless of their seat as well as equal treatment of Polish and foreign entities. Accordingly, as of January 1, 2005 Article 16 Para. 7a of the Law on Corporate Income Tax, on the basis of which the amount of tax connected with loans depended upon the residence of the company granting a loan, was struck off.


JULY 2011

PAGE

47

The Bribery Act 2010 Alexander Lovelady BLC Lecturer and Tutor

Commercial & Litigation

Next month, the Bribery Act 2010 will come into force, imposing new standards on businesses in relation to corporate corruption.

OBITER

DICTA

The new act is structured so as to regulate these shady activities with three offences. These consist of offering or giving a bribe, requesting or receiving a bribe, or bribing a foreign official to gain a business advantage. In general, the act merely consolidates existing anti-bribery legislation, and does not significantly change the nature of the rules relating to what types of activity are considered to be bribes, or the nature of the offence of bribery itself. It is worth highlighting that the offence does not have to take place in the UK for the act to be illegal. It is sufficient that the relevant person alleged to have performed the illegal act has a “close connection” to the UK – for example being a British company, citizen or “individual normally resident in the UK” There is, however, one important new provision that has been introduced by the 2010 Act, and this is a new corporate offence of “failing to prevent bribery.” This has no doubt been introduced to counter practices amongst businesses who turn a blind eye to their representatives giving or receiving bribes as part of business transactions in order to achieve a business advantage. Previously there may have been difficulties in establishing the guilt of a company as an accessory to such activity in the absence of recorded instructions. Naturally, it is not a difficult matter for a company engaged in the practice of bribery to ensure that such records are not made.


JULY 2011

PAGE

48

Section 7 of the Bribery Act 2010 reads: Failure of commercial organisations to prevent bribery 1) A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending— a) to obtain or retain business for C, or b) to obtain or retain an advantage in the conduct of business for C. 2) But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct. The offence is therefore one of strict liability – if bribery on the part of the associated person is established, the corporation will be liable whether or not it was responsible for, or even aware of, the activity of that person. Associated persons are defined in s. 8 of the Act in extremely broad terms as persons who performs services for or on behalf of the company, in whatever capacity. S.8 further specifies that this may include employees, agents or subsidiaries. “Taking into account the global culture of big business and bribery… it should not be long before some interesting cases arise…”

The second part of the section provides a defence to this. The effect of this is that the new Act effectively imposes an obligation on businesses to have adequate anti-bribery procedures in place if they are to avoid being liable for any dodgy transactions conducted in order to facilitate deals on their behalf. S. 9 of the Act provides that the relevant Secretary of State shall provide guidance as to what is expected from businesses on this front. The guidance itself is yet to be published, but the Ministry of Justice’s consultation paper (available at http://www.justice.gov.uk/consultations/docs/ bribery-act-guidance-consultation1.pdf) indicates that the expectations are high, and are likely to broadly include:

undertaking risk-assessment exercises on all areas of the company’s business;

an imbedded anti-bribery culture throughout companies, implemented through policy;

due diligence checks and monitoring of employee activity, and;

relevant anti-corruption terms in employment, agency and business contracts

Given the nature of the new corporate offence, it seems likely that companies will be paying close attention to the new guidance when it comes out. Taking into account the global culture of big business and bribery, and the inevitable vagaries of such guidance and the distinctions between “corporate hospitality” and illegal inducements, it should not be long before some interesting cases arise out of this section of the Act. For a more detailed perspective on recommended anti-bribery procedures in light of the 2010 Act, see http://www.transparency.org.uk/working-with-companies/adequate-procedures.


JULY 2011

PAGE

49

Pub Landlady 1 - Sky Sports 0 Sky Sports lose but still extra time to play Dr Steve Terrett Kierownik, BLC Centre, Warsaw Any English football fan over the age of 20 will be able to recall the changes that have occurred in his or her Saturday afternoon rituals over the last few years. Traditionally, Saturday afternoon began with a few drinks in a pub before heading to the stadium of your chosen team and watching nervously as your footballing heroes conspired to do everything possible to transform you, within a mere 90 minutes, from a healthy and optimistic person into an angst-ridden and pessimistic heart-attack victim. Following the match, the loyal supporters would troop from the stadium and back into the pub to begin a lengthy post-mortem of the match whilst questioning the parentage and sexual persuasion of the referee. Nowadays, however, that ritual is likely to have one major difference – it is far more likely that the whole “match-day experience” takes place entirely inside the pub, with no visit to the stadium. Increasing demand, and drastically increased prices, for match-day tickets has meant that the majority of football fans never venture farther than their local pub, which has meant great business for breweries, since pubs were typically barren on Saturday afternoons. However, the football fans gathered in the King’s Head, Queen’s Arms or Hen & Chickens (NB. English pubs can have some strange names) still wish to watch the game, so it has become crucial for pubs to be able to show live football on large TV screens. BSkyB (Sky Sports) has won the tender to provide exclusive coverage of the English Premier League (on UK television) for many years now and has acquired the negotiating power to insist that matches are played at different times throughout the day in order to be able to maximise the number of live games it may show. The contracts permitting the broadcasting of Premier League games are signed by the Football Association Premier League Ltd (the FAPL) and include a covenant of exclusivity that the FAPL will appoint only one broadcaster within any particular EU Member State. Accordingly, it is a very expensive business to acquire broadcasting rights to Premier League Football, especially as regards broadcasts in the UK, and any business wishing to have access to Sky’s coverage are required to pay hefty commercial subscription fees which can exceed £1,000 per month. A number of pubs across the UK have sought to reduce the costs of showing live football, whilst maintaining the football supporters’ client base, by purchasing subscriptions with non-UK companies that have won tenders to broadcast the Premier League in their own countries. By purchasing a satellite decoder and subscription card abroad and bringing it to the UK, pubs are able to show identical footage to that broadcast by


