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Obiter Dicta

Sections in this Edition: News

J a n u a r y

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Environmental 6 Law

European Perspectives

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Commercial & Litigation

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Citizen and the 33 State

Letters to the Editor

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E d i t i o n

Letter from the Editors Welcome to the third edition of Obiter Dicta! We are delighted to bring to you another fresh crop of choice fruits from the fertile loins of the BLC student body, staff and alumni. We are fortunate in this issue to have received submissions representing a broad spectrum of current legal concerns. Our contributions include articles touching on issues ranging from intangible securities to soft drug use! 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.

Cathedral Square, Vilnius—location of this year’s CEEMC moot competition

17th Annual Central and Eastern Europe Moot Court Competition to take place in Vilnius

News

Steve Terrett

The British Law Centres (BLC) are the founders and organisers of the Central and East European Moot Court Competition which was first held in 1995. Each year the competition enjoys the ‘free movement’ offered by the opening of Europe’s borders and, thus far, it has taken place in Gdansk (Poland), Prague (Czech Republic), Krakow (Poland), Ljubljana (Slovenia), Plovdiv (Bulgaria), Riga (Latvia), Bratislava (Slovakia), Zagreb (Croatia), Budapest (Hungary), Poznao (Poland), Kyiv (Ukraine), Sofia (Bulgaria). This year’s competition takes place in Vilnius (Lithuania). The moot competition is held under the auspices of Centre for European Legal Studies of the University of Cambridge and the Court of Justice of the European Union, both of which award prizes to the best competitors. Competing teams come from all over the region and, thus far, have included teams from Poland, Bulgaria, Estonia, Georgia, Lithuania, Latvia, Kazakhstan, Hungary, Malta, Moldova, Romania, Russia, Slovak Republic, Slovenia, Ukraine, Armenia, Croatia, Czech Republic and Belarus.


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The competition invites teams comprising 3-4 persons (and perhaps also a coach) to act as lawyers for disputing parties whose case has been referred by a national court to the ECJ, under the preliminary reference procedure. The moot deals with very practical issues of EU law and the question is written in cooperation with high-ranking staff from the ECJ itself, to ensure that the problem is up-to-date, debatable and relevant to modern life within the EU. The winning team is invited to spend a week at Cambridge as guests of the University and the competition’s best speaker(s) win a short stage at the Court of Justice in Luxembourg. The competition has always offered a very distinguished bench of judges which was led in 1996 and from 1998-2006 by the late Lord Slynn of Hadley (whose enduring support of the competition was invaluable), in 1997 by Advocate General Fennelly and from 2009 by Advocate General Sharpston. The judicial bench also includes Professor William Cornish of the University of Cambridge, academics from the UK and Western Europe, members of the European Court of Justice and Court of First Instance, the European Commission and the International Commission of Jurists. This year’s moot concerns a dispute which arises when an EU citizen (Netsrac) attempts to hire a car in another Member State (Esilanep) and discovers that the terms of hire prohibit her from taking the car to certain other Member States, including the one she wishes to visit ((Lanimirc). It appears that all major car rental companies in Esilanep have identical restrictions and the European Commission decides that this results from an anti-competitive agreement which breached EU competition law. Crucial information in the Commission’s investigation was gathered from a ‘whistleblower’ whose identity the Commission refuses to identify. The Commission imposes a hefty fine upon all participants of the anticompetitive agreement, other than the ‘whistleblower’, and in the case of one company (which is a wholly owned subsidiary) the fine is imposed upon its parent company instead. In the Member State where that parent company is registered, the national competition law automatically imposes a directors disqualification order (preventing a person from acting as a company director) against one of the company’s directors, whom the Commission found was knowingly involved in the breach of competition law. He wishes to challenge this but is unable to, since the national competition authority may not challenge findings made by the Commission. These facts lead to a number of questions being referred by the national competition authority to the European Court of Justice. The first group of questions asks whether the TFEU provisions on freedom to provide services are capable of horizontal direct effect against traders such as the car rental companies and whether the powerful market position of those companies is relevant to this answer. The second group of questions concerns the relationship between national competition authorities, the Commission and human rights. The ECJ is asked to consider whether national competition authorities, who would otherwise be required to impose criminal sanctions against those found to be in breach of competition law, are required to unquestioningly adopt findings of fact made by the Commission, particularly where the Commission refuses to disclose the source of its information or allow questioning of ‘whistleblowers’. Furthermore, if the Court rules that it is not possible to question the manner in which the Commission carries out its investigatory and judicial powers within the competition law regime, the teams will be asked to discuss whether such a conclusion is compatible with the European Convention on Human Rights and the EU’s Charter on Human Rights. As always, we expect the competition to demonstrate a high level of advocacy and intellectual debate as teams from throughout Central and Eastern Europe do battle with each other and cope with the questions thrown at them by the various panels of judges. We also expect that the competition will be as fun as always and that those teams which are not fortunate enough to win the advocacy competition will double their efforts to win the Singing Competition, which is becoming almost as famous (and certainly no less vocally talented) than Eurovision! The full version of the problem question, together with the rules and regulations of the competition and details on how to apply, may be found at our web-site: http://www.ceemc.co.uk/

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Where justice happens every day: The European Court of Justice from a student’s point of view Tomáš Pavelka, Charles University in Prague

Imagine that one tells an undergraduate student of economics – out of the blue – that he can spend several weeks with Warren Buffet doing all the fun investment stuff with him. No doubt equally amazed is the student of law who is told that he can go to the Court of Justice in Luxembourg to work in the chamber of an ECJ judge for a couple of weeks. Said student cannot believe his good fortune for several seconds; then he becomes effectively speechless while he is supposed to thank the jury for giving him the Best Speaker Prize. And then he starts wondering how to learn advanced French in only a few months.

News

The course of events after the Central and East European Moot Court 2010 in Sofia (CEEMC) gathered pace rapidly. Dates of the internship were arranged for October 2010 with generous support from the British Law Centre which provided a scholarship covering accommodation in Luxembourg and return travel. Vladimír Novák (co-winner of the Best Speaker Award staying in the chamber of AG Mme Eleanor Sharpston) and I agreed to share a room in a hotel which accommodated us comfortably within the provided budget. We arrived in Luxembourg full of expectation and excitement.

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On the first working day we jumped on a bus to Kirchberg, the European quarter where most of the European institutions in Luxembourg are situated. The super-modern home of the ECJ and CFI made a dramatic impression upon us, our voices quaking as we entered the Courts’ reception area in the pedestal of the golden Two Towers. “Bonjour monsieur, nous sommes les nouveaux stagiaires...” However as soon as we saw the well-known faces of our friends from the Moot Competition the ice was broken. D i c t a

It was delightful to see once more Mr. Alexander Kornezov, a référendaire in the chamber of Bulgarian Judge Mr. Alexander Arabadjiev. I was introduced to the very kind staff of Mr. Arabadjiev’s chamber and later in the week even to the Judge Mr. Alexander Arabadjiev himself, all of whom were welcoming and friendly. I was even given a huge office where I could stir my coffee and feel important. My work-day schedule was purely based on my own initiative, however Alex Kornezov prepared for me an interesting and varied programme composed of background researches and drafting of opinions for cases actually pending before the Court. The very aim of these activities was to get an insight into the inner processes by which the cases are handled by the Court. The most exciting opportunity for me was to express some points of view on a particular case, then go to see the pleadings of the parties before the judges and then form and deliver my own opinion as to the outcome of the dispute. Highlights of my internship were the very pleasant social events, among which a farewell lunch with AG Mme Eleanor Sharpston was a real and cordial pleasure. Luxembourg itself is a town of almost fairytale splendour, especially in the autumn since the city literally drowns in falling leaves. It is big enough


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to evoke the vividness of Paris, but small enough to find a quiet place to read a book. And the borderline nature of the country is visible everywhere. The beer is fair enough since it is in fact a German beer, while the wine is delicious having some sort of French sweetness and sun inside. All business and administrative documents are in French, while the newspapers are printed in German. And the enigmatic Luxembourgish by which locals speak to each other to top it all off; where on Earth could one feel more cosmopolitan?

In short – the internship at the ECJ awarded to the CEEMC Best Speaker was for me the most exciting work and educational experience ever. The Court admits graduates for even longer internships (from 2 to 6 months) and as I am really happy about the way the Court works, I am committed and looking forward to applying in the near future. Many thanks to the British Law Centre, the judges and organizers of the Moot and especially to the chamber of Judge Mr. Alexander Arabadjiev for giving me this chance.

2010 CEEMC winners report on their visit to Cambridge Anna Abela, University of Malta

Surreal is precisely how I would describe a recent visit to Cambridge University, and the sequence of events that took me there, along with two fellow law students, Lena Sammut and Andrew Sciberras. So, let’s start from the very beginning. Last March, I had a little bit of time on my hands. Instead of doing what any fourth year law student in their right mind would do (i.e. lock myself up in an Isolation Chamber with the Maltese Civil Code and a lifetime supply of highlighters), I decided to coax two classmates into participating in the Central and Eastern European Mooting Competition. For the uninitiated, ‘mooting’ is a British academic tradition that involves simulating a court case in front of a panel of notoriously razor-sharp judges. Not to put too fine a point on it, it’s not for the faint-hearted. This was the first time my University, the only University on the small island of Malta, had ever participated in this competition, and much to everyone’s surprise (not least of all, our own) we won the International Finals in Sofia last May. When this news had finally sunken in, we were told our prize would be a week-long study visit at Cambridge University’s Faculty of Laws. Four months later, we were still pinching ourselves in disbelief as we milled through Freshers’ Week at the university that had only recently ousted Harvard from its coveted top spot in this year’s QS International University Rankings. This was something we were unintentionally reminded of every day of our stay. Whether it was a tourist guide telling us that the net worth of just 1 of the 31 colleges at the University runs into billions of pounds, or the discovery that 61 of Cambridge’s graduates are Nobel Prize winners, or simply basking in the ubiquitous architectural splendour spanning nine decades, we never could shake off the idea that merely being there for a week was a privilege. Our first stop was the Squire Law library, ensconced in the Faculty of Laws – and what a library it is. My inner geek squealed gleefully at the prospect of three floors packed to the brim with books, journals, law reviews, antique books and statutes from far-flung countries. And this was even before I had set sight on the building itself, a metal-and-glass ode to minimalism designed by the world-famous architect Norman Foster. We soon found out that the Cantabrigian version of Freshers’ Week was a vibrant affair, with student organisations setting up camp over acres of green fields. Trotskyists, feminists, Evangelical Christians, LGBT campaigners, anti-war lobbyists and military aficionados set aside their differences in a collective effort to reel in starry-eyed Freshers with their wares. Ever the keen tourists, we could not resist a Freshers’ Week rite of passage: punting down the River Cam. Punting is a bit like canoeing, only the boats (called ‘punts’) are especially lightweight and are propelled by pushing a seven-foot pole

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against the river bed. After watching two boatfuls of Freshers capsize haplessly, we decided to take the lazy (read: ‘not soaking wet’) option: hiring a qualified punter. This turned out to be a brilliant idea, as he doubled as a tour guide, peppering his spiel with anecdotes, the most audacious of which it would be unwise to repeat in print. Half-way through our stay in Cambridge we caught the train to London where we were taken on a guided tour of both the Supreme Court of Justice and the Royal Courts of Justice. Forgive me for waxing lyrical about libraries once again, but the Supreme Court library is a gem. Upon being appointed to the Bench, each Supreme Court Justice must choose a quote that best sums up his thoughts on Justice. This is then engraved on the library walls. My favourite was an aphorism by Martin Luther King: 'Injustice anywhere is a threat to Justice everywhere. We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly affects all indirectly.’ Before lunch, we had a tete-a-tete with Lady Hale, the first, and to date the only, female Supreme Court Justice. Lady Hale is renowned for both her pioneering work in children’s rights as well as her unbridled feminism. In person, she was a sparkling conversationalist who gamely bestowed professional advice that we readily lapped up. Shortly after, this time at the Royal Courts of Justice, we had the pleasure of meeting Lord Justice Jacob, a leading figure in Intellectual Property Law, whose wry wit and sheer love for legal education had us in thrall. On Thursday night, we made our way to the famed halls of the Cambridge Union, whose past Presidents and Officers include the economist John Maynard Keynes, Huffington Post founding editor Arianna Huffington and former Tory Leader Michael Howard. At the Union, we witnessed a heated debate on the proposition: ‘This House would abolish all public schools’. A Communist and a public school headmaster went head to head in a bid to win the hearts and minds of their audience. At the end of the debate, we were told to cast our vote by exiting through one of three doors: the left door meant ‘Nay’, the right door meant ���Yay’, and the middle door was for those poor souls still oscillating undecidedly between the two options. And after a debate like this one, who could blame them? It would be an understatement to say that lectures at the Law Faculty were a sheer pleasure to attend. We couldn’t help but notice how meticulously prepared each lecture was. One lecturer was evidently on first name basis with the leading legal thinkers on the syllabus, while another was someone whose textbooks I have cited in assignments and exams. On Friday night, we attended an inaugural dinner with the new graduate students enrolling at Magdalene College, which houses the only dining hall in Cambridge still not supplied with electricity. This has given rise to a quaint tradition: candlelit dinner in pitch darkness, which we enjoyed in the company of Professor William Cornish, a luminary in the field of Intellectual Property Law. We could not have asked for more congenial company, as he regaled us with his insider’s view of Magdalene’s illustrious history. Seven days flew by all too quickly and soon it was time to bid Cambridge farewell. When our taxi arrived on the last day, our eyes lingered in a futile attempt to immortalise one final memory of the University we had quickly grown to love. As our plane grazed upon Maltese soil, we were jolted back to reality with a gentle thud. The winning team from the University of Malta would like to thank the organising coordinator of the CEEMC Mooting Competition Ms Denise Ashmore as well as Professor William Cornish and his secretary Ann Smith for this unforgettable opportunity.

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An Alternative Environmental Impact Study Denise Ashmore

News programmes, newspapers and academic articles abound reporting the various studies undertaken to assess whether global, national or regional activities or failure to act will have an impact on the environment. Each report highlights the disagreement that exists between opposing camps; those arguing that urgent action is needed to limit the danger and those which argue the opposite; both citing scientific studies in support. Two recent UK cases will not cause a single ripple in this scientific discussion but do demonstrate that even a small ripple may bring indirect tidal effects.

Environmental Law

The European Union enacts a continuous flow of harmonising legislation on environmental issues predominantly to comply with international treaty obligations but also to adopt measures proposed resulting from the experience of the most environmentally active Member States. Although many directives require /encourage national implementation measures, commissioned reports continue to highlight many differences in the internal effectiveness of national legal measures taken. The United Kingdom would argue that that it has a good record in its implementation of environmental law and its enforcement, particularly following the creation of the Environment Agency; tasked specifically with the control and supervision of issues such as treatment and control of contaminated waste, and the enactment of the Environmental Protection Act 1990 and consequent Environmental Protection Agency Act 1992. This article looks at two indi“ rect issues which may have a lasting impact in a national legal con- “Mention was text.