JULY 2011

PAGE

50

Sky Sports, whilst the commentary of the game is in the language of the country from which the equipment was purchased (NB. most pubs simply turn off the commentary volume and turn on the relevant English radio station which is providing live commentary of the same game). One such pub which did this was the Red, White and Blue pub in Portsmouth, run by landlady Karen Murphy who purchased the decoder equipment from Greece, where subscription prices are considerably lower. The Greek satellite broadcast signal is capable of being received in the UK, provided that the customer possesses the necessary Greek decoding equipment, and so Mrs Murphy’s pub customers in Portsmouth were able to watch Premier League games and learn Greek at the same time. Whilst many of you may consider this to be a perfect example of the benefits of the EU’s internal market, Sky Sports was rather aggrieved at this growing tendency, which obviously threatened its profits. Sky Sports used its marketing power to encourage the Football Association Premier League Ltd (the FAPL), from whom it purchases the copyright to broadcast live Premier league matches, to bring an action against Mrs Murphy before the English courts. Mrs Murphy was convicted of the crime of using an “illicit access device” within the meaning of the rules implementing EU Directive 98/84 and she received a fine. Upon appeal against her conviction, the High Court referred a number of questions to the Court of Justice of the European Union (CJEU) asking for clarification of the meaning of “By purchasing a satellite that Directive. At the time of writing, the CJEU has still not given judgment decoder and subscription in this case but in February 2011 Advocate General Kokott issued her card abroad and opinion in this case and, put briefly, it was most favourable for Mrs Murbringing it to the UK, phy. pubs are able to show Directive 98/84/EC of the European Parliament and of the Council of 20th identical footage to that November 1998 on the legal protection of services based on, or consisting broadcast by SkySports” of, conditional access (the “Conditional Access” Directive) aims to protect broadcasters of “encrypted” television programs (such as Premier League matches) against copyright “piracy”. Article 4 of the Directive states that the manufacture, import, distribution, sale, rental or possession for commercial purposes of illicit devices must be prohibited and appropriately sanctioned. The FAPL argued that a decoder card lawfully sold in one Member State became an illicit device when it was imported and used in Member State. Ms Murphy argued that such use of a decoder card which had been lawfully placed and purchased on the Greek market cannot turn it into an illicit device. She also sought to rely on Article 3(2) of the Directive which states that Member States may not restrict the free movement of conditional access devices, which includes “...any equipment or software designed or adapted to give access to a protected service in an intelligible form”. Advocate General Kokott considered that the decoder cards did not fall within the meaning of an “illicit device” and justified her interpretation on the definition contained in Article 2(e) of the Directive. That definition states that an illicit device is “…any equipment or software designed or adapted to give access to a protected service in an intelligible form without the authorisation of the service provider.” Accordingly, the AG considered that this definition requires equipment that was specially designed or adapted to give access to an encrypted program without the authorisation of the service provider. Since the relevant Greek decoder were lawfully placed on the market (in Greece) and were not adapted in any way upon importation to the UK, they could not count as an illicit device. Having referred to the need to interpret legislation which could create criminal liability in a restrictive manner (nullum crimen, nulla poena sine lege), the AG concluded that, if the EU legislature had wished to pro-


JULY 2011

PAGE

51

tect the geographical partitioning of television markets and to impose sanctions on the mere importation into other Member States of decoder cards which are lawful in their State of origin, it ought to have done so with much greater clarity than is found in the Directive. The AG made it clear that the general free movement of lawful devices does not necessarily mean that consumers in other countries will be able to acquire decoder cards from whichever Member State they like. Many of the contractual obligations imposed upon companies which have won tenders to show Premier League football in other Member States oblige those companies to prevent the sale of decoder cards beyond their own territorial borders. Knowingly selling Greek decoder cards to persons resident in the UK would constitute a breach of such obligations, but the potential liability of the Greek satellite provider could not constitute the source for criminal liability for Mrs Murphy. Likewise, if a UK resident provided a false address (e.g. a Greek address) in order to purchase a decoder card, or if a commercial entity (such as a pub) acquired an access device intended for private or domestic use, this would fall outside the scope of Directive 98/84 and, as such, Member States would be entitled to impose criminal sanctions against such persons. However, that was not the case in the present case since Mrs Murphy had lawfully purchased her equipment in Greece with no deception or fraud involved. The AG then went on to examine whether any of the famous “four freedoms” (i.e. free movement of goods, services, persons or capital) could be relied upon to challenge the existence of the UK law which implemented Directive 98/84/EC. She concluded that, although decoder cards were capable of being categorised as goods, their value was meaningless per se and they were only of relevance in order to allow access to a service (i.e. the television broadcasts). Accordingly the free movement of services, which covers both providers and recipients of services, was the relevant starting point for this analysis. One interesting argument made by Mrs Murphy’s legal team was that the Greek and other service providers who had acquired the rights to broadcast Premier League games in their respective territories ought to be required to offer access to their broadcasts to customers regardless of their place of residence within the EU. However, the AG avoided this question most deftly since it would require the conclusion that the free movement of services provisions of the Treaty are capable of horizontal direct effect. Whilst the CJEU has expanded the free movement of workers Treaty provisions so as ensure they have horizontal direct effect, it has not yet done so (and perhaps never will) as regards the free movement of goods or services, and it was clear that the AG did not wish to suggest that the Court take this bold step. The AG concluded, nevertheless, that the effect of preventing the broadcast of Greek programmes in the UK was to partition the internal market into quite separate national markets and to prevent the utilisation of services from other Member States (i.e. access to television programmes). Accordingly, it was necessary to consider whether such a restriction could be justified. The objective suggested by Sky and the FAPL was the protection of industrial and commercial property. The CJEU has consistently held that this justification may only be used where necessary to safeguard rights which constitute the specific subject-matter of intellectual property – as regards goods, for example, once they are placed on the market in another Member State, the copyright owner is deemed to have “exhausted” his copyright protection to the extent that he cannot then prevent those goods being re-sold elsewhere in the EU. Sky and the FAPL argued, however, that the “exhaustion of rights” approach should not be used in relation to the provision of services. Accordingly, they must have been rather disheartened to hear the AG begin her analysis by claiming that this argument was “…surprising, because restrictions on the fundamental freedoms must, as a rule, be justified by reference to the same principles”. She concluded that FAPL’s arguments, allowing the marketing of broadcasting rights on a territorially exclusive basis,


JULY 2011

PAGE

52

would allow them to profit from the elimination of the internal market. She also rejected the FAPL’s argument that the national division of football broadcasting markets was necessary in order to encourage fans to attend matches instead of watching them on TV. Some of the EU Member States’ Football Associations have agreed a “closed period” when no football broadcasts may be shown – the intention being to encourage fans not to stay in the pub – but since many EU Members States have different times for “kick off” (i.e. in the UK it is traditionally 3pm, whereas in Greece it is 5pm), this would allow Greek broadcasts of Premier League games to be viewed in the UK at a time when the UK satellite channels were not allowed to show the same game. However, the AG was equally unimpressed with this argument and noted that a Commission investigation of “closed periods” showed that only 10 of the 22 EU Football Associations had adopted a closed period, with France, Germany, Italy and Spain being amongst those which have no such broadcasting prohibition. Equally, German television shows all Bundesliga matches live without attendance at matches in the top two leagues suffering as a result. The AG acknowledged that questions of fact such as this remain within the competence of the national court, but noted that the English High Court would need to find convincing evidence that live transmissions had a substantial detrimental effect on attendance at matches and/or participation in football matches in order for enforcement of the closed periods to be able to prevail over the adverse effects on the internal market. A final blow to Sky Sports and the FAPL came when the AG concluded that the series of contracts between the FAPL and the various national satellite television broadcasters breached Article 101 TFEU since they were anti-competitive. The AG noted that, in requiring each broadcaster to prevent the sale or use of decoder equipment outside their own territory, such agreements were equivalent to a prohibition on parallel imports, which the ECJ has consistently found to be unlawful. Since such agreements are intended to prevent any competition between broadcasters through a reciprocal compartmentalisation of licensed territories, and since those agreements provide absolute territorial protection, they are liable to prevent, restrict or distort competition and are therefore incompatible with Article 101 (1) TFEU. Given that the aim of such agreements was clearly anti-competitive, it was not even necessary to show factual evidence that their practical effects were also such as to restrict competition. If this were a football match, the result would have been devastating for Sky Sports and the FAPL. However, as we all know, the AG’s Opinion is only part – albeit an important part – of the preliminary reference procedure and it is not until the CJEU delivers its judgment that Mrs Murphy’s fans and customers will be able to truly celebrate their victory. In fact, even if the CFEU supports the AG’s conclusions, it is debatable whether Mrs Murphy and her like should consider this a long-term victory. Many football fans will have experienced the bitter-sweet enjoyment of beating a rival team, only to discover that such victory enables another rival team to win the football league – the joy of the shortterm triumph has to be carefully calculated against its long-term consequences. Mrs Murphy may soon experience the same deflating feeling. As things currently stand, the various Premier League TV deals with EU broadcasters (including Sky)


JULY 2011

PAGE

53

will expire in 2013 and, until then, publicans would inevitably make the most of their freedom to buy decoder equipment abroad and use it in English pubs. However, when the FAPL next negotiate broadcasting rights, the Premier League (and other EU football leagues) will negotiate their TV rights on an EU-wide basis, which will most benefit a broadcaster who is capable of buying the EU-wide rights and then broadcasting to the greatest number of EU States. Given that the highest bid for showing Premier League games is almost certainly likely to be come from Sky itself (which already pays the highest fee (since the FAPL realises that the greatest demand for English football games is still to be found in England), this may actually result in Sky acquiring a far greater monopoly over the Premier League than it already does, at least outside the UK. If Sky controls the broadcast of Premier League games on an EUwide basis, there will almost certainly be no demand in the UK for foreign decoder cards, since they will cost as much as those purchased in England, which could result in less foreign demand for English football and decrease income for English clubs. Now who’s cheering? The story of Mrs Murphy and her small Portsmouth pub could have enormous ramifications on how football game broadcasts are licensed and transmitted and illustrates that, in the words of Donald Trump, “Sometimes by losing a battle you find a new way to win the war.”. For those who wish to continue the fight against Sky’s growing empire over English football, we at least have until 2013 to begin preparing pleadings for a future case concerning abuse of a dominant position on the football broadcasting market…

Brits in outer space: law reform encourages businesses to boldly go... Alexander Lovelady BLC Lecturer and Tutor The Outer Space Act 1986 is the UK statute which gives domestic effect to the UK’s obligations under the UN Outer Space Treaty 1967, and other treaties governing the usage of outer space. The UK’s obligations are met by requiring anyone undertaking any activity in outer space (or launching any item into space) to apply for a mandatory licence from the responsible government department. The current terms of the mandatory licence are some of the most restrictive in the world. The UN treaties provide that states are liable for all events caused by objects originating from their own territories. In order to protect the UK against such liability in respect of the acts of private enterprise, the current mandatory licence, pursuant to s. 10 of the 1986 Act, requires British licensees to fully indemnify the government against any claims brought against the UK in respect of damage or loss caused by that enterprise. It further requires a minimum level of insurance to be taken out by the licensee in respect of liability for damage caused in space, currently to the tune of £100 million. The fact is that the space around our planet has become increasingly congested with satellites, and the risk of collisions and damage in space are higher than ever. On the other hand, the space industry is an important and growing industry sector in the UK. This month, the government announced it would implement reforms to the legislation, for the first time limiting the liability of private enterprise for damage caused, and reducing the level of insurance required. This move was lauded by industry representatives as representing a significant reduction in costs to space-sector businesses, which will hopefully help this exciting sector to thrive!


JULY 2011

PAGE

WTO appellate body rules on alleged subsidisation of Airbus Will Odogwu BLC Lecturer and Tutor On May 18, the WTO’s Appellate Body gave its decision on various challenges made by both the EU and the United States to first instance findings in a dispute over subsidies allegedly granted to Airbus. Brief procedural overview In May 2005, the United States commenced action against the EU under the WTO dispute settlement procedure by lodging a request for the establishment of a panel to adjudicate on the alleged WTO consistency of financial support, in the form of start-up loans at non-market interest rates (socalled “launch aid”), given by the EU to aircraft manufacturer Airbus. Within 24 hours of the US action, the EU followed with its own request for the establishment of a panel; the EU’s complaint closely reflected that of the US, i.e. that Boeing had been granted prohibited financial support through a complex of US state and federal measures ranging from defence R&D contracts to tax exemptions. Recently three reports relating to the dispute have been released by the Dispute Settlement organs of the WTO. In June 2010, the first of the three, the Panel ruling on the claim lodged by the US, was released. This was followed in March 2011 by the Panel report on the EU complaint. Finally, as mentioned above, the Appellate Body (AB) in May of this year produced its ruling in the appeal brought against the June 2010 Panel legal determinations (i.e. the US initiated complaint). Both the EU and the US have given notice that they will appeal certain findings of law in respect of the March 2011 Panel report (i.e. the EU initiated complaint). But since the AB report in the latter appeal is not expected to be released until February 2012 at the earliest, the present update focuses on the complaint initiated by the US and aims to give an overview of some of the key issues where the AB departed from the findings of the Panel. Background on the rising tensions between Airbus/EU and Boeing/US Boeing and Airbus have a duopoly on the global market for large civil aircraft (LCA). Each company possesses approximately 50% of the market measured on the basis of annual deliveries and new orders for these types of aircraft. However, this snap-shot of the industry fails to capture the phenomenal recent growth of Airbus. In its first decade of existence (1970-1980) Airbus had a relatively trivial share of the market, with American companies such as the long established Boeing being dominant. In the decades since, Airbus has steadily acquired market share at the expense of Boeing (now the sole US LCA manufacturer). Since the early 2000s, Airbus has actually exceeded the market share of Boeing based on the measure indicated above. Whilst there are still a great deal more Boeing aircraft in service around the world (the company was established in 1917), the emerging strength of Airbus has been an irritant to the US and resulted in 1992 in the conclusion of an agreement between the US and EU on limits to be placed on the level of permissible government financial support for the LCA industry. In 2004, as Airbus’s annual orders and deliveries surpassed Boe-