O b i t e r

“mention was made a number of times in

the judgment of the ‘naivity’ of the Council and its operatives in this area and the ‘dig and dump’ approach to ‘shifting muck’ adopted by the licence holders

A: THE CORBY COUNCIL DEBACLE Our first case hit the national headlines in 2009, bringing back dark reminders of the group litigation which followed the discovery that the so-called ‘miracle’ thalidomide drug prescribed to mothers from 1958 to ease the effects of morning sickness was in fact the direct cause of the birth of some 10,000 children with deformities, requiring the payment of millions of pounds in compensation to those affected.

made a number of times in the judgment of the ‘naivety’ of the Council”

When a ‘statistically significant’ (Per Mr Justice Akenhead Corby Group Litigation) cluster of children with defects to their hands and feet were born in the Corby area between 1989 and 1999, it was not surprising that it was felt that this could not arise from a random cause. The ensuing investigations led to a 10 year battle to identify the cause and seek compensation for those affected. This finally culminated in 2010. In due course a class claim was initiated against the Corby Borough Council (Corby Group Litigation claimants –v- Corby Borough Council [2009] EWHC 1944 (TCC)) before the London High Court seeking a declaration of breach of duty of care under the Environmental Provisions Act 1990 and public nuisance in its management of the industrial waste arising out of the closure of the British Steel plant in Corby. In July 2009 Mr Justice Akenhead found in favour of 16 of the 18 claimants in the initial group litigation finding prima facie both a public nuisance and breach of statutory duty but leaving open the issues of direct causation links for each of the claimants to prove. Finally in April 2010 it was announced that a settlement was reached whereby 19 claimants D i c t a


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would receive an undisclosed sum from the Council in settlement of their claim thereby obviating both the continuation of the court case and any possible formal declaration or finding of tortious liability against the Council. This case is of legal interest for a number of reasons:1. It demonstrates the emphasis of mediation in the civil court system, the case itself having taken the place of an inquiry into the issue, but suffering from the limitation of remaining bound by procedural rules meaning that the judge could not perform an inquisitorial role but had rather to consider the case as presented and proved by the Claimants including deciding the issues applying the civil burden of proof (on the balance of probabilities). The resulting judgment was rather a clarification of various pre-liability issues rather than a finding of specific breach of duty by the Council to an individual claimant. Mr Justice Akenhead mentioned often in his judgment his concern as to the reliability, sufficiency and accuracy of both medical and scientific evidence in the case. 2. The judgment led to detailed negotiations between the parties lasting over a year, each now knowing the likelihood of a finding of liability if the case was pursued to the end in court but also at the same time being aware of a number of difficulties of causation that would arise. Students of tort law will remember in particular the difficulties caused by recent cases of Fairchild [2003] 1 AC 32 and Barker –v– Corus [2006] AC 572 in this respect, particularly here where the potential amount of claimants would be much wider thereby raising policy concerns in this respect, particularly in relevant in circumstances such as our case where the potential amount of claimants would be much wider thereby raising policy concerns such as floodgates. 3. Another tortious issue arises in the potential finding of liability against a public body; whether local or national in relation to its negligent performance of its statutory obligations. This was due not only to the limited amount of supervision undertaken but also to the Council and its operators lack of experience and knowledge in dealing with contaminated waste in the dismantling of such a ‘brown site’ (site with known issues of containment and disposal of contaminated waste). Legislation requires that such operations can only be undertaken by bodies holding an appropriate licence and so be supervised and policed by the Environment Agency. Indirectly though it also arguably opens a ‘can of worms’ in that full compliance and prevention of future liability would require a further injection of public monies to fund the extra resources and training needed, particularly interesting at a time when UK governmental measures are rather cutting than increasing their budgetary obligations. In the Corby case for example, mention was made a number of times in the judgment of the ‘naivity’ of the Council and its operatives in this area and the ‘dig and dump’ approach to ‘shifting muck’ adopted by the licence holders, both in spreading contaminated mud left on lorry wheels and in not requiring that lorry loads were fully covered when leaving the site to avoid the spreading of dust and contamination in the Corby geographical region. One should remember that this was after all a local council with little experience in this modern and rapidly developing area of law and which had little practical ability to avoid the imposition of supervisory obligations. 4. In balancing the considerations leading to a common law duty of care, one issue taken into account by the courts is the purse that pays the compensation. Here the purse will be that of the local ratepayer, as the Corby Borough Council was (perhaps surprisingly) uninsured. Indirectly therefore we see the problematic balancing act set of ensuring that compensation is received but that the person at fault should pay. It is difficult though to argue that local taxpayers in Corby would have any knowledge or responsibility in this tragedy so should the imposition of a statutory duty rather be combined with the creation of a statutory compensation fund? Insurance companies will surely be willing to provide cover here but at what cost? At this stage the actual impact of this case remains unclear, the Council agreed to compensate all 19 claimants (though knowing that at least three of these would not have been able to establish the necessary


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causation and liability required by a civil court). The mere threat of potential liability has no doubt ensured a flood of warning notes and instructions and consequent tightening of procedures in supervisory bodies, but whether it will also have an actual effect upon the development of the tort of negligence or on the creation of a public fund from which compensation may be paid, remains far from clear. B: ACCESS TO JUSTICE – PROHIBITIVELY EXPENSIVE CIVIL COURT COSTS. Our second case concerns the relatively little known UNECE (United Nations Economic Commission for Europe) Aarhus Treaty on access to environmental justice to which the UK became a signatory in 1995 and which also forms part of European Union law since 2005. Issues of access to justice in the English and Welsh legal system are considered elsewhere in this newsletter but it is interesting to note that international measures are mirroring the same criticism of the UK civil court legal costs that can be noted in recent national reviews such as that published by Lord Young in 2010. In a complaint initiated by activist lawyers ClientEarth and the Marine Conservation Society in 2008; concerning the dumping of contaminated waste, the compliance committee of the Convention recommended a finding of breach against the UK . It highlighted the procedural rule requiring that costs fall entirely upon a party who fails in their claim/ defence and finds that such costs awards can amount to tens of thousands of pounds; the amount of costs that could be incurred in one single day of a court hearing in London. It continues that this rule acts as a major deterrent to the commencement of judicial review proceedings and as a result creates a huge barrier to justice in environmental issues weighting the system against individuals and non governmental bodies. It is interesting to note that the European Commission took a similar view in 2010 when it initiated proceedings against the UK government for non compliance with the Aarhus Convention following a WWF complaint.

EU lets action on air quality legislation lapse Alexander Lovelady

In a press release earlier this month, the European Environment Commissioner Janez Potočnik sets out a less than optimistic picture of the state of the EU’s efforts to combat the problem of air pollution. Amongst the concerning points raised by the Commissioner were that “improvements seem to have slowed down in recent years,” and that “areas where we are not on track include pressures on ecosystems from air pollution ... and air quality in urban areas.” he goes on to say that “In spite of the general success of our policies, some Member States are set to overshoot the ceilings concerning nitrogen oxide while others are also facing infringement procedures for failing to meet Particle Matter limit values.”

measures in order to bring progress back into line with targets? Not a bit of it. Commissioner Potočnik instead outlines a number of vague ideals, and concludes by reassuring the reader that the National Emission Ceilings (NEC) Directive (one of the most important EU legislative measures preserving air quality), despite having been “due for revision for some time,” will not be revised until some unspecified future time in order to synergise with other measures “in the pipeline and/or envisaged.” A whitewash.

Other European departments are equally concerned by the lack of action on this. The European Environmental Bureau described its mood as “confused and deeply disappointed” by Surely then it is time for European Un- the fudging of this issue. They point out ion policy to introduce some tougher that analyses have shown that the

benefits of a revised NEC Directive will significantly outweigh the costs involved. A parting thought from the writer is that – despite the benefits on paper – the prospect of the immediate national costs of implementing further environmental obligations are likely to make some cash-stricken Member States turn a little green...


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Market Surveillance in the EU Anna Novak, second year student. Warsaw Centre

European Perspectives

Market surveillance is a useful tool to improve the development of the single market. Mainly it is defined as a set of rules concerning requirements for safety and quality that products placed on the market shall meet. Implementation of the system is achieved through obligations put upon entrepreneurs and proceedings and actions undertaken by European and Member State surveillance authorities. The structure of market surveillance rules supports free of movement of goods by ensuring common European technical requirements for products throughout the EU. Single market surveillance rules are created also to put an obligation on entrepreneurs to obey the same rules of safety and quality in the whole EU territory and to ensure that procedures for gaining certificates are also the same. By doing so, an equal level of protection is given to all of the consumers in the EU. It should be noted that the surveillance and technical norms are common for EU countries and European Free Trade Association members. Common regulations, especially technical requirements, apply also in candidate countries (Croatia, Iceland, Former Yugoslav Republic of Macedonia, Turkey, Albania, Serbia, and Montenegro). Many countries participate in work on unification of technical requirements for products to lessen the barriers that products from those countries face before being placed on the single market (e.g. United States of America and China). This cooperation is carried out within the framework of other organizations, like “The new method of the World Trade Organization, the body which encompasses legislation provides the General Agreement on Tariffs and Trade.

O b i t e r

The subjects of market surveillance are mainly products placed minimal obligatory on the market and products that are about to be placed on the rules and a great market. The specific manner in which surveillance is exercised deal of non-binding depends on the origin and category of the product. Products deriving from third countries (meaning every country that is harmonised not a member of EU,EFTA or EEA), but imported to the EU and technical standards� those produced in EU if placed on EU market are subject to EU market surveillance. Products not placed on the EU market, such as those purchased by consumers from a producer located in the third country, are not subject to market surveillance rules, including safety requirements. At the beginning the process of harmonization of laws in the EU had focused on adopting very technical and scrupulous rules in Old Approach Directives. The new method of legislation used in directives provides minimal amounts of obligatory rules (only essential requirements) and a great deal of non-binding harmonised technical standards. The latter are sourced from the standards adopted by European standards organisations, which have been accepted by the Commission after consultation with Member States. The application of harmonised standards, which create a presumption of conformity, remains voluntary. Products may be manufactured directly on the basis of the essential requirements settled in the directive. This method is introduced by New Approach Directives (NAD) and Global Approach Directives (GAD). Some groups of products are subject to special regulation, e.g. food, medical products and chemical substances. Mechanical vehicles are not regulated by NAD or GAD, but other regulations (http:// ec.europa.eu/enterprise/sectors/index_en.htm). As a result, the EU has achieved the

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policy of mutual recognition of products. Once the product is placed on the Member State market it can be automatically sold in every EU country. The rule derives from the treaty and was confirmed and evolved in by ECJ rulings (e.g. Cassis de Dijon case). Member States must presume that all products bearing the CE mark comply with safety requirements and cannot restrict the placing of the products onto the market (unless the provisions settled in NAD are incorrectly applied). In practice, a producer may place a product on the market and freely sell it throughout the whole single market. Member States may however restrict the free movements of goods for reasons enumerated in article 36 (previously article 30) of the TFEU. That prohibition though must be justified and both the Commission and ECJ are supervising Member State’s actions in this respect. Requirements for products differ depending on the category of the product. Some of them are included in the CE marking system. The CE marking certifies that a product has met EU consumer safety, health and environmental requirements. A CE mark confirms that a product met the essential requirements established in the relevant directive. Also, it creates the presumption that the product in question also met the non binding technical standards settled in norms which are harmonized by the relevant directive. However, if a product does not meet requirements settled in a non binding standard the producer may use any measure to prove that product still meets the essential requirements provided in the relevant NAD. The list of standards harmonized within each directive is available on EU Commission Enterprise and Industry website (http:// ec.europa.eu/enterprise/policies/european-standards/documents/harmonised-standards-legislation/list-references/). CE marking is mandatory for the bulk of products (http://ec.europa.eu/enterprise/policies/single-market-goods/cemarking/ faq/index_en.htm (product groups) ) included within the scope of NAD and GAD. The producer (or importer) is obliged first to meet the essential requirements before putting the CE marking on the relevant product. Safety and technical rules for some products are regulated by sector specific laws. Usually products are excluded from the general system of market surveillance because of the high risk which that product may pose towards human health and life. In that case, surveillance is entrusted to highly specialized authorities, e.g. pharmaceutics, medicaments, food, chemical substances. One should notice however, that these products are not included into CE marking system. As a result CE mark cannot be placed on any product not listed in NAD and GAD, mainly because for such a product there are no relevant essential requirements Instead, those products must meet highly specified and detailed regulations and state surveillance over those groups of products includes issuing permission before a product is placed on the market. . Finally, some products, according to the European law, are not subject to market surveillance scrutiny. Mechanical vehicles are subject to homologation (type approval). Safety testing of mechanical vehicles is mainly undertaken on the producers’ request by notified bodies. It is suggested that this field has followed a different path of regulation mainly because of the high costs of testing combined with a lack of willingness among notified bodies and laboratories to cooperate with authorities. The economic pressure put on notified bodies (http://ec.europa.eu/enterprise/policies/single-market-goods/ regulatory-policies-common-rules-for-products/new-legislative-framework/notified-bodies/index_en.htm) by their main clients (producers) not to show any incompatibility might also be an important factor why market surveillance is less strict in this area. However, producers are generally willing to maintain high levels of quality and safety as it improves the sale of their products. Apart from that, producers frequently notify their products to RAPEX (http://ec.europa.eu/consumers/ dyna/rapex/rapex_archives_en.cfm) (more about Rapex can be found below) to lessen the risk of accidents and responsibility for any damage that might be caused by the product to consumers. Other products, not regulated through sector specific law that are not included in NAD and GAD measures are regulated by General Product Safety Directive (GPSD) ( http://eur-lex.europa.eu/LexUriServ/LexUriServ.do? uri=CELEX:32001L0095:EN:NOT). Apart from setting general rules of safety it also harmonizes a set of standards but does not require CE mark. The GPSD provides a description what is required of a product in order that it be categorized as safe: the product must not pose a danger to consumer. The GPSD does not set any technical requirements, mainly because it is


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applies to a wide range of products like bikes, furniture and clothes. The full information about all requirements that products should meet to be placed on the single market can be found on the European Commission website (http://europa.eu/ legislation _su mmaries/intern al_market/ sin gle_market_fo r_goo d s/ technical_harmonisation/index_en.htm)). These rules are generally mandatory for all Member States. However, Member States can include some exceptions from the rule of mutual recognition, but only in order to protect public health or policy. The ECJ has laid down a strict and narrow interpretation of these exceptions (C-5/94 Hedley Lomas Ltd). Every Member State has a Product Contact Point, usually run by the Ministry of Economic Affairs that provides information about the requirements and procedures for placing a product on the single market. In case of non-conformity with EU law, a producer or an importer can be fined by the Member State authority. Such an authority may require that the relevant product be either repaired, withdrawn or recalled from the market, and in some cases even destroyed. It is within the discretion of a Member State’s authority to choose which step is adequate to the risk posed by the product. Also, products can be notified as dangerous in the European common system of information (RAPEX), information may be exchanged during meetings of working groups (ADCO) or commissions. Moreover authorities are cooperating closely in order to maintain a high level of consumer protection (in accordance with European Union aims, see TFEU, Art. 169). Each consumer bears responsibility to reassure himself that relevant marking and labels are on the product: CE mark, ecolabel, hazard warnings, sign of conformity with harmonized norms etc. In case of any doubts, the consumer may address questions to the market surveillance authority, Product Contact Point or consumer protection authority. Moreover, a list of dangerous products can be found on the RAPEX website and national systems. Consumers may also fill in a notification to the appropriate market surveillance authority which in turn will cause initiation of an investigative administrative procedure (http://ec.europa.eu/consumers/strategy/scene_en.htm).

HOT OFF THE PRESS Evidence submitted by the UK Government to the House of Lords EU Select Committee investigating the efficiency of the EU court system disclosed some positive trends. Despite a slight increase in the number of cases before the ECJ in recent years, there has been a steady decrease in the duration of proceedings; a result said to be in part attributable to an increase in the ECJ’s capacity attendant upon the influx of 11 new judges following recent EU enlargements.

It should be underlined that market surveillance law influences which products EU consumers can and cannot buy on the single market. For example, ecological requirements have led to the withdrawing from the market of traditional light bulbs. All of the cigarette lighters that one can buy must have been proved to be “child resistant” (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do? uri=CELEX:32008D0357:EN:NOT) (which is the main reason why sometimes it is so hard to start the flame). Imitations of food are in general forbidden to be placed on the market – including soaps, candles and cosmetics that look like a fruit or yogurt – in order to protect children who may accidentally eat them from poisoning or choking. Huge quantities of Chinese clothing were recalled from the market because of the presence of lead, nickel, and phthalates. Also, alarming quantities of toys, especially from China, have been identified as dangerous, mostly because of the presence of dangerous chemical substances. A long list of products posed a danger of electric shock. Remember, that not only producers behind unknown or cheap brands have placed potentially dangerous products on the market. RAPEX is full of notifications from Mercedes, Volvo, Mattel, IKEA and other international producers.


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EU Law as part of the UK Legal System Steve Terrett

European Perspectives

Students of the various British Law Centres have, for many years, been asked to deal with the question of whether EU law is supreme per se (as the Court of Justice would have us believe, from the time it first declared the doctrine of EU supremacy in Van Gend en Loos and other cases from the 1960s) or whether EU law is to be given effect in the UK purely because the British European Communities Act 1972 states that this is the case.

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The new government seemingly wishes to quash any argument that the former may be true and, accordingly, has inserted a clause into the new European Union Bill (which is not yet legislation!) which states the following:

ties, obligations, restrictions, remedies and procedures referred to in section 2(1) of the European Communities Act 1972) falls to be recognised and available in law in the United Kingdom. Nevertheless, a proposal to add a clause to this Bill which would specifically state that “The UK is, and shall remain, sovereign in all matters” was defeated after a vote in the House of Commons. Perhaps there is still life in the discussion concerning Parliamentary sovereignty and the role of EU law? Let’s wait and see next year’s English Legal System assignment!

S. 18: Status of EU law dependent on continuing statutory basis It is only by virtue of an Act of Parliament that directly applicable or directly effective EU law (that is, the rights, powers, liabili-

Lawyers continue to lead the battle to breach the barriers of discrimination Denise Ashmore

Many of the earlier EU cases on freedom of movement, establishment and services were initiated by lawyers seeking to exercise their rights and this movement continues in 2010. Two cases of note are Koller (Case C‑118/09 Koller (2010)) and the various commission cases alleging protectionism in the exercise of the notary profession (Advocate General’s D i c t a

Opinion in Cases C-47/08 Commission v Belgium; C50/08 Commission v France; C-51/08 Commission v Luxembourg; C-53/08 Commission v Austria; C-54/08 Commission v Germany; C61/08 Commission v Greece and C-52/08 Commission v Portugal). Mr Koller is an Austrian advocate, who having obtained his masters’ degree in Graz then used that de-

gree together with his additional further Spanish legal studies in Spain to obtain the right to practice law as an ‘abogado’ in Spain. He then returned to Austria and sought the exercise his right of free movement to practice as a lawyer in Austria seeking the appropriate recognition and waivers as a qualified Spanish lawyer and the linked right to attend and pass the aptitude


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test required by Austrian law. The Austrian bar took the view this was a deliberate attempt to circumvent the Austrian requirements which included the need for the completion of a period of practical experience before admission. They therefore refused his application stating that his qualifications were not equivalent and did not fall within the provisions of Directive 89/48 requiring mutual recognition of qualifications. On appeal the national court found that there was no abuse but decided to refer the issue of right to enrol on the aptitude test to the ECJ. The Court found that the Directive did cover Mr Koller’s case as he had satisfied the requirements of

completing a course of higher education in excess of 3 years, counting both his Austrian and Spanish qualifications so entitling him to admission to the aptitude test and that any attempt to refuse this right based upon arguments that he had not completed the period of practical experience required by national legislation would be a breach of EU law. The notary profession is no doubt awaiting with baited breath the findings of the court in our second case following the publication of AG Cruz Villalon’s opinion in September 2010 that a blanket refusal to open the notary profession to non-nationals was

discriminatory and could not be justified on the grounds of exercise of public authority. His opinion in particular emphasises that a decisive criteria in seeking to rely upon the public authority exemption is the relationship between the notary and the state. In his view therefore the concern here is the absolute prohibition, he certainly doesn’t preclude the possibility that a more individual application of the rule; following consideration of the actual work carried out by individual members of the profession, might not still be able to benefit from the exemption.

Jurisdiction and Consumer Protection: recent ruling from the Court of Justice Will Odogwu

In December 2010, the ECJ handed down judgment in joined cases C-585/08 and C-144/09 Pammer and Hotel Alpenhof. Important guidance was given by the Court on the application of Brussels Regulation (44/2001), Art 15 (Jurisdiction over consumer contracts). Mr Pammer (an Austrian resident) contracted with a German travel agency for a novel holiday (involving travel by oceangoing freighter) after visiting the agency’s website. On seeing the freighter at the port of departure Mr Pammer refused to board on grounds that the ship did not correspond with the description given to him. He claimed reimbursement of the price in the Austrian courts. The defendant travel agency challenged jurisdiction (Art 2, Reg 44/2001 – defendant’s domicile). In response, Mr Pammer relied on Art 15 maintaining that he was thereby entitled to bring the action in the courts of his own member state (Art 16(1)). In the Hotel Alpendorf case, German resident Mr Heller booked accommodation for a skiing holiday with Hotel Alpendorf in Austria through the latter’s website. At the conclusion of his stay, Mr Heller refused to pay. Hotel Alpendorf sued in the Austrian courts (place of performance of the obligation, Art 5(1)). Mr Heller sought to resist jurisdiction on the basis that Art 15 (read with Art 16(2)) meant that he could only be sued in his own member state. The threshold question determining the applicability of Art 15 confronting the Court was whether the relevant commercial activities were being ‘directed’ towards the member states of Messieurs Pammer and Heller respectively. The Court swiftly concluded that the mere availability of a website in a member state would not satisfy this threshold (placing reliance inter alia on the EU legislature’s rejection of a Commission proposal for inclusion of a recital in Reg 44/2001 supporting such an interpretation). To satisfy the threshold the Court held that the trader must be shown to have “manifested its intention” to establish commercial relations with consumers in the relevant member state. Evidence suggesting the required intention would include availability of information in other languages and display of prices in other currencies, the international nature of the service in question (e.g. some tourist services), use of international dialling codes in contact numbers, use of top-level/ neutral domain names (e.g. ‘.com’ or ‘.eu’), description of itineraries for travel from other member-states for receipt of a service, and the mention of international clientele (e.g. inclusion of testimonies from such persons). Additionally, the court stressed that whether the website permitted the actual conclusion of contracts online was “not decisive.”


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Emergent EU powers to enter investment agreements with third-countries: the view post-Lisbon Will Odogwu

European Perspectives

Since the mid-twentieth century and particularly in the last two decades, the liberalisation and encouragement of cross-border investment has become central to the economic policy of nations around the world, from the most to the least developed. After several failures to establish a multilateral regime for investment liberalisation and protection (United Nations Havana Charter 1948; OECD Multilateral Agreement on Investment; Singapore investment issues included in the Doha Round of WTO negotiations), the efforts of the major trading states have increasingly been directed into developing a favourable international investment climate through the conclusion of bilateral treaties and occasionally, plurilateral treaties (Chapter 11 (on investment matters) of the North American Free Trade Agreement (NAFTA) is the prime example.). Bilateral Investment Treaties (BITs) have been the most popular type of instrument in this field and there are currently some 2750 BITs in force (UNCTAD World Investment Report 2010, p.81), all of them being concluded since the first such treaty between Germany and Pakistan in 1959. Although there are important variations between individual investment treaties, there is also remarkable uniformity in respect of many features, such as, a broad definition of investment, prescribed standards of treatment for investors after entry into the host economy, protections from expropriatory actions (whether “the principal direct or indirect) by host state authorities, and compensation standards in the event of such expropriations. Probably the most factor needing to novel feature and perhaps the most important from the perspec- be addressed in… tive of investors, is the near universal inclusion of dispute settlea transition is the ment provisions in such agreements which permit investors to pursue arbitration in a neutral forum directly against host states (see external generally R Dolzer and C Schreuer, ‘Principles of International Incompetence vestment Law’, OUP 2008). possessed by the

Member States of the EU are amongst the most historically active states in this field. About 1200 (Commission Communication (7 EU” July, 2010, COM(2010) 343), ‘Toward a comprehensive European international investment policy’) of the 2750 existing BITs have been concluded by the Member States of the EU. But given the active and developing practice of very large trading partners such as the US, India and China, it has for some time been accepted that shifting the locus of policy initiative in this area from the Member States to the EU level may generate pay-offs in terms of bargaining power and ultimately better conditions of participation for EU investors in foreign markets (Commission Communication, ibid.). Perhaps the principal factor needing to be addressed in such a transition is the external competence possessed by the EU to conduct such a policy, the focus of the present article. In the following discussion, focus will initially be directed towards aspects of the historic competence of the EU relevant to pursuing an international investment agreement programme. This discussion will then move to a brief overview of the controversy regarding scope of changes to EU powers in this field brought about by the Treaty of Lisbon.

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Evolution of external competence under the Common Commercial Policy, free movement of capital and implied powers On its face, Article 207 in Title II (Common Commercial Policy (CCP)) of Part V (External Action by the Union) of the TFEU signals a clear extension of EU competence over external investment policy as compared to its predecessor provision, Art 133 EC. Under the new article the CCP has been extended to include “uniform principles... with regard to... foreign direct investment” (Art 207(1) TFEU). This is the first time investment matters have been expressly incorporated into the CCP provisions. As has long been recognised (Opinion 1/75, Understanding on a Local Cost Standard [1975] ECR 1355, p.1364), EU competence within the scope of the CCP provisions is not only external, but also exclusive. This means that Member States do not have any competence to conclude treaties with third-countries within this field of activity without specific authorisation. Gaps in the exclusiveness of the external competence founded upon the CCP that became manifest following the Nice Treaty accommodation to the realities imposed by the ECJ decision in Opinion 1/94 (WTO Agreements (GATS and TRIPS) [1994] ECR I-5267) have now been removed by the new CCP provisions in Lisbon (Opinion 1/2008, GATS Agreements (Amendment of Schedules) [2009] ECR I-1129. For discussion see M Cremona, ‘Balancing Union and Member State interests: Opinion 1/2008, choice of legal base and the Common Commercial Policy under the Treaty of Lisbon’, (2010) 35(5) EL Rev, 678). As a result of these amendments, trade in services involving the movement of persons or establishment of a commercial presence in the host state (Modes 2-4 under the GATS WTO agreement) as well as commercial aspects of intellectual property rights (TRIPS WTO agreement) now fall within the CCP exclusive external competence. Nevertheless, the conclusions arrived at by the ECJ in Opinion 1/94 are still crucial to understanding the limitations on external action where proposed international agreements concern subject matter extending beyond the bounds of EU competence. In such situations, Opinion 1/94 established that negotiation and conclusion of international agreements will require the participation of both the EU and its Member States, i.e. triggering national ratification requirements in the latter. Under the scope of the Treaties at the relevant time it was necessary for the agreement establishing the WTO in 1994 to be concluded in this fashion. Such agreements are referred to as ‘mixed agreements’. Before discussing in more detail the relatively recent, although pre-Lisbon, expansions in the CCP competence in the area of services in particular, it must be noted that ever since the Treaty of Maastricht, there has additionally existed an external capacity to regulate the conditions of movement of capital into and out of the EU (now Arts 63-66 TFEU). The crucial relevance of this area of competence to matters regulated by international investment agreements can be seen by the language of Art 64(2) TFEU (which except for the involvement of the European Parliament in the relevant measures, leaves its predecessor provision - Art 57(2) TEC – unchanged): ‘*W+ithout prejudice to the other Chapters of the Treaties, the European Parliament and the Council... shall adopt the measures on the movement of capital to or from third countries involving direct investment... establishment, the provision of financial services or the admission of securities to capital markets.’ However, as was the case under the TEC, Union capacity under Art 63-66 TFEU is somewhat fractured, being subject to permitted derogations by member states in defined areas (Art 65 TFEU) and the grandfathering of member state laws existing on 31 December 1993 (or the same date in 1999 for Bulgaria, Estonia and Hungary), Art 64(1) TFEU. It also should be noted that circumstances to which the free movement of capital provisions are relevant overlap to a large extent with those potentially triggering freedom of establishment (Art 49 TFEU). Art 65(2) provides that the ‘provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with the Treaties.’ In recent case law (e.g. in Cases C-446/04 FII Group Litigation [2006] ECR I-11753 and C-531/06 Commission v Italy (pharmacists) [2009] ECR I-4103), the Court has determined to apply the freedom of establishment provisions in preference to conducting the analysis under the free movement of capital whenever it judges the ‘predominant consideration’ of the national legislation in question to be the regulation of establishment. An example of a situation in which the court will determine the national rule to be primarily concerned with freedom of establishment is where it affects only those transactions whereby a shareholding is acquired which gives a ‘definite influence’ over the company’s decisions. If the rule also affects small shareholders who do not gain any control as a result of the transaction, it is likely to be scrutinised as a restriction on the movement of capital. Since the freedom of establishment does not extend to transactions involving third -countries, the consequences of this overlap constitute another important limitation on the scope of powers relating to the free movement of capital. Trade in services is another area of particularly great relevance to the field of modern international investment law and an area in which, as noted above, significant external EU competence now exists. Services traded by Mode 3 (as identified in


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the terminology of the GATS agreement within the WTO framework) are those provided through the commercial presence of the foreign service provider in the state of the service consumer – a form of activity which, when accompanied by a movement of capital or other resources, would invariably also be characterised as foreign investment in the consumer’s state. As was seen above in the discussion of the ‘gap’ in the pre-Lisbon exclusive external competence under the CCP, all modes of trade in services identified in the GATS nomenclature (as well as agreements involving commercial aspects of intellectual property rights) now fall within the exclusive external competence of the EU. Under the TEC regime (post-Nice Treaty), at Art 133(6), the common accord of Member States was required in situations where the conclusion of an agreement in relation to trade in services or commercial aspects of intellectual property would include “provisions which would go beyond the Community’s internal powers, in particular by leading to harmonisation of the laws or regulations of the Member States in an area for which this Treaty rules out such harmonisation.” Furthermore, a list of specific sectors (cultural and audiovisual services, educational services, and social and human health services) where competence was expressed to be ‘shared’ was to be found in the second subparagraph of Art 133(6) TEC. Such agreements as fell within the scope of paragraph 6 would be concluded “jointly by the Community and the Member States”. The Treaty of Lisbon now unifies the Union exclusive external competence. Special provisions requiring unanimity in the Council continue to apply in situations where the “negotiation and conclusion of agreements in the fields of trade in services and the commercial aspects of intellectual property, as well as foreign direct investment” would “include provisions for which unanimity is required for the adoption of internal rules” and also where such provisions risk “prejudicing” aspects of the sensitive interests in the specific fields mentioned in TEC Art 133(6), i.e. cultural and audiovisual services etc. Importantly however, all such agreements will still be exclusively Union agreements. Furthermore, and in contrast to the regime under TEC Art 133, no powers remain for Member States to act externally independently of the Union in any case where the EU possesses competence by virtue of Art 207 TFEU. All these developments indicate a progressive accumulation by the EU of the powers necessary to conclude international investment agreements containing provisions of the type typically encountered in BITs independently of the Member States (except for the influence of the latter in EU institutions). Nevertheless, even in light of these developments, there are still important doubts whether the EU competence to conclude such agreements is complete. Commitments entered into in BITs typically fall into two categories, those relating to conditions for entry or admission of investment and those providing post-entry protections. In the preLisbon context, EU ability to independently conclude treaties with non-EU states differed markedly depending on whether one was concerned with the former or latter category. Whether the Lisbon Treaty changes the position in this respect is a matter of some controversy (Krajewski, Karel De Gucht, Member of the EC in charge of Trade meets Chen Deming, Chinese Minister for Commerce ‘The Reform of the Common Commercial Policy’, in European Union Law after the Treaty of Lisbon (eds. A Biondi and P Eeckhout) (view expressed that EU competence post-Lisbon is restricted to category 1 (entry conditions)); Bungenberg, Centralizing EU BIT Making under the Lisbon Treaty (Presented at 2008 Biennial Interest Group Conference, Washington D.C.) (view taken by the author that no such restriction now exists)). To date, investment agreements with third-countries concluded solely on the basis of EU external competence have contained considerable commitments on liberalising the conditions for entry of investment relying on EU competence stemming from the capital movement provisions and Art 133 TEC (see for example the EU-Chile Association Agreement, OJ L 352, 30.12.2002). This was (and perhaps still is) where EU external powers relevant to investment are at their most extensive. Even in relation to entry conditions, the extension of exclusive external competence to trade in services that occurred in the Nice Treaty did not open up the entire field of entry requirements vis-á-vis non-EU investors to EU control. For in-