54


JULY 2011

PAGE

55

ings for the first time, the US withdrew from the 1992 agreement (which was concluded expressly without prejudice to any rights under the WTO Agreements the parties may otherwise have). As indicated above, complaints under the WTO Dispute Settlement Understanding (DSU) were soon lodged by both sides. General legal context of the complaints Both of the complaints were founded on provisions in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which emerged from the Uruguay Round establishing the WTO. Essentially, the agreement imposes disciplines constraining the grant by governments and public bodies of ‘financial contributions’ (understood to extend to assistance with infrastructure and supplies of goods and services) to market participants. The strictures are founded on the view that such measures will serve to distort competition between the industries of the members of the WTO and may result in deleterious effects on industries not benefiting from such state support as well as a sub-optimal allocation of global resources. Specific practices subject to complaint Principal among the practices of EU governments that the US objected to were the provision of financing for design and development (characterised by the US as “launch aid”); the provision of grants and government-provided goods and services to develop, expand, and upgrade Airbus manufacturing sites for the development and production of the Airbus A380; the provision of loans on preferential terms; the assumption and forgiveness of debt resulting from the launch of Airbus products; the provision of equity infusions and grants; and the provision of research and development loans and grants in support of large civil aircraft development by Airbus. The US claimed that the WTO inconsistent support granted to Airbus by the EU and the governments of France, Germany, Spain and the United Kingdom amounted to US$ 18 billion over a period of 40 years. However, there are no claims for damages in WTO law. Conclusions that certain measures are inconsistent with WTO obligations normally result in an obligation on the member to bring the relevant measures into conformity with its WTO obligations. This can usually be achieved by removal or alteration of the measure itself. In the case of non-compliance, the complaining member state will typically have the option of resorting to certain retaliatory measures. Although beyond the scope of the present note, numerous claims relating to alleged subsidisation of Boeing carried out by the US have also been raised in the procedure initiated by the EU and the resulting Panel determination has declared that at least $5.3 billion worth of WTO inconsistent subsidies have been granted to Boeing. Overview of legal findings of the Panel and Appellate Body in EC and certain member States – Large Civil Aircraft (DS316)


JULY 2011

PAGE

56

These proceedings were highly complex. The Panel report in the complaint initiated by the US runs to more than 1000 pages and the AB report is well over 600 pages. The following therefore necessarily presents only a limited selection of the significant findings and interpretations emerging from the proceedings. Panel and AB reasoning will be presented in parallel on an issue by issue basis. Did Launch Aid/ Member State Financing (LA/MSF) confer a “benefit”? LA/MSF was the first alleged subsidy addressed by the Panel. ‘Launch aid’ was the term employed by the US and ‘member state financing’ that adopted by the EU; the Panel used the neutral designation ‘LA/MSF’. As to the issue of whether the individual measures of LA/MSF constituted specific subsidies, the Panel turned to the three requirements set out in Articles 1 and 2 of the SCM Agreement: (1) a financial contribution made by the governments concerned to the industry in question; (2) corresponding benefit to the industry; and (3) that the contributions and benefit were sufficiently specific to the industry. In the determination of the Panel, as LA/MSF were monetary loans there was a transfer of funds from the governments concerned (“a financial contribution”) and there was clear evidence that the funds had been obtained at lower cost than they would have been provided by “market lenders” (the “benefit”); accordingly, the first two requirements were clearly satisfied. Establishment of specificity of the contributions/benefits (discussed further below) was also unproblematic since the type of loans in question had only been granted to Airbus. On appeal, although the AB acknowledged that EU allegations of inconsistency and insufficiency in the reasoning developed by the Panel as regards ‘benefit’ arising from LA/MSF were well founded and that the Panel had failed to adequately perform its task of objectively determining the facts under Article 11 of the DSU. This did not however require interference with the Panel’s conclusion that such benefit was present. As the AB explained, even taking the market rates of return used in the comparisons at their most favourable to the EU, the terms of the LA/MSF were still more generous than those on which private financing in the market would have been available. A crucial further claim concerning LA/MSF was made by the US. It argued before the Panel that LA/ MSF as an overarching programme, as distinct from individual agreements to grant such financing, is itself a ‘measure’ that is inconsistent with the SCM Agreement. In response, the Panel determined that “the evidence and arguments advanced by the parties do not lead us to conclude that LA/MSF, by definition, involves below-market financing... it cannot be concluded with the degree of certainty needed to overcome the ‘high’ evidentiary threshold that the United States must satisfy that any LA/MSF granted in the future will involve non-commercial interest rates.” Judging by subsequent EU Commission DG Trade press releases, this was a crucial determination from the perspective of the EU. The argument was regarded as a frontal assault by the US on a crucial aspect of Airbus funding and the Panel determination was viewed by the EU as establishing the WTO consistency of this funding model. However, the AB found errors in the analysis and the resolution of this issue is again uncertain. In its analysis, the AB determined that the overall programme of ‘launch aid’, as distinct from the cumulative effect of individual instances of such financing, had not been clearly included as a challenged measure in the request to establish a Panel lodged by the US and thus was not properly within the terms of reference of the Panel. Accordingly, the AB declared that part of the Panel report purporting to determine this specific US claim to be “moot and of no legal effect.” The issue therefore remains wide open. LA/MSF as a prohibited “export subsidy”