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stance, where a third-country national intends to establish a presence in the EU so as to undertake industrial or agricultural production, the issue raised is not one of entry to provide services and therefore entering into external commitments on access in relation to such types of establishment was not within exclusive EU competence as it stood under Art 133 TEC (L Mola, ‘Which Role for the EU in the Development of International Investment Law?’ (2008), SIEL Working Paper No. 26/08, pp.13-14). As for post-entry treatment of investors, EU investment agreements with non-EU states have so far only given guarantees on post-entry standards of treatment assuring non-discriminatory treatment such as national treatment (with the notable exception of the Energy Charter Treaty (ECT); a mixed agreement); a boundary which reflects the limits on the scope of internal EU competence to control member state treatment of nationals of other member states in the post-entry phase. Obstacle based scrutiny, decoupled from discrimination, such as is indicated by the approaches in Dassonville (Case 8/74 [1974] ECR 837) and Säger (Case C-76/90 [1991] ECR I-4221) (in the context of goods and services respectively) only extends to the host member state legal/administrative regime on entry; post-entry treatment is still controlled through discrimination-based standards (L Mola, op cit.). In marked contrast, virtually all BITs offer investors of a party to the BIT investing in the economy of the other party standards of post-entry treatment that are not linked to the level of protection the host state makes available to its own nationals. Foremost among such universal standards found in BITs are provisions assuring investors fair and equitable treatment, full protection and security and full compensation in the event of expropriation (Dolzer and Schreuer, op cit.). A clear deficiency in EU competence, when measured against the content of nearly all BITs, is therefore apparent. Leaving aside any possible effects due to the new Art 207 TFEU for the time being, ECJ jurisprudence reveals a pathway by which the short-fall in external competence could conceivably be overcome; specifically, through fuller utilisation of internal harmonisation powers relying on articles 50 and 53 TFEU in the field of freedom of establishment. ECJ jurisprudence provides a basis for the existence of parallel exclusive external competence where that is necessary to prevent the integrity of internal harmonised fields being undermined by member states independently contracting treaty commitments with thirdcountries, the so-called AETR principle (Case 22/70 European Agreement on Road Transport [1971] ECR 263). But such leveraging of internal harmonisation into acquisition of external competence depends on internal harmonisation having been substantially achieved (alternative pathways to external competence opened by the ECJ have been largely closed off in this field by Opinion 1/94 which restricts the principle developed in Case 3/76 Kramer [ECR] 1279 and Opinion 1/76 Laying-up fund for inland waterways vessels [1977] ECR 741). Such extensive harmonisation is still some way off. Insufficiencies in external competence for BIT-style commitments are further compounded by some possibly very hard boundaries in the area of expropriation where harmonisation may not be possible. The conditions in which and subject to which property can be expropriated is a question for the systems of property ownership of the member states; an area seemingly beyond the scope of EU intervention (Art 345, TFEU (ex Art 295 TEC)). However, this is subject to national treatment (i.e. non-discriminatory) standards for the acquisition and deprivation of property (Case C-302/97 Konle [1999] ECR I3099 (capital movement) and Case-182/83 Fearon [1985] ECR 3677 (establishment)) in addition to some limitations on the anti-competitive ‘exercise’ of property rights (Case 16/74 Centrafarm BV v Winthrop BV [1974] ECR 1183). It must also be noted that general principles of EU law draw upon ECHR rights (Case 4/73 Nold [1974] ECR 491). In the First Protocol to that instrument an autonomous standard of protection of property rights is recognised. But since scrutiny on the basis of compliance with general principles can only occur in contexts where the Member States are acting within the scope of EU law, it is difficult to see how this could independently generate relevant external competence. In its recent Communication (COM(2010) 343, op cit.), the Commission draws attention to case law (such as Konle and Fearon) which it suggests supports an EU competence to oversee the member state implementation of expropriatory measures on the basis of nondiscrimination and proportionality (at p.9). Requirements of proportionality, the Commission goes on to conclude, may in turn necessitate the payment of compensation (citing EFTA Court, Judgment of 26 June 2007, Case E-2/06, EFTA Surveillance Authority/Norway, para. 79). As an argument suggesting that EU internal competence could extend to regulating purported expropriations (at least when a fundamental freedom is concerned), this has some weight. Its relevance to the external powers of the Union depends upon closer examination of the changes to the CCP introduced by the Lisbon Treaty. Broadened language of the Common Commercial Policy in the TFEU: effects on EU external competence As noted earlier, Article 207 TFEU (ex Article 133 EC), now expressly incorporates “foreign direct investment” (FDI) within the scope of the CCP. In discerning the impact of this inclusion on the EU’s external competence over the field of substan-


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tive commitments featuring in international investment law treaty practice, two aspects of Art 207 require particular consideration. First of these is the substantive scope of the phrase “foreign direct investment”, which appears to exclude many forms of cross-border investment that are customarily covered in modern BITs as well as important multilateral treaties such as NAFTA (North American Free Trade Agreement) and the Energy “The new Lisbon Charter Treaty (ECT). competence… falls short of enabling the Union to independently

The second source of potential limitation, which will be discussed presently, is to be found in Art 207(6). It is worth quoting this provision in full: ‘The exercise of the competences conferred by this Article in the field of the common commercial policy shall not affect the delimitation of competences between the Union and the Member States, and shall not lead to harmonisation of legislative or regulatory provisions of the Member States in so far as the Treaties exclude such harmonisation.’

enter into

As was indicated in the earlier discussion on the scope of external competence in the investment sphere under the pre-Lisbon Treaty framework, some of the issues covered by BITs arguably fall within areas that the EU did not traditionally possess competence in relation to (internal or exterrelating to portfolio nal), given the existence of express “without prejudice” provisions in the Treaty (such as Art 345 TFEU (ex Art 295 TEC)) and the lack of harmonisation through secondary legislation in the parallel investments” fields of activity in internal EU law. On the basis of this reference to the ‘delimitation of competences’, it can be argued that the effect of Art 207, through its reference to FDI, is merely to extend EU external competence so that its capability to enter into agreements liberalising conditions of first entry into or establishment in the EU is extended from the pre-Lisbon scope covering only trade in services so as to now encompass industrial and other production sectors also (L Mola op cit. p.14). On such a view, agreements on post-entry treatment represent an extension into areas of Member State competence that is not necessarily implied by mere inclusion of the reference to foreign direct investment in the CCP provisions. commitments

However, on a closer examination of the language used in Art 207(6) TFEU, a contrary contention can be put forward. This provision refers to the effect of “any exercise of the competences conferred by this Article...” (emphasis added); it does not refer to effects of the conferral itself. Since the conferral is express in relation to FDI competence (which term in itself contains no inherent limitations to conditions for only entry of such investment), this should arguably succeed in shifting the division of external competence between the EU and its member states even in relation to those aspects of FDI competence that were probably beyond the EU prior to Lisbon, i.e. most significantly, post-entry treatment standards for investment and expropriation not linked to national standards of treatment. The limitation contained in Art 207(6) could still be rendered effective through recognising that any exercise of the external FDI competence by the EU could not have the effect of changing internal law in ways otherwise beyond Union powers or generating new areas of competence beyond their otherwise established extent. In other words, so far as external competence is concerned the EU can rely on its conferred powers to generate the necessary latitude of action, rather than the (prohibited) competence generating effects of any exercise of them. As expressed by Krajewski (op cit.), Art 207(6) TFEU “excludes a so-called ‘inverse AETR effect’ by which an implicit internal competence could be derived from an explicit external competence.” A view confirmed by the explicit exclusion of harmonisation in areas where this is prohibited by the Treaties. In this way, problems are displaced to the level of ensuring member state compliance with commitments entered into externally by the Union. In Opinion 1/75 (op cit.) the court expressly accepted the possibility that EU powers on the two levels may be unmatched in some areas. Whilst the above interpretation would generate a situation of greatly enhanced external FDI competence for the EU combined with a necessity to work out issues in detail with Member States when it comes to internal implementation of international commitments, some commentators have drawn upon the object and purpose of the wider context of Art 207 to support the view that a construction of this breadth cannot be adopted (for example, see Krajewski op cit.). Contentions for a narrow reading which restricts EU external competence to liberalisation, i.e. the removal of investment entry restrictions, are generally based on the purposes said to be apparent in Art 206 TFEU (ex Art 131 EC). By establishing a customs union in accordance with Articles 28 to 32, the Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers. In assembling arguments in support of this relatively narrow construction of the new powers introduced by Lisbon in rela-


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tion to FDI, reliance is placed on the negotiating history of the unsuccessful Constitutional Treaty (CT) due to the close parallels between the language of the final text of that instrument and that appearing in Arts 206-207 TFEU. Negotiations towards incorporating investment issues into the WTO framework were contemporaneous with the establishment of the CT text and advocates of the narrow construction suggest that facilitating participation through the EU in the ongoing WTO Development Round, nothing more, was the purpose for the expansion of competence. It might be noted that the reverse inference is equally plausible given that one delegate from a major Member State (the United Kingdom) proposed unsuccessfully that the language should be explicitly limited to participation in WTO negotiations. Nevertheless, the narrow construction still has considerable strength in the light of the wording of Art 206 TFEU. However, given that it is quite possible to give the competence created a much wider construction, e.g. by noting that uncertainty in relation to the political risks of investing in a host state in the absence of legal protections against arbitrary governmental conduct could dissuade otherwise keen investors and could thus be understood as constituting a barrier to investment, it must be wondered whether it would be the construction actually adopted by the ECJ should the issue fall for decision. A number of factors array in favour of a broader reading of the new competence in relation to FDI. For one, there is the general context in which the provisions were formulated; as much as WTO negotiations on investment issues were at one time a live issue and so would have been present to the minds of those involved in the drafting, it is so much more apparent (recalling the very high number of largely consistent BITs that have been concluded in recent decades) that the practice of including post-entry protections in international investment agreements would have weighed upon minds. It might also be noted that the reference to the “harmonious development of world trade” in Art 206 TFEU could support a wide view of the underlying purpose pursued by the conferral of CCP external powers on the EU and there is little apparent reason to exclude FDI from the scope of such a purpose. But perhaps most fundamentally, the same logic which favours negotiation by the Commission and a coordinated stance between the member states in the WTO (i.e. trade partners with the size and negotiating clout of the USA, China, India, Brazil, Russia, etc) also pushes strongly towards attributing the EU sufficient external competence in the field of foreign investment to generate leverage upon member states in the direction of a unified negotiating position; something which would be difficult to achieve if Member States could break from the common position to conclude their own independent BITs with the negotiating partner (for an excellent summary of these considerations in the context of the CCP, see the opinion of AG Kokott in Commission v Council C-13/07 of March 26, 2009 at [72][73]. See also Bungenberg, op cit.). Whether or not the arguments presented here are accepted, there is little doubt that the EU, even after Lisbon, does not possess sufficient competence to conclude agreements having the breadth of scope that has come to be expected of BITs. This can be stated with considerable confidence due to the use in the TFEU of a particular phrase which has come to reflect a restrictive categorisation of investment: ‘foreign direct investment’. Foreign Direct Investment vs Portfolio Investment ‘Direct investment’, as in FDI, has been attributed a rather limited meaning as the field of international investment law has developed. It by no means extends to every contribution of capital or other assets to the economy of a foreign state. According to the IMF, “The direct investor seeks a significant voice in the management of an enterprise operating outside his or her resident economy. To achieve this position, the investor must almost invariably provide a certain, often substantial,

European trade with Calicut, India, from the atlas Civitates Orbis Terrarum c.1572


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amount of the equity capital of the enterprise” (IMF Balance of Payments Manual, 1993, p.80; see also the nomenclature in the appendix to Directive 88/361/EEC). As the ECJ has noted in Commission v Portugal (Golden Shares) in the context of capital movements, “direct investment is characterised, in particular, by the possibility of participating effectively in the management of a company or in its control.” (Case C-367/98, para. 38) The concept of direct investment so elaborated is to be contrasted with that of ‘portfolio investment’. In the Balance of Payments Manual, the IMF broadly defines portfolio investment as investment in equity and debt securities “other than direct investment” (emphasis in the original), i.e. other than seeking participation in the management of the enterprise. Modern BIT practice rarely restricts covered investments to those that would fall into the category of FDI described above. Frequently, it is sought to define the term ‘investment’ for these purposes in the broadest manner possible and typically these definitions encompass portfolio investment. These all-embracing definitions are frequently lengthy, examples of which can be seen in the BITs concluded by the United States and in major plurilateral agreements such as NAFTA and the Energy Charter Treaty (ECT) (For comprehensive treatment, see R Dolzer and C Schreuer, op cit. pp.60-71). Occasionally, narrower definitions, restricted to FDI, are seen in investment agreements. But this is in large part restricted to the EU’s own earlier treaty practice under the narrow pre-Lisbon competence, e.g. Art 45 of the Free Trade Agreement between the EFTA States and Mexico, 27 Nov 2000. EU competence to provide investor state dispute settlement commitments Probably the most valued component of the BIT regime from the perspective of investors is the provision made for dispute settlement. Virtually all BITs provide the option for aggrieved investors to pursue arbitration directly against the host state (see R Dolzer and C Schreuer, op cit. pp.214-290) – a significant innovation on traditional public international law, where only states had access to dispute settlement and the investor had to rely on the (rather precarious) possibility of diplomatic protection by his home state (Mavrommatis Palestine Concessions case, PCIJ, Ser. A, No. 2). Under the relevant dispute settlement provisions, the investor is typically entitled to commence arbitration without any prior requirement to exhaust local remedies, i.e. by pursuing the claim through the courts of the host state. There are many reasons for the popularity of arbitration in this context, including the often speedier resolution of the dispute and probably most importantly, the perceived greater impartiality (or even investor friendliness) of an arbitral venue not within the host state’s court structure. As a consequence, if the EU is to be able to conclude investment agreements which are competitive in terms of attracting foreign investment capital and providing strong protections for EU investors investing abroad, it needs to include provision for investor-state (i.e. including investor-EU) arbitral dispute settlement in its agreements. This presents another difficulty for the EU. The arbitral venue offered in BITs that enjoys the greatest popularity is the facility provided by the International Centre for the Settlement of Investment Disputes (ICSID), an institution initiated under the auspices of the World Bank. By virtue of Art 53 of the ICSID Convention (the multi-lateral treaty which established the Centre and has so far been signed by 157 states), awards rendered by ICSID are not subject to annulment or revision except in accordance with the provisions of the Convention. Furthermore, under Art 54, any State that is party to the ICSID Convention must recognise and enforce any award rendered by an ICSID tribunal as though it were a final judgment of a court of that State. However, there is no capacity under the ICSID Convention or the alternative Additional Facility Rules of the Centre (the latter being the appropriate venue where either the investor’s home state or the host state is not party to the ICSID Convention) for an international organisation, such as the EU, to become a party. Therefore, as the ICSID Convention presently stands the Union can provide no valid commitment to submit to ICSID arbitration regardless of whether or not it enjoys a relevant external competence vis-á-vis the EU Member States. Any ICSID tribunal would simply not be capable of asserting jurisdiction over a dispute involving the EU as a party. In light of the shortcomings discussed, the new Treaty of Lisbon competence, on even the most favourable interpretations that are plausible, still falls short of enabling the Union to independently enter into commitments relating to portfolio investments and dispute settlement through ICSID. It seems that any competitive EU programme to develop a network of ‘full-service’ EU international investment agreements will have to rely on participation in such agreements by the EU Member States in addition to the EU. Indeed, the one current example of an investment agreement to which the EU is a party which does reflect the breadth of protections typically found in BITs (except that it is restricted to energy sector investments), the multilateral Energy Charter Treaty (ECT), was (necessarily) concluded as a mixed agreement. As indicated in a statement issued by the European Communities on the operation of the dispute settlement provisions of the ECT (OJ L 69/115, 9.3.1998), complicated issues of allocation of international responsibility between the EU and its Member States for any wrongs done to investors may arise, and in any case investors will have to forego the option given in the Charter to use ICSID Arbitration if the investor seeks to proceed against the EU (either in addition to or in place of a Member State).


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Alternative non-ICSID arbitral venues are also available to investors under the relevant provisions of the ECT, but for the reasons indicated above these are unlikely to be as attractive to investors as ICSID arbitration. The way forward Whichever way the relevant provisions and legal context are analysed, it seems safe to conclude that the EU after the Lisbon Treaty still lacks sufficient competence to conclude an agreement having the scope characteristic of a BIT. Once this position is accepted, the crucial remaining issue is whether the member states continue to retain sufficient external competence (given the exclusivity of the external competence allocated to the EU by the CCP provisions) to conclude BITs independently, i.e. without specific authorisation by the Commission. Commitments on access or admission to the economies of the parties to BITs are not a universal feature of such treaties (there is a split between North American/ Japanese BIT practice and European states’ practice in this respect (see R Dolzer and C Schreuer, op cit. pp.80-82)). Since BITs concluded by European states have typically not included such commitments, if a particularly narrow view of EU competence under Art 207 TFEU is taken (i.e. excluding any exclusive competence in the field of post-entry treatment standards), member states could possibly continue with their own independent BIT negotiation and conclusion programmes giving commitments only in relation to post-entry conditions as they typically have done to date. Even if this were so, in light of recent case law, it is generally advisable for member states to include REIO clauses in their BITs so as to ensure their compliance with EU law, as is demonstrated by the successful pre-Lisbon Art 226 TEC (now Art 258 TFEU) actions brought against three Member States in respect of BITs that they had entered into with third-countries prior to their accession to the EU (Cases C -205/06 Commission v Austria (3 Mar 2009), C-249/06 Commission v Sweden (3 Mar 2009), and C-118/07 Commission v Finland (19 Nov 2009)). The BITs were adjudged incompatible with the TEC since the commitments they provided to thirdcountries in relation to freedom of capital movements interfered with the possibility (should the need arise) of the EU effectively and quickly utilising the emergency restrictions on capital movement powers provided by what is now Art 66 TFEU. REIO or Regional Economic Integration Organisation clauses are essentially savings clauses that allow a party to an investment treaty to discriminate against the other party’s investors or in other respects depart from adherence to the commitments contained in the agreement where the law of the REIO to which that state belongs so requires. Devices such as the REIO clause have the unfortunate quality of introducing considerable uncertainty and nontransparency into the balance of commitments that the parties to the investment agreement have entered into. Commitments are shaped and limited by the law of the REIO in question, necessitating the prudent negotiating partner’s thorough familiarity with an additional large body of law; not to mention the dynamic effects that may result from development in the REIO’s internal legal system. In light of the uncertainty generated even in the case that the EU external competence in this area were construed as essentially unexpanded by the advent of the Lisbon Treaty (which as suggested in the earlier discussion is a relatively unlikely outcome), the aims, at least in so far as they seek to clarify the post-Lisbon situation for investors, of a recent Regulation proposal published by the Commission have much to recommend them. In the proposed Regulation (COM(2010) 344 final, 7.7.2010), provision is made firstly for the authorisation of existing BITs concluded between Member States and thirdcountries that are notified to the Commission to remain in force in the post-Lisbon environment (Arts 2 and 3) and secondly, for a process by which Member States could be authorised (subject to conditions) to enter into negotiations with third-country partners revising existing BITs or aiming towards new BITs with third-countries (Arts 7 and 8). In respect of both existing BITs and new negotiations to amend or enter BITs, the Commission would be provided with the power to either withdraw or refuse authorisations (as the case may be) on grounds of incompatibility with the EU law obligations of the Member State(s) concerned, overlap with any existing EU level investment agreements or on grounds that the BIT constitutes an obstacle to negotiations being conducted with the third-country by the Union or to its policy objectives under the CCP (Arts 6 and 9). Although a full analysis of the proposal is beyond the scope of the present discussion, this brief survey of some of its key provisions is enough to suggest that the Commission has grasped the importance of the leverage it has gained through its probable capacity to prevent Member States independently concluding BITs without its authorisation; even if it may be forced to concede that future full-coverage investment agreements will need to be concluded as mixed agreements by both the Union and its Member States.


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Conclusion Through the course of the discussion presented here, the objective has been to elucidate the likely scope of Union external competence changes effected by the introduction of ‘foreign direct investment’ policy into the scope of the CCP provisions of the TFEU by the Treaty of Lisbon. The specific context of this discussion has been a comparison with the range of powers required to successfully conclude an agreement having the scope of substantive and dispute settlement provisions typically present in a modern bilateral investment treaty (BIT). As the discussion has shown, resolving the question of the scope of the Union’s extension of competence is surrounded by considerable uncertainty. In part this is due to the link between the pre-Lisbon division of competences between the Union and its Member States and the post-Lisbon situation created by Art 207(6) TFEU. But it has been argued that these problems are rather less significant than first appears and that the Union is presented with a problem of internal coordination so as to implement external commitments within the EU internal order more than one of lack of treaty-making competence. The point upon which authoritative pronouncement is most needed is whether the purposes of the CCP can be taken to extend beyond mere liberalisation of restrictions on admission to the EU. If not, the capacity of the Union to enter agreements containing commitments on post-entry treatment is thrown into some doubt due to the possible narrow construction of that capacity that would follow. Nevertheless, the view has been adopted here that the wider international context, including the sheer scale of the international actors beyond the EU’s borders who will compete in this field with the Union and its Member States, dictates a broad construction. Finally, it has been seen that due to further difficulties relating to the probable exclusion of portfolio investments from the coverage of the new FDI competence and the inability of the Union to participate in highly popular established dispute settlement fora, a programme of new EU-level investment agreements may need to be pursued in the form of mixed agreements in any case. Moves by the Commission to set the stage for the pursuit of an EU foreign investment policy through its proposed Regulation, which seeks to stamp its authority over Member State powers to conclude fullcoverage BITs, show that the Commission is seeking to maximise its leverage over Member States without adopting a committed view as to whether the EU possesses sufficient power to enter such agreements without their participation.

The Digital Economy Act 2010 – the “sledgehammer that misses the nut” Alexander Lovelady

The Digital Economy Act 2010 (“the DEA”) is yet to come fully into force. Already however many have criticised this piece of legislation, rushed through during the dying days of the Labour government, as unworkable. The most significant effect of the DEA is to compel internet service providers (ISPs) to notify copyright holders of infringing downloads by their users, and also to send “warning letters” en masse to such users in an effort to deter them from these insidious activities. The DEA will also make provisions for copyright holders to apply for a court order to gather information from ISPs about infringing downloads of their works. There has, from the start, been fierce objection from many groups including digital rights activists, civil rights groups and from the ISPs themselves. Andrew Heaney, the regulation chief of TalkTalk, a major UK communications provider, made the following statement: “The Act was rushed through Parliament in the 'wash-up' with only 6 per cent of MPs attending the brief debate and

has very serious flaws. The provisions to try to reduce illegal filesharing are unfair, won’t work and will potentially result in millions of innocent customers who have broken no law suffering and having their privacy invaded. ... Somebody described it as using a sledgehammer to crack a nut. Well, no, it’s a sledgehammer that misses the nut. It doesn’t crack the problem." BT and TalkTalk have begun an action seeking judicial review of the DEA on the basis that it infringes a number of provisions of European law, including: Directive 98/34/EC (the Technical Standards Directive); Directive 2000/31/EC (the E-Commerce Directive); Articles 52, 56 and 61 TFEU and Articles 8 and/or 10 of the European Convention on Human Rights. The Statement of Facts and Grounds for the application can be found at http://www.scribd.com/full/39828753? access_key=key-16tl6ypnuredxyh1bwzk


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Law Applicable to Proprietary Aspects of Securities Martin Mojzis, alumni class of 2008, Bratislava Centre

Introduction

Commercial & Litigation

Over the past couple of decades markets in securities have grown rapidly in size and in complexity. It is no longer common for the investors to hold securities in the form of certificates and transfer them by delivery or endorsement. Even if the securities are issued in bearer form they are usually immobilised so as to allow interests in them to be transferred by the making of entries in electronic registries. Furthermore, securities are often held by the investor through a string of intermediaries. As a result, usually only an agent or a trustee with whom the bearer securities are deposited or the person who is shown as the owner in the register kept by the issuer or the registrar has legal title to the securities whilst other persons only hold some form of interest in securities. The markets are so global and interconnected that the issuer may be based in Slovakia, the agent with whom the bearer securities are deposited may be based in Luxembourg and the investors may be spread across the entire globe, not even to mention many intermediaries through whom the investors hold their interest in securities. Given the size of the market and value of positions that the investors take the legal certainty as to the content and enforceability of rights that these investors and intermediaries hold in respect of such securities is immensely important. Of course given the number of international elements “The markets are that the markets in securities comprise, the logical starting point in so global and order to ascertain the content of rights and their enforceability is to determine the country the law of which will apply to the securi- interconnected ties and interests therein. It is at this point that private internathat the issuer, tional law comes into play.

O b i t e r

Legal Nature of Securities and Interests Therein

the agent and the investors

All securities are forms of intangible personal property (Some authors argue that the documentary intangibles are a form of tangi- may be spread ble personal property, see J Bejamin Interests in Securities (Oxford across the entire University Press, Oxford 2000) 36; and some authors argue that securities are special kind of assets called “circulating rights”, see E globe” Micheler ‘The Legal Nature of Securities: Inspirations from Comparative Law’ (2009)). This category then can be subdivided into documentary intangibles, which are documents that embody the rights attached to the securities and mere transfer of the documents confers upon its holder rights so attached to the securities, and pure intangibles (R Goode & E McKendrick Goode on Commercial Law (4th edn Penguin Books, London 2009) 32). According to Sir Roy Goode “The convenient way of testing [whether a document is a documentary intangible] is to ask whether the document is of such a class that in ordinary mercantile usage the obligor’s performance would be owned not to the original obligee as such but to whoever is the current holder of the document and in exchange for its surrender” (Ibid, 53). The most obvious examples of documents that would pass this test are bills of exchange, promissory notes and bearer bonds. However, there are securities which would not pass this test despite being in certificated form. Certificated shares are one such example. Even though they are represented in the form of a document, the rights comprising the securities will not pass to the transferee by mere transfer of the share

D i c t a


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certificate. This is because s. 112(2) of the Companies Act 2006 provides that in order for a person to become member of a company, his/her name has to be entered into the company’s register of members. Only share warrants issued under s. 122 of the Companies Act 2006 would qualify for documentary intangibles as the bearer’s name does not have to be entered into the register of members until the warrant is surrendered for cancellation by the bearer under s. 122(4) of the Companies Act 2006. This distinction is important because it affects the way the securities are treated under the rules of private international law. In particular, private international law treats documentary intangibles like chattels (Ibid, 52), whilst pure intangibles are treated like any other chose in action. As mentioned above, participants in the financial markets can either have legal title to the securities or they can have some form of interest in securities. In the case of bearer securities the persons who have the documents representing the securities in their possession are treated as the legal owners of the security (J Bejamin Interests in Securities (Oxford University Press, Oxford 2000) 31). On the other hand, in the case of registered securities, even despite the fact that certificates may be issued in relation to such securities, only the persons shown in the registry maintained by the issuer or by a registrar appointed by the issuer are treated as having legal title to the securities (Ibid, 32). It is important to note that if the investors hold only interests in securities through an intermediary, they usually do not know the identity of all other intermediaries which are between the primary register of legal owners of registered securities or the depositary with whom the bearer securities are deposited. The second important issue is that the risk of a failure of the intermediaries that are in between the issuer and the final investor in securities has been resolved in different ways, although each jurisdiction at least within the European Union should have a system in place that safeguards the investors against the failure of such intermediaries as this is required under MiFID and the implementing directive issued by the Commission under the authority granted to it thereunder (See Article 13(7) of the Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial Instruments, as amended, and Article 16 of the Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organisational requirement and operating conditions for investment firm and defined terms for the purposes of that Directive). In the United Kingdom the implementation of these requirements can be found in Rule 6.2 of the Client Assets Sourcebook Instrument 2003, as amended, issued by the Financial Services Authority and which requires that firms “make adequate arrangements so as to safeguard clients’ ownership rights, especially in the event of the firm’s insolvency”. These rules necessarily affect the nature of the relationship between intermediaries and their clients. Under English law, one of the most apparent solutions is that the assets can be held by the intermediary in a trust for the benefit of the client. In such cases the client assets will be protected in case of insolvency of the intermediary because they will not be available to the debtor’s creditors and may be withdrawn by the client from the intermediary’s estate (J E Penner The Law of Trusts (6th edn Oxford University Press, Oxford 2008) 44-46). In this legal structure if the intermediary always holds the securities or interests in securities on trust for the client, then in a multi-tier situation involving a string of multiple intermediaries, the system consists of a trust and several sub-trusts (J Payne & L Gullifer Intermediated Securities: Legal Problems and Practical Issues (Hart Publishing, Oxford 2010) 19). However, Rule 6.2 of the Client Assets Sourcebook Instrument 2003 does not necessarily require that the client assets be held in a trust and the documentation may potentially include provisions that may exclude creation of a trust. In particular the assets may be held by an insolvency-remote vehicle in a manner that complies with Rule 6.2. In such circumstances it is likely that the nature of the rights that the client may have against the intermediary in respect of the assets would be merely contractual. This is also the case in many civil law jurisdictions where the concept of a trust is not known. For example in the Slovak Republic, the relationship be-


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tween an intermediary and the client is purely contractual and in case of insolvency the client assets are protected by the legal fiction contained in 71h(1) of the Slovak Securities Act (The Act No. 566/2001 Coll. on securities and investment services, as amended (the “Slovak Securities Act”)) under which the client assets are treated as being owned by the clients and not by the intermediary. It is not the purpose of this article to elaborate in detail on the nature of the relationship between the client and the intermediary or on the nature of any transfer or exercise of the rights that the client may have against the intermediary or in respect of the assets held with the intermediary. However, it should be noted that although it might appear that if the client wished to transfer the securities or interests therein to a third party this would be effected by an assignment, it is unlikely that this would be the case. In relation to shares it appears that their transfer is effected by novation (E Micheler ‘Farewell quasi-negotiability? Legal title and transfer of shares in a paperless world’ (2002) July J.B.L. 360-363 and P Davies Principles of Modern Company Law (8th edn Sweet & Maxwell, London 2008) 939). This also appears to be the case with transfer of all types of registered securities (J Bejamin, n 5 above, 63-69). It was also held in R v Preddy [1996] A.C. 815 at 834 (per Lord Goff of Chieveley) in relation to transfer of money held in a bank account that as part of such a transfer “*a+ chose is action is extinguished or reduced pro tanto, and a chose in action is brought into existence representing a debt in equivalent sum”. It was suggested that this analysis should be applied also to interests in securities as the arrangements in case of securities are essentially the same and thus also transfer of interests in securities should in most cases be treated as being effected by novation (J Bejamin, n 5 above, 70). The fact that a trust may be in place probably does not affect the analysis, as the transfer of securities forming the trust fund is unlikely to constitute a disposition under s 53(1)(c) of the Law of Property Act 1925 because there is no obligation for an instruction relating to the management of the trust fund to be made in writing (J E Penner, ob cit, 145). The situation may appear to fall under the rule in Grey v IRC [1959] 3 All E.R. 603 and therefore attract the requirement of writing, if the transfer of interests in securities is made between two accounts maintained with the same intermediary. However, it should be noted that the instruction of the client is not to hold the securities or interests in securities on trust for a third party, but merely to transfer such securities or interests in securities to the third person’s account, without the transferor knowing whether the securities and interests in securities held in such account are subject to a trust or whether such third party accountholder has merely contractual rights against the intermediary. This situation would therefore appear to be very different from Grey v IRC, although there may remain some uncertainty. It follows from this that the application of the analysis contained below will not be always relevant as it may be seen that the transfers of securities or interests in securities may not always include issues of proprietary rights, with the analysis being most prominent in the context of security interests created over securities or interests in securities. Applicable Law The general rule of private international law in relation to tangible personal property is that the lex situs of such asset at the relevant time when any property right is created or varied or purported to be created or varied should be determinative of any issues of nature and effect of any such property right in relation to such tangible personal property (J J Fawcet & J M Carruthers Cheshire, North & Fawcett: Private International Law (14th edn Oxford University Press, Oxford 2008) 1211). As was stated by Lord Chief Baron “if personal property is disposed of in a manner binding according to the law of the country where it is, that disposition is binding everywhere“ (Cammell and Others v Sewell and Others [1860] 157 E.R. 1371 at 1379). The case of Macmillan v Bishopsgate which concerned a transfer of certificated shares in a company incorporated in New York is often cited as an authority supporting the extension of this rule to in-