JULY 2011

PAGE

57

Difficult questions fell to be resolved by the Panel when assessing the US claim that the LA/MSF constituted a prohibited “export subsidy”. The distinction between export subsidies and general domestic subsidies is a crucial one in the SCM Agreement. Only subsidies falling into the prohibited category (such as export subsidies) constitute an infringement of the SCM Agreement without more, i.e. without any associated determination of injury or adverse effect to the complaining WTO member’s interests. For a subsidy to be classified specifically as an export subsidy, the financial contribution in question must be “contingent, in law or in fact, whether solely or as one of several other conditions, on export performance” (Article 3.1, SCM Agreement). It was accepted by the Panel that the LA/MSF measures in question were not expressly contingent on export performance, so it focused on the US challenge founded on de facto export contingency. Footnote 4 of Article 3.1 seeks to clarify the de facto export contingency standard; it provides that the standard is met “when the facts demonstrate that the granting of a subsidy... is in fact tied to actual or anticipated exportation or export earnings....” It was argued by the EU that for the subsidy to be contingent in fact on exportation, the agreement/ instrument under which the financial contribution is granted must require performance by the recipient that cannot be achieved without exportation. This argument failed to persuade the Panel. It reasoned that “limiting the scope of the prohibition on subsidies that are contingent in fact upon anticipated exportation to only those subsidies that are granted subject to the existence of a performance obligation that can only be achieved through export sales, would create significant potential for circumvention [original emphasis].” The Panel went on to conclude that the LA/MSF loans associated with the A380 ‘super-jumbo’ programme did constitute prohibited export subsidies. On appeal, this finding, the associated reasoning and the underlying interpretation on which both were based drew close scrutiny and lengthy comment from the Appellate Body. Before the AB, the EU challenged the finding primarily on the ground that the approach taken by the Panel to the issue of de facto export contingency relied on an interpretation of Article 3.1 which created a subjective test; more specifically, one which turned upon the ‘motivation’ of the relevant governments in granting the subsidies. Referring to previous WTO dispute settlement reports, the AB noted “that the Appellate Body and panels have, on several occasions, cautioned against undue reliance on the intent of a government behind a measure to determine the WTO-consistency of that measure.” Whilst the AB hesitated to conclude that the test the Panel had applied turned upon the motivation of the relevant governments, it did accept that the Panel’s test turned upon “the reasons for” the granting of the subsidy. In the view of the Appellate Body, that the reason an authority granted a subsidy was that it expected export performance to occur was neither a necessary nor sufficient condition for finding that the subsidy was contingent on anticipated export performance. Whether the standard in Article 3.1 and footnote 4 is met must be assessed on objective factors. The AB phrased the question needing to be answered to determine whether the standard is met as follows: “is the granting of the subsidy geared to induce the promotion of future export performance by the recipient?” Further elaboration was given by the AB as to the relevant objective factors which should be assessed in answering this question. Citing the AB Report in Canada – Aircraft, it observed that the existence of de facto export contingency... “must be inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy”. Such factors may include “(i) the design and structure of the measure granting the subsidy; (ii) the modalities of operation set out in such a measure; and (iii) the relevant factual circumstances surrounding the granting of the subsidy that provide the context for understanding the measure’s design, structure and modalities of operation.”


JULY 2011

PAGE

58

Of arguably greater assistance to future Panels faced with this complex question was the following observation by the AB: “we consider that the standard for de facto export contingency under Article 3.1 (a) and footnote 4 of the SCM Agreement would be met when the subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the subsidy.” In other words, if a subsidy were shown to be structured in such a way that it would create an incentive on the recipient to export a higher percentage of production output relative to domestic sales than would be the case in the absence of the distorting effect of the subsidy, it would be adjudged to fall foul of Article 3.1 and footnote 4. The AB stressed that a subsidy which causes an increase in the absolute volume of production and which it is anticipated would result in increased exports as compared with domestic sales merely as a result of the domestic market becoming saturated (i.e. demand being sated there) would not be classed as de facto export contingent. Ultimately, on reviewing the record, the AB found that the LA/MSF subsidies directed towards Airbus in respect of development of the A380 (‘super jumbo’) were, at the time of granting, only anticipated to have this “Airbus has steadily latter effect. Although from the information in their possession, the governments (UK, France, Germany, Spain) granting LA/MSF must have antici- acquired market share at pated that sales outside the EU would almost certainly constitute the the expense of Boeing... large majority of the total future sales of the A380 required to repay the Since the early 2000s, loans, this was merely as a result of the general and undistorted developAirbus has actually ment of the global market for aircraft having over 400 seats. Due to conexceeded the market tinuing and forecasted trends, demand in regions such as Asia-Pacific for very large passenger aircraft was destined to greatly exceed demand in share of Boeing based on the EU. Accordingly, the finding of the Panel that the LA/MSF granted to numbers of annual Airbus for the A380 programme constituted a prohibited export subsidy aircraft orders and within the meaning of Article 3.1 SCM Agreement was reversed by the AB. deliveries.” EIB Loans On the matter of EIB (European International Development Bank) loans made to the parent company of Airbus (EADS), the Panel rejected the US challenge to such contributions. It arrived at the view that they were not sufficiently specific to ‘certain enterprises’ within the meaning of Article 2.1 SCM Agreement, i.e. the aeronautics or aerospace industries in this case. According to the Panel, specificity “requires the establishment of the existence of a limitation that expressly and unambiguously restricts the availability of a subsidy to ‘certain enterprises’, and thereby does not make the subsidy ‘sufficiently broadly available throughout an economy.” Neither were the loans de facto specific as alleged by the US. In the view of the Panel, the loan to EADS “was not disproportionately large when considered in the light of the total value of the EIB’s lending programme over a period of time that we believe is reasonable and appropriate for the purpose of conducting a disproportionality analysis.” The US did not appeal this finding. EU Research and Technical Development Funds In contrast, tranches of research and technological development funding provided by the EU under the Second to Sixth EC Framework Programmes were, in the Panel’s view, specific subsidies: they did constitute financial contributions benefiting Airbus and unlike the EIB funding, they were specific to