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tangible property (Macmillan Inc. v Bishopsgate Investment Trust Plc. and Others (No. 3) [1996] 1 W.L.R. 387). The applicability of this rule to the documentary intangibles is not problematic, as it applies in the same manner as to tangible personal property and thus the law of the country where the certificate representing the security is situated at the relevant time is applicable for the purposes of determination of any proprietary rights in relation to such security (J Bejamin, ob cit, 158). However, the application of this principle to pure intangibles is more complex, because these instruments are pure choses in action and as such have no physical situs. As a result, a fictional legal situs has to be attributed to them. In Macmillan v Bishopsgate the Court of Appeal held that “*…+ the issue as to who has title to shares in a company should be decided by law of the place where the shares are situated (lex situs). In ordinary way *…+ that is the law of the place where the company is incorporated” (Macmillan Inc. v Bishopsgate Investment Trust Plc. and Others (No. 3) [1996] 1 W.L.R. 387, per Staughton LJ at 405). Although Staughton LJ commented that situs might also be in the country where the register was situated he refused to comment on this further stating that such problem did not arise in the case before the court. However, Auld LJ set out a broader principle saying that “*situs+ will normally be the country where the register is kept, usually but not always the country of incorporation.” This position is in line with what has been noted above: that shares, although they may be certificated, do not constitute documentary intangibles because registration in the shareholders register is necessary before the status of shareholder and rights attached to that status are acquired. Hence the shares have rather been treated like registered securities and Macmillan v Bishopsgate Investment may be used to support the proposition that the law governing proprietary aspects of registered securities is the law of the country where the relevant register is situated (J Bejamin, ob cit, 158). In case that register is kept in multiple locations, it appears that the situs will be deemed to be in the country where the register in which the transfer would be registered in the ordinary course of business is situated (J J Fawcet & J M Carruthers, ob cit, 1245). It now remains to explore the rules in relation to interests in securities. It was mentioned above that these interests that arise in markets because various systems for indirect holding of securities through intermediaries can usually take form of a beneficial interest under a trust or of a mere contractual right against the intermediary. It should be noted that the Rome Convention (80/934/EEC: Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980 (the “Rome Convention”)) and the Rome I Regulation (Regulation (EC) No. 593/2008 of the European Parliament and the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (the “Rome I Regulation”)) are of little help on this point. This is because under Articles 1(2)(g) and 1(2)(h) of the Rome Convention and the Rome I Regulation, respectively, the applicability of these instruments to trusts is expressly excluded. Furthermore, although Article 12 of the Rome Convention and Article 14 of the Rome I Regulation contain provisions on assignment and Article 14 of the Rome I Regulation even includes a provision according to which Article 14 also applies to the creation of security interests over contractual rights, the scope of these articles does not extend to proprietary rights (See Article 1(2) of Title I of the Report on the Convention on the law applicable to contractual obligations by Mario Giuliano and Paul Lagarde). In Raiffeisen v Five Star Trading the Court of Appeal confirmed that the Rome Convention was restricted to contractual issues, but noted that “the Rome Convention now views the relevant issue—that is, what steps, by way of notice or otherwise, require to be taken in relation to the debtor for the assignment to take effect as between the assignee and debtor—not as involving any "property right", but as involving—simply—a contractual issue to be determined by the law governing the obligation assigned” (Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC and Others [2001] Q.B. 825 at 845-846). It follows that the proprietary aspects of assignment and creation of any security interest will be most relevant in connection with effect of such transactions against third parties such as liquidators or administrators in any form of insolvency proceedings. The court in Raiffeisen v Five Star Trading also confirmed that the orthodox rule was that the situs of a debt was the place of debtor’s residence (ibid, at 842). In relation to the interests in securities, Dr Bejamin strongly opposes the application of the law governing the original contract based upon which the claim arose to proprietary aspects of assignment or creation of a security interest and suggests that the law applicable to proprietary aspects of interests of securities should be the place where the account is maintained, which is essentially identical to the rule that the situs of debt is the place of debtor’s residence (J Bejamin, ob cit, 155). Other authors argue that the law of the assignor’s residence should apply to issues of priority between competing assignments and also in the case of any security assignments (M Bridge ‘The proprietary aspects of assignment and choice of law’ (2009) L.Q.E. 671). It would appear that equitable interests under a trust should be treated in similar manner as contractual rights and the law of the country where the terms of the trust would be enforced in ordinary circumstances should govern the proprietary aspects of any disposition with the equitable interest under a trust, which in most cases would be the place of trust’s domicile or place of


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trustee’s residence (J G Collier Conflict of Laws (3rd edn Cambridge University Press, Cambridge 2001), 252). In the case of interest in securities this would likely lead to the same place which would be the place of intermediary’s residence. This is because although the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition allows the settlor to choose the governing law of the trust instrument and such law would apply under Article 8(g) of the convention also to the relationship between the trustee and beneficiaries, it would appear that similarly to the Rome Convention and the Rome I Regulation such law would not apply to proprietary issues related to dispositions with the equitable interest. The account-based approach has also been adopted by the Settlement Finality Directive and the Financial Collateral Directive, which both under their respective Articles 9 provide for the law of the country where the relevant account is maintained to be the relevant law applicable to the proprietary aspects of such securities or interests in securities (regardless of their legal nature), however, the range of circumstances in which these instruments apply is limited by certain requirements (Directive 98/26/Ec of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems, as amended (the “Settlement Finality Directive”); Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements, as amended (the “Financial Collateral Directive”)). On the other hand, the support for the governing law approach under which the law governing the account agreement with the intermediary is to govern also any proprietary aspects of interests in securities has been adopted in by the Hague Convention of 5 July 2006 on the law applicable to certain rights in respect of securities held with an intermediary. Pursuant to Article 4(1) of the Hague Convention, the applicable law should be the law of the country expressly agreed in the account agreement and it is clear from Article 2 of the Hague Convention that the applicable law would also determine any proprietary issues. Sir Roy Goode is one of most prominent proponents of this approach (R Goode ‘Rule, practice, pragmatism in transnational commercial law’ (2005) 54(3) I.C.L.Q. 539, at 541-545). However, the Hague Convention has only been signed by the United States, Switzerland and Mauritius and only Switzerland and Mauritius have also ratified the convention. Furthermore, following the adoption of the Settlement Finality Directive and the Financial Collateral Directive, it appears unlikely that EU member states or the EU would accede to the Hague Convention which is also evidenced by the recent withdrawal by the Commission of its 2003 proposal for Council Decision on signing of the Hague Convention in March 2009. It is submitted that in the case of interests in securities the most appropriate law is the place of the office where the intermediary maintains the client’s account as proposed by Dr Bejamin (J Bejamin, ob cit,159). This is because the jurisdiction of the intermediary is the place where any enforcement brought in relation to such interests in securities would have to take place. Moreover, it is common that certain settlement systems, such as Euroclear based in Beglium, may have their own system for creation of security interests in securities held in accounts maintained by them under the provisions of their national law and this may also be true in the case of immobilised bearer securities in some jurisdictions, and thus the applicability of this rule would appear to be reasonable and to be also supported by the current market practice. Last but not least, such an approach also closely resembles the rules of private international law in relation to registered securities and, given the similarities between the interests in securities and holding of legal title to registered securities, this approach would produce a more coherent and transparent set of rules. Conclusion When analysing the law of which country should govern proprietary aspects of securities it is important to distinguish three categories of rights that may be concerned in such cases: (i) documentary intangibles; (ii) securities which are pure intangibles; and (iii) interests in securities. The rules of private international law are relatively clear in relation to documentary intangibles where the law of the physical situs of the document governs any proprietary rights related thereto. In relation to securities which are treated as registered securities, it would appear clear that following Macmillan v Bishopsgate, the law of the country where the register in respect of such securities is maintained will determine any issues of property rights in relation to such securities. The situation in the case of interests in securities is more difficult and is clear only in relation to cases where the Settlement Finality Directive or the Financial Collateral Directive are be applicable. It would appear that in all other cases, the adaptation of the general rule applicable to debts under which the law of the debtor’s residence should be the law determining any property rights in respect of such interests should lead also to adoption of the account-based approach.


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The impact of pre-pack administrations: Issues raised by fait accompli sale of an insolvent business Alexander Lovelady

Later in 2011, the Insolvency Service, the government body which monitors insolvencies in England and Wales, will publish its latest report on pre-pack administrations. These have proved to be a controversial practice, not least because of the secrecy under which they are conducted. There is no statutory basis for pre-pack administrations, but, as will be discussed, they have developed as a pragmatic tool to obtain a quick sale of a struggling business. The process of administration was introduced by the Enterprise Act 2002 as a new tool for the efficient recycling of insolvent companies. Allowing much more flexibility than previous insolvency procedures, it allows companies to appoint an expert insolvency practitioner (referred to as an administrator) to manage their business for up to a year, during which time the company is shielded from hostile actions (such as litigation) from its creditors. The administrator of a company has the following duties laid down in paragraph 3(1) of Schedule B1 of the Insolvency Act 1986: (1) rescuing the company as a going concern, or (2) achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), or; (3) realising property in order to make a distribution to one or more secured or preferential creditors. Under this provision, the administrator is obliged to achieve objective (1) unless it is impracticable to do so, or a better result for the creditors as a whole would be achieved by acting to achieve purpose (2). Similarly the objective (3) may only be pursued if the administrator thinks it impracticable to achieve purposes (1) or (2). In general, the administrator must act in the interests of the creditors as a whole – not the interests of the management of the company who appointed them. The administrator also has a number of other general duties to discharge. He or she must put together a proposal outlining the means by which they will fulfil the aims of administration, and submit this proposal to the company’s creditors as soon as reasonably practicable. The deadline for submitting this document is eight weeks from his or her appointment (Para. 49 Sched. B1 IA 1986). The administrator must then call a meeting of creditors to vote on the plan, again as soon as possible, but in any event within ten weeks of his or her appointment (Para. 51 Sched. B1 IA 1986). This system offers a flexible and pragmatic mechanism for an administrator (once appointed) to act quickly in making plans for rescuing the business, or at least ensuring a better outcome for creditors than if there were a simple winding-up. This procedure has proved extremely popular with insolvency practitioners as it gives them great facility for ensuring a greater realisation of assets overall, where such assets do exist. The administrator has a general power under Sch.B1, para.59(1) to “do anything necessary or expedient for the management of the affairs, business and property of the company.” This aspect in particular is popular with insolvency professionals because, naturally, it allows them to maximise the fees they can take for their professional services. So far, so good. Now, however, we move on to the phenomenon of pre-pack administrations. A pre-pack, or execution only, administration is one where a deal to sell the business as a going concern has been arranged before the company enters into the insolvency procedure. Why is this done? It is an accepted business principle that, upon the revelation that a company is insolvent, its goodwill will deteriorate with extreme rapidity. The deterioration of goodwill entails a loss of creditworthiness amongst suppliers and commercial lenders, and distrust amongst clients and employees which combine to create a hostile environment in which to do business. It therefore becomes vital to sell the business as quickly as possible to alleviate such an effect, and thereby create the best conditions for a viable rescue. This deal may be concluded with a third party, although courting interest from such parties in itself


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invites a collapse of goodwill, since the financial state of the company must inevitably be revealed early on in negotiations (and bad news travels fast!). In fact, it is often the management of the company itself who are the most likely, and (arguably) most appropriate bidders for the business. 81% of pre-pack sales from January to June 2009, and 75% from July to December 2009 were to “connected parties” of the insolvent company (Source: Insolvency Service, Report on the Operation of Statement of Insolvency Practice 16, July - December 2009) To represent the managers of a failed enterprise as the most appropriate people to take on the business in the form of a new company might seem bizarre. There are many standard justifications employed by insolvency practitioners for this decision however. For example, in terms of business rescue it is difficult to refute the choice of the previous management if one were to point out that the existing management team are the most familiar with the business, and for them to remain in charge of the business would represent a minimum of structural upheaval, and therefore offer the best chance of success. Many people would say, hang on a second, wasn’t it the poor management of these individuals that caused the business to fail in the first place? And here as a justification insolvency practitioners will usually turn to the government’s own aims for the insolvency regime, which is not to punish entrepreneurs for failing in a venture, but rather to encourage businessmen and women to take risks, in the expectation that the innovative companies which emerge from such strategies will be the powerhouses of the future economy.

“For the man on the street, there is very little distinction between this procedure and governmentauthorised theft”

Secured creditors can expect to be involved early on in this process, as their agreement is usually necessary for the business to continue functioning. This, of course, stems from their control over company assets by virtue of the charge held by them, and it is essential to ensure that they do not attempt to enforce their security once the company goes into insolvency. Matters are only slightly less favourable for employees. As a special class of creditor, employees enjoy preferential status in the event of insolvency, and government support means that they are guaranteed a minimum amount in respect of unpaid wages in the event that they are made redundant. One of the arguments in favour of pre-pack insolvencies is that they offer much better odds of keeping the workforce in uninterrupted employment. There are a number of safeguards for employees in terms of selective redundancies and changes to employment contracts in the event of the sale of a business, which are beyond the scope of this article. Suffice it to say that employees can expect a measure of statutory protection in a pre-pack administration which means that the chances of redundancy are greatly diminished compared with a normal administration.

It must be said that of the parties likely to be most interested in the administration procedure – i.e. the creditors – it is the unsecured creditors (likely to be suppliers or customers, depending on the nature of the business. Since the Enterprise Act 2002 came into force, the Crown also falls into this category in respect of taxes) who have the most to be concerned about the pre-pack procedure. It is possible that for many of them, the first thing they will hear about the company’s insolvency will be a letter from the administrator telling them that the company is insolvent, has been sold and that it is expected that the creditor may be paid, for example, 25% of the debt owed to them. Besides the immediate risk of heart attack for the heavily-invested creditor, what concerns will such a situation give rise to amongst this category of interested parties? The first is, as has been mentioned above, the possibility that the business has been sold back to the original owners. This will create the understandable impression amongst creditors that those individuals have simply walked off with their money. After all, the creditor will have supplied cash or goods to the insolvent company, only for such a debt to be wiped out by the administration procedure whilst the business trades on under the same management as it did before, though under a new company. For the man on the street, there is very little distinction between this procedure and government-authorised theft. This is especially true where the insolvent company is a small enterprise (as they most often are), where the managers of the business are also the directors and shareholders. It is a function of the company’s separate legal personality that absolute protection for those individuals is provided, with the exception of certain proscribed transactions, despite the fact that a former business partner perhaps uninformed in law but better informed about how that business was run would perceive very real culpability in the ultimate decisions of those individuals. The writer would not wish to impair the entrepreneurial spirit of Britain by creating personal liability which might deter a businessman from adopting a risky but potentially lucrative business strategy. On the other hand, there is something to be said for preventing habitual failures in business, or even patently inept first-time entrepreneurs, from spreading the misery


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of that failure to others again in the future. It must also be said that there remains scope within the current system for some measure of abuse by unscrupulous directors who are able to run and profit personally from their company in the short term where there is little prospect of long-term success in the business. These are, of course, issues which arise in normal administrations as well. The main disparity between the normal and the pre-pack administrations lies in the lack of accountability with the latter. This lack of accountability arises from the fact that in a pre-pack administration the creditors are presented not with a proposal for the administration which they may vote upon and approve, but rather a fait accompli to which they have no option but to acquiesce. This is an issue for creditors in its own right, but becomes especially concerning when the sale of the business is to a party which the creditor would never have approved – such as (in many instances) the previous management team. The lack of creditor approval does not matter, and in fact even if the majority of creditors are known to be opposed to the pre-pack deal, this does not prevent the deal being completed (per DKLL Solicitors v HM Revenue & Customs [2007] EWHC 2067 (Ch)). The fact that it is known by all parties that the transaction would not be approved by creditor vote is of no consequence, so long as the administrator acts within his powers (which are considerable, see ante) and primary duties of rescuing the company, or otherwise achieving the best result for creditors (DKLL Solicitors ob cit.). The final worry for creditors is that not only are they kept (initially) in ignorance and (later) in impotence as regards the deal being done, but there is not even a requirement for the business to be sold on the open market. The reasons such a requirement is not imposed concern the likely effect on the company’s goodwill, as discussed ante. It is submitted, however, that it is the final lack of transparency in the procedure which is the most detrimental aspect to the public perception of the pre-pack administration. In the event that there is doubt as to whether the pre-pack was in the best interests of creditors, creditors have the option, should they have the expertise or resources, to complain to the administrator’s authorising professional body. There is no active monitoring of the insolvency process by independent bodies, and the lack of general public understanding of the process gives a great advantage to administrators when it comes to putting their own interests before those of creditors. The attitude of the professional bodies regulating insolvency practitioners, the government Insolvency Service and the courts has, up to this point, been that so long as the interests of creditors are protected “on the books” – in that they receive more through the administration process than they would have done through a simple winding up – then they should be content with their lot. There is indeed something to be said for this viewpoint from the perspective of an efficient and effective national insolvency regime. There are, however, valid consumer and business interests at stake which are not adequately protected by the insolvency regime for the time being. The broad powers of administrators to approve prepack deals are not met with sufficient accountability to those who innocently lose money as a result of a company’s failure. It is finally submitted that, especially in the case of sales to former management, the informed views of business peers are also a valuable resource for the country’s economy which is unwisely ignored by the current regime.


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Access to justice—a play in three acts—comedy or tragedy? Denise Ashmore

Apparently the UK is suffering from both a ‘litigation’ and ‘compensation’ culture in the view of two highly respected legal jurists; Lord Young and Lord Justice Jackson in their 2010 reports on Compensation for Personal Injury and Civil Litigation costs. Both recommend a reduction in the level of lawyers fees and look at mechanisms to do so, whether by increasing the level of personal injuries claims to be dealt with by the small claims court to £25,000 (per Lord Young; the current level is £10,000) or by limiting the right of lawyers to claim a ‘success fee’ in conditional fee arrangements (per LJ Jackson). In such an important area as access to justice how would the parties involved each present their case?

ACT ONE –The lawyers A legal profession that had been subjected to more than 10 years of reforms whilst at the same time having to adapt to fundamental changes in the courts and civil/ criminal procedure might justifiably feel rather insulted to be told by Lord Young ‘Lawyers are incentivised to rack up high fees secure in the knowledge that they will be charged to the losing party. Clearly, it is right that people who have suffered an injustice through someone else’s negligence should be able to claim redress. It is a basic tenet of law and one on which we all rely. What is not right is that some people should be led to believe that they can absolve themselves from any personal responsibility for their actions, that financial recompense can make good any injury, or that compensation should be a cash cow for lawyers and referral agencies.’ Ah, so Maria Puzo hit it on the head when saying “A lawyer with a briefcase can steal more than a thousand men with guns”

ACT TWO –Enter Government stage right As no self-respecting politician should miss such a perfect opening and opportunity, Prime David Cameron steps in to both welcome and accept the recommendations in both reports stating ‘A damaging compensation culture has arisen, as if people can absolve themselves from any personal responsibility for their own actions, with the spectre of lawyers only too willing to pounce with a claim for damages on the slightest pretext..' Enter centre stage Justice minister Jonathan Djanogly ably backing up his leader adds “individuals should play a greater role in solving their problems rather than turning to the courts, which should not be used as arenas of conflict, argument and debate when a more mature and considered discussion of the issues at hand between parties could see a better outcome for them”. Ah, so now we see that it is not only the lawyers who are culpable but also those ‘immature ‘citizens who seek to use the court system. Let’s hear more Jonathan! ... And we listen to him continuing that people should be educated more about the alternative dispute resolution system and we start to understand his argument that mediation is the way forward. What a good idea, but wait, surely it’s no more than a coincidence that these speeches are made contemporaneously with the publication of the government’s plans to slash the legal aid budget by £ 350 million before 2014-2015? Or maybe this is just cynicism on my part?

“A lawyer with a briefcase can steal more than a thousand men with guns”

So how will they achieve this herculean task? The answer appears to be to lower the financial eligibility limits for legal aid and to remove a greater number of legal areas from within the scope of the legal aid system.

ACT THREE – Enter the Law Society stage left A unenviable task surely to be required to defend these charges, particularly when you need to maintain the difficult balancing act of being representative of all its members, both at the higher income end of profession and in the more lowly funded legal aid practices. However flushed with the success of the recent win in the High Court; when it successfully


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sought judicial review of the newly adopted tendering procedure for legal aid administered by the Legal Services Commission, the Law Society accepts the challenge. Acknowledging that changes may be needed, its first submission highlights the regulations on Very High Costs cases where ‘the amounts paid to senior advocates are unacceptable for any publicly funded system’ adding that ' The fact that it is possible for such advocates to earn in excess of six times the salary of the Prime Minister is unjustifiable’. I doubt that there will be any argument there, nor with their linked recommendation ‘that no individual, working a normal working week, should be able to obtain an income (after the expenses of practice and employing staff) in excess of £250,000 per year from public funds.’ The second submission is no less convincing:-‘We believe that more rigour needs to be applied here to ensure that government departments accurately calculate the financial cost of enforcing such rights whether from the legal aid fund or for individuals who are not eligible for legal aid. It is essential that policy makers and relevant departments should be accountable for the effects of their policies.’ Indeed a highly relevant factor in a country where the last government is calculated to have created 3,000 new criminal offences. But now we come to the crux of the matter. How do they plan to balance the budget and accounts so that public funds; particularly legal aid, will facilitate the right for claimants (with merit of course) to have equality of access to both (1) the advice and services of a lawyer and (2) the dispute resolution process contained in the UK court system (which is surely a public service paid for by the taxpayer), irrespective of geographical location or income/ capital levels. Yet remember at the same time the aim is to keep lawyers’ fees/costs at their current level? A difficult equation certainly, but they make the attempt. ...: Lawyers should be paid their worth whether through private funding arrangements (such as conditional fee agreements), legal insurance (which should be more supervised) or through the legal aid system (which should not be unduly slashed or reduced by the government). Any questions, as I seem to have a few?

CURTAIN CALL A conundrum then, which surely ends in leaving the UK as one of the most, if not the most, expensive forum for civil litigation in Europe. It both leaves a substantial swathe of the population falling outside the limits of eligibility or coverage allowed by legal aid and yet at the same time doesn’t assist claimants who do not possess sufficient income/capital to allow them ever to contemplate funding a private civil litigation claim!

HOT OFF THE PRESS

The Law Society in its November 2010 report on access to justice suggests increasing tax on alcohol sales or raising a levy on the financial services industry could be how to increase public budget available for legal aid.


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Polish fight against cigarette smoke – victory or defeat?

Citizen and the State

Krzysztof Muciak, first year student, Warsaw Centre

O b i t e r

Ever since the 15th of November 2010 every smoker’s life in Poland has been just a little more uncomfortable. This was when the most recent amendment of the so called ‘Anti-nicotine Act’ came into force. The changes, brought by a statute passed by the Polish Parliament on the 8th of April 2010, impose significant restrictions on smoking cigarettes and other tobacco products in public places. It has to be stressed that from a few weeks perspective the new law seems to be working fine, however certain regulations have already turned out to be unenforceable. An interesting question is how such rules function in other countries which ban smoking in public. Since similar legislation was passed in Britain a few years ago (2006 – 2007), it would be a shame not to use this opportunity to conduct a brief comparison of these two legal regulations. According to the new Polish law, it is forbidden to smoke tobacco in several enumerated categories of places. Categories include: the premises of public health care and social welfare institutions; schools; universities; workplaces; culture and leisure centres; premises where food is served (bars, restaurants, cafés etc.);

D i c t a

public transport vehicles, stops and stations; sport centres and public places designed for children’s playing (i.e. playgrounds). There are a few significant exceptions from this general rule listed in the Act. The first exception the Parliament left for the owners and managers of some of the places listed above is the possibility to mark a smoking room within the premises, which would be excluded from the restriction. However, such a room must be equipped with special filtering and ventilation system to prevent smoke from getting outside. Furthermore, this exception concerns only retirement houses, social welfare facilities, hotels, travellers’ service facilities, universities, working places and eating places. The second exception applies only to the last; restaurants, bars, pubs etc., provided that they have more than one separate room. In such circumstances, their managers are permitted to set one of the rooms as a smoking area. In addition, the Parliament decided to permit the local legislative assemblies to create additional categories of public places to be smokefree in their districts. The British ‘smokefree law’, introduced on the 1st of July 2007, took a different


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approach to the range of legal regulation. There were no lists of categories of places, nor delegated competences for other authorities to rule on the matter. The British Parliament decided to ban smoking in virtually all enclosed or substantially enclosed public places, including workplaces, public transport and work vehicles used by more than one person. The legal definition of ‘enclosed’ and ‘substantially enclosed’ is to be found in The Smoke-free (Premises and Enforcement) Regulations 2006. It states that premises are enclosed if they (a) have a ceiling or roof and (b) except for doors, windows and passageways, are wholly enclosed either permanently or temporarily. Similarly, premises are substantially enclosed if they have a ceiling or roof but there is (a) an opening in the walls, or (b) an aggregate area of openings in the walls, which is less than half of the area of the walls, including other structures that serve the purpose of walls and constitute the perimeter of the premises. As a general rule, the smokefree legislation excluded the possibility of creating staff smoking rooms and indoor smoking areas. However, such designated rooms may still be found in certain places, namely: care homes, hospices providing palliative care for persons suffering from progressive disease in its final stages and prisons. In any other case smoking is forbidden, and consequently, an employee who used to smoke in a smoking room, must leave the building and have a cigarette outside since the time when the law entered into force. The differences between these two approaches have interesting consequences. For instance, in England a smoker is allowed to smoke everywhere in the street, since a street is not an enclosed/substantially enclosed area. In Poland, however, he would not be allowed to light a cigarette standing at the bus stop, because it is one of the places mentioned in the statute. There is, however, a question of how this law works in practice. The same day the Polish smokefree law was introduced, a police officer interviewed in a programme after the evening news said that the police will not charge anyone for smoking at the bus stop, since there is a want of statutory definition of a bus stop and therefore no action can be taken by the police. These circumstances lead to ridiculous situations. For instance, the writer has personally witnessed the following scene: a small crowd of people were waiting for a bus, walking around a metal sign of a bus stop and a small bench next to it. A few steps away from the crowd and the sign stood a young lady with a cigarette, looking around in anxiety. It seemed to be quite absurd. Talking about difficulties in execution, the smoking ban at state universities is also problematic, since by law police require the rector’s written permission to enter university premises. As one can imagine, rectors tend

to be rather reluctant to issue such permissions without a more grave reason than a smoking control. Similarly, English regulations may cause some trouble to their addressees. It seems that particularly the definitions are complex, and individuals and small businesses may find them difficult to interperet. An illustration of this is a suggestion in the official ‘Guide to the smokefree law’ for businesses and organisations to contact their local council if they require further guidance on whether their premises are 'enclosed' or 'substantially enclosed'. What can be done, however, is a general report on how the new law has been circumvented by the Poles, known for their extraordinary ability to solve any difficult problem without much effort. One of the quite ‘sophisticated’ ways to do this was based on an idea to create an institution of ‘smoker’s club’. The ‘smoker’s club’ is a legal trick consisting in converting a public place, such as restaurant or bar, to an exclusive place for a certain group of people, in this case, smokers. The way to achieve such a conversion is actually rather simple. All that an owner has to do is to prepare a short form to be distributed to every visitor of his place, in

COURT NOTES Lawyer: Doctor, before you performed the autopsy, did you check for a pulse? Witness: No. Lawyer: Did you check for blood pressure? Witness: No. Lawyer: Did you check for breathing? Witness: No. Lawyer: So, then it is possible that the patient was alive when you began the autopsy? Witness: No. Lawyer: How can you be so sure, Doctor? Witness: Because his brain was sitting on my desk in a jar. Lawyer: But could the patient have still been alive nevertheless? Witness: Yes, it is possible that he could have been alive and practicing law somewhere.


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which they would ‘sign up’ to such a club and agree to stay in a smoking area. Additionally, a guest would be given a member card to lend credence to the arrangement. Another way of circumvention of the restrictions is connected with the aforementioned possibility of setting one of at least two separate rooms as a smoking area in an eating place. There are many cases where a restaurant or a café has been reorganised in order to change the inner structure of the place by dividing a single room into two. This is what has happened, for example, to Kafe Fajka, a network of Indian cafés in Poland, where the main attraction was smoking water pipe. The second solution turned out, after some time passed, to be in fact much more convenient and straightforward than the first. As it always happens with legal games and tricks, there tend to be some unexpected consequences. The local authorities, responsible for the execution of the regulations, reacted to the wave of ‘smoker’s clubs’ appearing with a spate of withdrawals of alcohol concessions, on the basis of another statutory regulation, namely that a conversion of a type of

activity of a place, for which a permission to sell alcohol was given, result in a withdrawal of such. In spite of the often bitter struggle between habit and legislation, it seems that the public life in Poland has become significantly freed from tobacco smoke. The great majority of places follow the new rules, forbidding smoking within their premises, mainly because of the high fines provided for breach. Similar sanctions were issued by the British Parliament in the Smoke-free (Penalties and Discounted Amounts) Regulations 2007. Even though some places look a little strange without a cloud of smoke, some pubs, jazz or blues music clubs for instance, after a while one appreciates the new quality of spending time in such places, without the necessity of making the subsequent effort to get rid of the unpleasant smell from their clothes. The public opinion, even the smokers themselves, generally speak for the new regulation, which leads to a conclusion that introducing smoking restrictions in public places is an idea worth trying, for the sake of everyone’s health and comfort.

ECJ consistency on free movement of services and public policy defences gone in a puff of (marijuana) smoke Steve Terrett

Along with tulips, windmills and Vincent Van Gogh, the coffee shops of the Netherlands’ are amongst its most famous characteristics. These coffee shops serve food, cannabis-derived drugs (predominantly marijuana and hashish) and drink, but are prohibited from serving alcohol. The sale of marijuana by Dutch coffee shops is not only lawful (in the sense that it is decriminalised by regulations, having the force of law, issued by the Dutch Public Prosecutors Office) but is subject to an “operating license” which may only be acquired by a coffee shops able to fulfil stringent administrative requirements imposed and monitored by the state. Such requirements stipulate that coffee shops may not advertise; they may not sell hard drugs; they may not permit entry of persons aged under 18 years old; they may not sell more than 5g of cannabis per person per day; and the ‘stock’ of cannabis in any individual coffee shop may not exceed 500g. Furthermore, coffee shop proprietors are required to ensure that their establishment does not create nuisances. Unless such requirements are met, and maintained, it will not be possible for a business to operate as a coffee shop and the state possesses a range of measures which may be imposed upon any coffee shop found to have infringed these rules, including fines and/or temporarily or permanently closing the business. In addition to these national requirements for acquiring a coffee shop license, local governments are permitted to establish further conditions, such as limiting the number of coffee shops in a particular area; limiting the opening hours so that coffee shops are closed at weekends or in the evening; reducing the quantity of cannabis that may be sold or stocked; or preventing coffee shops from operating within a certain geographical distance from schools or psychiatric hospitals.