JULY 2011

PAGE

59

‘certain enterprises’ (Article 2.1, SCM Agreement). The Panel found the research programmes to have been designed in a way which was “equivalent to setting aside a portion of a budget that is ostensibly intended to fund research activities in all sectors of the economy for the sole purpose of the research efforts of enterprises or industries active in the aeronautics sector.” EU challenge to this characterisation on appeal was unsuccessful. The AB noted that it had recently set out its views on the interpretation and application of Article 2.1 (US – Anti-Dumping and Countervailing Duties (China)) and that this approach had been correctly followed by the Panel in reaching its determination. Improvements to infrastructure carried out by certain regional authorities in the EU Certain infrastructure improvements carried out by regional governments such as the Cities of Bremen and Hamburg raised similar issues to those in the preceding discussion. Before going further, it is necessary to highlight that whilst development or provision of infrastructure is clearly not a “financial contribution” in any literal sense, Article 1.1(a)(1)(iii) SCM Agreement defines a “financial contribution” as including the provision by government of “goods or services other than general infrastructure....” The Panel did “not consider that there is any form or type of infrastructure which is inherently ‘general’ per se.” It stated that “such things as railroads or electrical distribution systems do not necessarily constitute ‘general infrastructure’” and that the determination is one to “be made on a case-by-case basis, taking into account the existence or absence of de jure or de facto limitations on access or use, and any other factors that tend to demonstrate that the infrastructure was or was not provided to or for the use of only a single entity or a limited group of entities.” Applying these principles, the Panel found amongst the numerous infrastructural support measures challenged some which fell to be classified as specific subsidies (e.g. extension of a runway, the provision of an industrial site) and others which did not (e.g. improvements to roads in France that could be utilised by general traffic). In the appeal proceedings, the EU directed its challenge to a different issue than whether the infrastructure improvements in question constituted “general infrastructure”. The argument presented by the EU, which the AB agreed with, was that the Panel had mischaracterised the aspects of the transactions with which it should properly have been concerned under Art 1.1(a)(1)(iii). Creation of the infrastructure in question should not have been included within the concept of infrastructure “provided” by the governments. ‘Provision’ in its ordinary meaning involved making the infrastructure available to recipients. Thus creation of the infrastructure in question was a prerequisite to its provision, but the infrastructure was actually provided through leases, sales and other grants of exclusive rights of use, and not per se by its creation. This mischaracterisation by the Panel then appeared to lead it to apply what was, in light of previous AB rulings (see Canada – Aircraft and Japan – DRAMs (Korea)), clearly an erroneous method to determine whether the provision of the infrastructure in question had resulted in Airbus receiving a ‘benefit’ within the meaning of SCM Article 1.1(b). Instead of assessing whether the infrastructure in question had been made available to Airbus on better than market terms, the Panel asked itself whether the governments in question had recovered an acceptable (i.e. market) rate of return on the costs they had incurred in creating the infrastructure. The Panel rationalised this on the basis that a market actor would “seek” a price/rent sufficient to cover such costs and provide a reasonable rate of return in addition. Since the governments had spent more money on creating the infrastructure than they had recovered from Airbus, there was a benefit to the latter according to the Panel. Such an approach essentially regarded the supplier of an asset as being able to unilaterally determine the ruling


JULY 2011

PAGE

60

price at which the asset could be exchanged with no regard to demand conditions. As the AB noted “the rent a market actor can charge will be constrained by market conditions even if the rent does not cover its costs... (original emphasis)”. Accordingly, to determine whether benefit existed, the terms on which the infrastructure was provided to Airbus would have to be compared with the terms that could have been achieved in the market and not simply those which a supplier of the infrastructure would seek so as to cover its costs. For the foregoing reasons, the AB reversed the Panel’s determination that the infrastructure improvements had conferred a ‘benefit’ on Airbus. The evidence on the record was sufficient for the AB to complete the analysis and to conclude that, on application of the correct test, the infrastructure provided in two of the challenged instances did confer a benefit. The evidence was insufficient to allow completion of the analysis in relation to the remaining infrastructure grants. Instances of intervention in the restructuring of German and French Airbus companies (Deutsche Airbus and Aérospatiale) by Germany and France respectively, either directly or via transactions implemented through development banks, were found to be specific subsidies. The transactions in question were on terms favourable to Airbus and in the view of the Panel would not have been entered into by private market participants; the investment decisions in question were found to be “inconsistent with the usual investment practice of private investors” in the respective territories (i.e. Germany and France) (see Art 14(a) SCM). In the appeal proceedings, the EU challenged aspects of the Panel’s findings with respect to the French transactions. Whilst the AB upheld the reasoning and conclusion of the Panel as regards the cash capital investments (i.e. subscriptions to issues of shares) made by the French government in Aérospatiale, the analysis in respect of the share-swap component of the challenged equity infusions, which occurred years later and in a different strategic context, could not stand. As the AB observed, in respect of the share-swap, the US and EU agreed that the relevant investment decision which had to be compared with “the usual investment practice of private investors” was not a decision whether a commitment of capital in the form of a share purchase would generate a reasonable rate of return (the decision considered by the Panel). As both disputants agreed, the share-swap was a mere preliminary stage involving the consolidation of two government shareholdings in separate companies into a single shareholding in one company (Aérospatiale) with a view to the onward sale of that consolidated holding through privatisation. In light of this, the AB held that the Panel was obliged, when analysing whether a benefit had been conferred within the meaning of Article 1.1(b) of the SCM Agreement, to consider whether sale of the consolidated holding could have achieved a better financial outcome for the French government (qua investor) than that which would have been realised by separate sales of the holdings in the companies subject to merger. It was this decision that a rational private investor anticipating subsequent sale of the holdings would have been faced with. Given that the Panel had been comparing the wrong decision in its comparison to the “usual investment practice of private investors,” its findings as to benefit were reversed by the AB.


JULY 2011

PAGE

61

Adverse effects In the latter part of its report, the Panel moved on to consider whether the subsidies established to be ‘actionable subsidies’ also resulted in adverse effects being suffered by the United States. As mentioned earlier, actionable subsidies, in contrast to prohibited subsidies, are not considered to be WTO inconsistent unless it is also proved that these adversely affected the complaining WTO member (Articles 3.1(a) and 3.2 SCM Agreement). That imports of the ‘like product’ produced by the complaining member’s industry are displaced from ‘the market’ of the subsidising member or from a ‘third-country market’ is a cognisable adverse effect in the form of ‘serious prejudice to the interests of another member’ under the SCM Agreement (Articles 5(c) and 6.3(a)-(b) SCM). The Panel found that the decline in Boeing sales into the EU and certain third-country markets and corresponding increase in Airbus sales was sufficient to establish the adverse effect on the US due to the duopoly characterising the LCA market. Such a decline was simpler to identify in some markets than others due to differences in the total amount of sales occurring within different markets and hence the ability to identify trends. Nevertheless the Panel considered that displacement was established to its satisfaction in all the relevant markets. This still left the distinct issue of causation to be addressed, i.e. whether the adverse effects in the form of imports into the relevant markets being displaced or impeded as established by the US were actually caused by the actionable subsidisation of Airbus. It is significant to note in this respect that the Panel did not find subsidisation to have led to the adverse effects via the undercutting, depression or suppression of prices, i.e. the subsidisation was not found to have endowed Airbus with additional price flexibility beyond that exercisable by Boeing. Rather, with respect particularly to the LA/MSF, the Panel was persuaded that the Airbus products in question (i.e. the various models of LCA) would not have been successfully introduced onto the market had it not been for the risk transferral effect of the subsidisation that had occurred. The Panel accorded weight to the fact that the LA/MSF was repayable as a levy on sales of the particular Airbus model funded with the risk that lower than expected sales would prevent full repayment being borne by the EU governments. This presented Airbus with a possible upside and very little downside risk to influence its decision to develop new models. On this basis the Panel concluded that Airbus would not have been able to introduce the models it did when it did, if it had not been for the LA/MSF. As development of the Airbus models was the precondition for the subsequent displacement effect on Boeing, causation was established. Challenges were lodged in respect of the ‘adverse effects’ determinations on appeal. After noting that this was the first time the Appellate Body had been called upon to consider displacement claims under paragraphs (a) and (b) of Article 6.3 of the SCM Agreement, the AB expressed its agreement with the view expressed by the EU that the Panel should not have unquestioningly accepted the definition of the ‘subsidised product’ for the purpose of assessing the displacement effects of the subsidisation on the ‘like product’ of the complaining member. In a persuasive analysis, the AB observed that the very possibility of displacement in the aforementioned sense is dependent upon a competitive relationship existing between the subsidised product and the like product of the complaining member state. The definition of ‘the market’ in Article 6.3(a)-(b) was not as the Panel had thought restricted to merely the geographic component, understood as the territory of the subsidising member or the relevant thirdcountries, but extended to require identification of the relevant product market(s). The US had alleged that the LCA’s produced by Airbus constituted the ‘subsidised product’ and the LCA’s produced by


JULY 2011

PAGE

62

Boeing, the ‘like product’. However, in the EU’s view, there were in fact multiple separate product markets in which sub-sets of particular models produced by the two manufacturers competed. Hence displacement had to be analysed in light of actual competitive interactions which were only significant within and not between these smaller product markets. Given this disagreement, the AB held that the Panel had been under a duty to objectively determine the facts (Article 11 DSU), which in this instance involved coming to its own view as to whether the product market(s) ought to be constructed as proposed by the US, the EU or in some other way, so as to reflect actual and potential competition between the products of Airbus and Boeing. Since the US contention had been simply accepted by the Panel without objective investigation as to whether it was founded on the characteristics of actual or potential competition between products, its finding of displacement on the basis of a single subsidised product and a single like product was reversed by the AB. Whilst the AB found itself unable to complete the analysis in all respects due to a lack of sufficient information on the record, it noted that the parties were in agreement that there were certain competitive relationships between similar aircraft models, regardless of whether a single product market could be said to extend across all models produced by the manufacturers so that products at the contrary extreme ends of the respective product ranges of Airbus and Boeing were in competition with each other. On this basis and in light of the accepted evidence on the record, the AB upheld the Panel findings that there was displacement in single and twin-aisle LCA product markets in the EU, China and Korea and in the single-aisle LCA market in Australia. The Panel findings of displacement in the following markets were reversed by the AB on the grounds that the sales data was too sparse for these countries to discern any trends in the respective sales of Airbus and Boeing: Brazil, Mexico, Singapore and Chinese Taipei. The finding of threatened displacement in respect of India was also reversed on similar grounds. The Panel reasoning that as there were only two competitors globally, the fact that any sale was made to Airbus in the reference period was enough to show displacement of Boeing was found by the AB to be insufficient to ground findings under Article 6.3(a)-(b). What was required under those provisions was the establishment of ‘discernible trends’ and not merely a lower market share at the end of a reference period compared with that observed at the beginning. As for the question whether the actionable subsidies proved to have been provided to Airbus were the cause of the displacement observed, the AB found the Panel’s analysis to be broadly unobjectionable and the findings at first instance were largely left undisturbed (bearing in mind that the displacement conclusion was reversed as regards the particular third-country markets mentioned above). However, the AB did make it clear that it considered it more desirable for the analysis of ‘adverse effects’ and causation to be carried out together (‘the unitary approach’) rather than in a two-stage process such as the panel had undertaken. The AB noted that “it is difficult to understand the market phenomena described in the various subparagraphs of Article 6.3 in isolation from the challenged subsidies. Rather, consideration of the effects of the challenged subsidies is intrinsic to the identification of those market phenomena.” Furthermore, the AB cautioned against uncritical reliance upon a “but for” concept of causation when applying Article 6.3 SCM Agreement. Such a test can be appropriate because (in the words of the AB) “in some circumstances, the “but for” analysis will show that the subsidy is both a necessary cause of the market phenomenon and a substantial cause.” However, it cautioned that “there are some circumstances in which a “but for” approach does not suffice, For example, where a necessary cause is too remote and other intervening causes substantially account for the market phenomenon....” It continued that the proper test was that found in the AB report in US-Upland Cotton (Article 21.5-Brazil), i.e. it should be established whether there was a “genuine and substantial relationship of cause and ef-


JULY 2011

PAGE

63

fect.” Having stated this, it found reviewing the record that such a causal relationship had in fact been found by the Panel, despite its failure to articulate this fully. Concluding remarks From the perspective of continuing elaboration of the provisions of the SCM Agreement, the ruling of the AB is notable for its discussions and pronouncements on areas such as ‘de facto contingency on exportation’ in the context of identifying prohibited export subsidies which are not contingent in law on exportation (Article 3.1, SCM Agreement). The question of whether subsidies are “geared to induce the promotion of future export performance” has assumed prominence in this respect. Also, important guidelines emerged in respect of the role of Panels in assessing adverse effects in the form of displacement from markets under Article 6.3 (SCM Agreement). It is now clear that the Panel will be required to undertake complex market definition tasks which closely parallel those often required in the application of competition and anti-trust laws. Looking from a pragmatic stance at the outcome of the AB decision for the governments and companies concerned, it is apparent that EU obtained reversal on some significant points. Panel determinations that subsidies to Airbus caused prejudice to US interests in certain third-country LCA markets were overturned and the finding that LA/MSF for the A380 project constituted a prohibited export subsidy also fell. In relation to the latter, it must be recalled that this did not affect the classification of these subsidies as actionable and given that the determinations of the Panel on adverse effects were upheld for several of the most important markets, the significance of this EU ‘victory’ should not be overstated. Finally, the issue of whether LA/MSF is WTO inconsistent as a general type of funding (as opposed to the specific challenged instances of it being so) is returned to a state of uncertainty by the AB’s declaration that Panel findings on this issue were to be treated as moot and of no legal effect. All parties concerned will await with interest the AB decision in the parallel proceedings brought by the EU challenging US contributions to Boeing. At this stage, it seems quite possible that very substantial WTO inconsistent subsidisation has occurred on both sides of the Atlantic. With that in mind, a negotiated settlement is perhaps likely. The question may be asked whether the initiation of these complaints was sensible given that such an outcome was arguably foreseeable. A suggestion heard from some quarters is that the contending parties were keen to clarify generally applicable ground rules in advance of China’s anticipated entry into the LCA business in coming years. What's wrong with Lawyer jokes? And lastly it seems that the voluntary Lawyers ID card scheme operated currently by the CCBS (Council of Bars and Law Societies of Europe) might now be extended to other professions with the introduction of a European Professional Card in the pipeline

We welcome any contributions from Obiter readers to provide extra information for this section.

Lawyers don't think they're funny, and nobody else thinks they're jokes.

What's the difference between a good lawyer and a bad lawyer? A bad lawyer can let a case drag out for several years. A good lawyer can make it last even longer.


JULY 2011

PAGE

64

Superstars, superinjunctions and super Parliamentary privilege! Dr Steve Terrett Kierownik, BLC Centre, Warsaw Students of the BLC will be familiar with the aim of injunctions in English law, but perhaps few of you have heard of “super injunctions”, the informal description given to injunctions whose very existence and details may not be published (i.e. secret injunctions). Such injunctions have become increasingly popular in cases involving celebrities and powerful businessmen. They were developed as part of the English judiciary’s attempt to create a more robust approach to protection of private information, following implementation of the Human Rights Act 1998. However, given the “gagging” effect these measures have on the media, they have led to accusations that protection of privacy may conflict with the ECHR’s guarantees of freedom of speech. The past few months have seen a growing amount of speculation as to how many superinjunctions exist, whom they are designed to protect and what are the “guilty facts” which the claimant is seeking to protect. Ironically, these secret injunctions have become the subject of enormous interest and speculation, with the claimants in some super-injunction cases having been “outed” (i.e. publicly named) through internet sites such as Twitter and Facebook. The most recent development in this on-going saga occurred during a debate in the UK Parliament concerning super-injunctions and possible amendments to UK privacy/press laws. The UK���s Prime Minister David Cameron, under pressure from the press, announced a joint parliamentary

committee to examine the relationship between privacy, injunctions, regulation of the internet and the role of the UK’s press complaints commission. Cameron said the current position was not sustainable. However, during the debate a Liberal Democrat MP (John Hemming) named Ryan Giggs as the anonymous footballer protected by a recent super-injunction designed to prevent press speculation about an alleged extra-marital affair. If Giggs had been named by any newspaper, they would have faced considerable monetary finesse but the Liberal Democrat MP was able to rely on the protection from claims afforded by “Parliamentary privilege”. He said that it was ridiculous to continue to “gag” the media when over 75,000 people had already identified Giggs on Twitter as the subject of the super -injunction. Since infringement of a court injunction is a criminal offence, he asked sarcastically whether the government was planning to arrest all 75,000 Twitter users and those who reproduce the information with a simple click of the “forward” option on sites such as Twitter or Facebook. The relationship between privacy and freedom of expression is one which will be the subject of much debate in future years, especially in the internet age where it is virtually impossible to control the behaviour of every internet user so as to ensure compliance with court injunctions. The resolution of this conflict could shape the way in which the media and social-networking sites function in the next century.


JULY 2011

PAGE

65

Letters to the Editor Dear Editors of the BLC Obiter Dicta,

In this feature we give you, the reader, an opportunity to comment and give feedback on articles you have read in the previous edition of Obiter Dicta. Do you disagree with any of the authors? Maybe you have another opinion on one of the topics which has been raised in this issue? Please write to us and let us know! We would also appreciate any ideas you have for the publication as a whole. We look forward to hearing from you! To give you an idea of the type of format we expect, we have included some example comments on last edition’s articles.

Please send your letters to blcobiterdicta@gmail.com.

Juris Angliae Scientia Ltd 10 West Road Cambridge England Find us online at www.britishlawcentre.co.uk Phone: +48 22 8318634 Fax: +48 22 8318634 E-mail: britishlawcentre@gmail.com

My attention was drawn to the piece in the second issue entitled “The ridiculous mouse in Brussels!” by Mr Gawalkiewicz, which dealt with the choice of relative unknowns for the roles of President of the European Council and EU High Representative for Foreign Affairs. Several months on and it seems that there has been no surprise in respect of the public profile achieved by either M. Van Rompuy or Baroness Ashton. While watching a broadcast on Euronews concerning the EU response to the recent turmoil in Tunisia, I was somewhat bewildered to see footage of some middling unnamed spokesman from the Commission declaiming upon the excesses of the Tunisian regime and valour of the Tunisian people while Baroness Ashton herself was relegated to a brief quote read by the anchorwoman of the hour. I share Mr Gawalkiewicz’s sentiments that we should not require our public servants to be superstars or prize charisma above competence. But to my way of thinking, to suggest that the choice of such relatively anonymous figures could be justified by the modesty of the formal powers bestowed on their office misses the point. The prestige and authority of a public office is not created by legal powers alone; it is in large part a product of the personal force and achievements of the persons who over time come to occupy it. I would not want to be taken as suggesting that Van Rompuy and Ashton are incapable of doing worthwhile work while in office, but in reshaping the bounds of what is politically possible (rather than merely squirreling away within existing constraints), a generous dollop of personal force goes a long way! Loyal Obiter Dicta reader, Nowe Miasto, Warsaw

Juris Angliae Scientia Ltd is a charitable foundation set up in 1992 with the objects of promoting education links between the United Kingdom and Poland. JAS has functioned as the engine for promoting and supporting the activities of the BLC, initially in Poland and more recently in other parts of Central and Eastern Europe. The current managing committee includes Prof. W.R. Cornish and Richard Nolan (both of the Law Faculty, University of Cambridge) and Joss Saunders (legal advisor and company secretary to Oxfam GB). Joss was also one of the first BLC tutors in Warsaw in 1992. Keep checking our website for further updates of the 2012 anniversary celebrations!


JULY 2011

BLC Information

Would you like to have your work included in the next edition of Obiter Dicta?

OBITER

DICTA

We are looking for both longer articles of 2000-3000 words and shorter updates of 300-1000 words Please register your interest in submitting an article to BLCobiterdicta@gmail.com We would be delighted to receive articles on any aspect of your national law, private international law and European law

Remember to check our website for more frequent updates, goings-on at the British Law Centres, and issues and events of continuing interest to our students and alumni

WWW.BRITISHLAWCENTRE.CO.UK The British Law Centres would like to thank the following firms for their ongoing support in relation to the Diploma courses offered throughout central and eastern Europe



Blc obiter dicta edition 4