“From relatively uncontroversial beginnings, the AG and ECJ went on to make a number of rather curious remarks...”

Thus far, none of this appears to give rise to any aspect of European Union law – it merely sounds like the internal organisation of the Netherlands’ policy of tolerance regarding soft drugs. However, this changed suddenly when on 20 th December 2005 the Municipal Council of the City of Maastricht adopted a law which prohibited coffee shop proprietors


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from allowing anyone other than residents of Maastricht to have access to such shops or their products. This law entered into force on 13 January 2006, as of when many tourists wishing to visit the famous Dutch coffee shops and spend their afternoon smoking marijuana and eating Mars bars whilst listening to Bob Marley tunes would have been sorely disappointed to discover that the first of these activities had been rendered unlawful. Nevertheless, the owner of the Easy Going coffee shop continued to admit tourists to his establishment (it is unclear whether this was an act of political defiance or, rather, that he simply forgot about the existence of the prohibition) and accordingly was temporarily closed down, pursuant to the newly enacted law. He challenged the legality of this law on the basis that it discriminated on the basis of nationality because of the residency requirement. The national court referred the issue to the European Court of Justice. The first issue to be decided by the ECJ was whether the Maastricht local law infringed the TFEU provisions governing the free movement of goods and/or services, or of the prohibition of discrimination laid down in Article 18 in conjunction with Article 21 TFEU (EU citizenship). The second question asked whether such a measure could be justified in the event that it did infringe one or more of those Treaty articles. In relation to the first question, both the Advocate General (Yves Bot) and the ECJ considered that the only relevant Treaty provision concerned the freedom to provide (and receive) services. This seems sensible since it is the tourists who move to receive the service offered by the coffee shop and not the goods that move between Member States. Equally, since the prohibition on discrimination an citizenship rules contained in Article 18 and 21 TFEU represent lex generalis it seems appropriate for the more specific rules governing freedom of services to be applied as lex specialis. However, from these relatively uncontroversial beginnings, the Advocate General and ECJ then went on to make a number of rather curious remarks in support of the Maastricht law. Having said that the case concerned the free movement of services, the Advocate General devoted some time explaining that ...narcotic drugs, including cannabis, are not goods like others and are not subject to the rules intended to apply to the internal market...” He suggested that the inherently unlawful nature of the goods (cannabis) meant that the Treaty’s free movements did not apply per se to such situations and could not be relied upon to challenge the national law. This seems strange since, firstly, it was already agreed that the free movement of goods is irrelevant in such circumstances and, secondly, the service offered was officially regulated by Dutch law and licensed by the local government. To equate the situation of coffee shops with a situation which would involve ab initio illegality, such as a drug dealer selling heroin from a street corner, seems unwarranted. Furthermore, the sources cited by the Advocate-General and ECJ to justify the conclusion that the sale of cannabis within the Netherlands was unlawful per se are of dubious relevance. AG Bot referred to Article 3(1) TEU which states that “...the Union’s aim is to promote peace, its values and the well-being of its peoples...” before arguing that “...the activity of selling cannabis does not have any legitimacy. *...+ Where it is tolerated, that activity tends to ‘democratise’ the use of a narcotic product whose harmfulness to human health is recognised.” This author finds it difficult to see how Article 3(1) may be argued to have any relevance to the situation at hand. If the obscure reference to promoting the well-being of its peoples is to be interpreted as implying the illegality of goods and services which damage the health of the EU population, it is difficult to see how the Advocate General would justify the widespread sale of products such as cigarettes, alcohol or the offering of services such as gambling and prostitution, all of which provide considerable revenues for the various Member States and none of which have been declared unlawful by the ECJ. Furthermore whilst the health risks of smoking cannabis are undeniable (though the relative seriousness of those risks when compared to smoking tobacco or drinking alcohol are much more disputable), it is difficult to see how this may justify a situation where only non-residents are prevented from smoking cannabis in coffee shops. Any attempt to justify this restriction on the basis of public health would be doomed to failure, given the clearly discriminatory manner in which it would be applied, and for this reason not even the Dutch authorities attempted to base their justification on public health grounds, which nevertheless clearly influenced the reasoning of the AG and the ECJ. More bizarrely, AG Bot went on to explain the harmful effects caused by “...intensive and prolonged...”, “...regular...” and “...chronic...” smoking of cannabis, all of which may be true but would presumably be more


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applicable to the Maastricht residents who have unrestricted access to coffee shops, as opposed to the tourist whose consumption is most unlikely to be prolonged, regular or chronic. Indeed, if the tourists visiting Maastricht were to have such availability to cannabis in their home states as to fall within this category of cannabis smokers, it is unlikely they would need to travel Maastricht at all to visit coffee shops. The AG then referred to Article 3(2) TEU which states that “...the Union shall offer its citizens an area of freedom, security and justice without internal frontiers, in which the free movement of persons is ensured in conjunction with appropriate measures with respect to external border controls, asylum, immigration and the prevention and combating of crime”. Again, this author can see little relevance of this unless, by some almost psychedelic method of interpretation, one interprets the combating of crime to include activities which are lawful in the Member State in which they are provided. In attempting to provide wider support for the thesis that marijuana sales are per se unlawful, both the AG and ECJ referred to a number of EU and international measures which the EU has signed. Without discussing each of these in depth, it suffices to say that Article 67(3) and Article 83(1) TFEU, Article 71 of the Schengen Implementing Convention and the other international measures cited all have one common feature – they are intended to prevent and punish the illicit trafficking in narcotic drugs. This author cannot see the relevance of such instruments to the situation at hand, which involved neither illicit trade (since sale of cannabis continued to be lawful in respect of Maastricht residents) nor trafficking of any kind (since the goods were not imported or exported from the Netherlands). These measures pursue the legitimate aim of ensuring that narcotics are not unlawfully imported into countries where their sale would be per se unlawful, but they do not prohibit the sale of marijuana per se. Indeed, if they did, there would be no need for the Maastricht local authorities to be adopting the law under discussion since the entire Netherlands ‘tolerance’ policy would have been scrapped by these measures. The ECJ’s ultimate conclusion was that, since cannabis derived products are “...prohibited from being released into the economic and commercial channels of the European Union...” (i.e. exported to other Member States, where sale of marijuana is unlawful), the service provided by coffee shops in Maastricht fell outside the protection against discrimination offered by the TFEU. It should hardly be necessary to point out the absence of logic in this non sequitor. The mere fact that a product, lawfully sold in Member State X, may not be exported to Member State Y, where no lawful sale is possible, is no reason to condone or justify nationality-based discrimination concerning the sale of that product in Member State X. Nevertheless, Advocate General Bot ignored the crucial fact that sale of cannabis would continue to Maastricht residents, free of criminal prosecution, when stating that the legal situation concerning cannabis sale could be compared to “...human trafficking, prostitution of minors or child pornography.” Clearly this is not the case since all of those examples are the subject of absolute prohibitions in each Member State and are not permitted to be sold on a residents-only basis by those holding a license issued by the state. Having concluded that coffee shops do not per se benefit from the freedom to provide services, there was no question of the national law breaching the Treaty and therefore no need for the AG or ECJ to consider whether the measure could be justified. Nevertheless, both the AG and ECJ did precisely that. Those who are familiar with ECJ judgments will almost certainly be able to recite by heart the oft-repeated phrase (deployed inter alia when the ECJ simply wishes to avoid answering a particular question referred by the national court) that: “Having regard to the answer given to the first question, there is no need to answer *the next question+...” It is, therefore, is curious why both the AG and ECJ should consider a question which is, on their own analysis, entirely irrelevant and theoretical. The AG’s explanation that this is done “...in a spirit of cooperation with the referring court…” seems somewhat unconvincing given the sheer volume of such questions that are regularly left with no comment from the ECJ, as indeed were 2 of the questions referred by the national court in this very case. This author believes that the AG and ECJ’s discussion of the possible justification of the Dutch measure reflects a realisation on their parts that the reasoning offered in the first part of the case was far from convincing. If so, this author consider it an unwise strategy to have pursued since the reasoning offered in response to the (irrelevant) second question is, if anything, less convincing. The second question essentially asked whether (if the coffee shops did fall within the free movement of services) the measure permitting residents-only sales of cannabis would be capable of justification. The ECJ readily acknowledged that a measure which uses residency as the basis for discriminatory treatment “...is liable to operate mainly to the detriment of nationals of other Member States, since non-residents are in the majority of cases foreigners.” Accordingly, any justification would need to be based on an express Treaty derogation, rather than the wider “public interest” justifications that would be possible if the measure was not directly discriminatory. As regards restrictions on the free movement of services, the


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Treaty derogations contained in Article 46 and Article 55 of the Treaty cover public policy, public security and public health. As noted earlier, it would be entirely illogical to pursue a line of argument based on protection of public health, since any health risks would relate to both tourists and residents and would more likely be encountered by residents who enjoy long -term access to cannabis than tourists. Since the concept of public security has been interpreted extremely narrowly and would not cover this case, the only available justification for the Maastricht law (in the event that the ECJ had not decided to exclude coffee shops from the ratione materiae of EU law) would be public policy. Nevertheless, this has also been interpreted restrictively and, according to earlier case law, may only be relied upon to prevent a genuine and sufficiently serious threat to a fundamental interest of society. The only remaining problem was to identify which fundamental societal interest was threatened in such a serious manner by tourists in coffee shops. The ECJ first began by identifying the “...public nuisance caused by the large number of tourists wanting to purchase or consume cannabis in the...14 [Maastricht] coffee-shops which attract around 10,000 visitors per day and a little more than 3.9 million visitors per year, 70% of which are not resident in the Netherlands.” This seems to suggest that popularity of the coffee shops is itself the problem that the Dutch are seeking to remedy. AG Bot referred to “...traffic and parking problems...”, “...noise...” and the “…intrusion into the foyers of buildings…” as amounting to an “...unacceptable encroachment on the residence and living situation of *Maastricht+ residents.” One can only imagine whether the AG and ECJ would take the same view if Buckingham Palace and other London tourist attractions suddenly announced a prohibition on tourists entering because of the sheer nuisance caused by the huge number of tourist visitors and their accompanying noise and foyer loitering. Whilst this author is certain that many Londoners would share the AG’s view that tourist numbers represent an unacceptable encroachment on their freedom to enjoy their home town free of foreigners, it is precisely such jingoism that the Treaty was intended to combat, so it is rather perplexing to witness similar views expressed by an Advocate General. AG Bot then referred to “…urban violence likely to be caused...” by the coffee shop culture. Whilst this would, if true, undoubtedly represent a far better argument for restricting access to coffee shops, it sounds rather theoretical to refer to the likelihood of violence when coffee shops have existed for many decades and have yet to produce such urban mayhem as feared by the AG. Whilst cannabis users may demonstrate a certain ferocity in wishing to devour chocolate-based foodstuffs, there are no medical studies that appear to link cannabis use with a tendency towards violence. Comparatively speaking, such urban violence is far more likely as a result of alcohol consumption and police statistics indicate that alcohol plays an important role in almost 80% of all recorded crime. It was also suggested that such an increase in crime would be more likely because dealers of illegal ‘hard drugs’ are likely to congregate outside coffee shops. Whilst this may be true, it is no different to saying that many criminal activities are conducted inside and outside pubs, but this is no reason to prohibit the lawful service offered by the pub itself. Furthermore, if drug dealers gather outside coffee shops this should, practically speaking, make the life of the police much easier in apprehending such criminals than if they were to operate more diffusely throughout society as a whole. An additional justification related to the supposed presence of drug dealers outside coffee shops was that it also encourages the presence of drug addicts and organised crime members. However, common sense dictates that such characters are far less likely to make themselves visible in areas heavily populated by tourists, which inevitably enjoy a greater police presence than other areas of town, if they wish to avoid arrest. Nevertheless, even if true, this is also comparable with the presence of such ‘undesirables’ outside the pubs and railway stations of most European towns and should not be allowed to call into question the legality of the service provider’s establishment per se. The final justificatory argument made by the AG


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and ECJ was that drug tourism is in fact a misnomer and “...conceals international trafficking in narcotic drugs and fuels organised crime activities...” and leads to the unlawful export of narcotics, with corresponding threats to the public order of other Member States and the EU as a whole. Whilst this author does not wish to call into question the problems caused by the unlawful exportation/importation of narcotics, including cannabis, these suggestions ignore the crucial point that there is no evidence whatsoever linking the licensed, lawful and tax-paying coffee “The ‘weed’ of shops with any unlawful international trade in narcotics. Indeed, such trade exists precisely because no the coffee shop lawful chains of supply exist for such products. Accordingly, the AG’s suggestion that “...the activity of selling cannabis... undermines a legitimate economy by allowing criminal organisations to penetrate the may well be market...” would appear mistaken, since the previous trade in marijuana was precisely part of the legitireplaced by the mate economy, heavily regulated by the state and designed to exclude unlawful suppliers. The denial of such trade outlets to tourists means that unlawful suppliers will not only be more able to penetrate the distant sound of cannabis market but will become the only suppliers on that market to tourists. tumbleweed

Accordingly, this writer sees no merit in the arguments made by either the AG or ECJ to justify a discriminatory prohibition such as the one in the present case and certainly none that would reach the down a deserted level previously demanded by ECJ case law to justify a restriction of trade on the basis of public policy. Equally, one could criticise the ECJ’s approach to the proportionality of the measure. Even assuming that Maastricht high many of the supposed justifications were true, existing Dutch law allowed punitive measures to be taken against individual coffee shops which failed to maintain public order outside their establishments street” (including noise and traffic related problems) or engaged in the unlawful trade of narcotics. To introduce a blanket prohibition on access to all such establishments for all persons not resident in Maastricht seems grossly disproportionate to the suggested problems. breezing gently

In conclusion, this writer has considerable difficulty in accepting the arguments made by the AG and ECJ in this case. I would suggest that their dislike for the coffee shop phenomenon and Dutch policy of ‘soft drug’ tolerance have distorted the prism through which the European Court would usually be expected to analyse a national provision which is overtly discriminatory. Whilst numerous EU and international law instruments exist to condemn and punish unlawful trade in narcotics, none of these per se prohibit the sale of cannabis from licensed establishments such as Dutch coffee shops. Indeed, if they did, the ECJ would presumably be adjudicating a case brought against the Netherlands for continuing to permit coffee shops at all. Nevertheless the ECJ appears to have assumed that, since drugs may be unlawfully traded, coffee shops should be assumed to have a link with this unlawful trade, whilst nonetheless being allowed to continue trading to residents. It also assumes that the tourist who visits for a short period of time is more likely to become addicted to cannabis, or harder drugs, than those residents who shall continue to enjoy access to coffee shops. The failure of logic here is too obvious to need pointing out. The politics concerning regulation and prohibition of narcotics is clearly highly controversial and it is beyond the scope of this brief article to comment on the merits of various approaches adopted by Member States. Instead, my suggestion is that if the Maastricht authorities wished to remove the problems allegedly caused by coffee shops, such a prohibition should have been introduced with no exception for residents. Having failed to do so, and enacted overtly discriminatory legislation, one would have hoped that the ECJ would apply its usual rigorous approach to such measures, but the nature of the service in question appears to have resulted in an unusually timid, or overtly political, judgment which does not sit well with pre-existing case law and may cause considerable confusion in future years. In the meantime, let us spare a thought for the city of Maastricht. Its new law may well create a situation which the Advocate General and local council seem to desire – a peaceful city whose building foyers are devoid of the noise, smell and considerable incomes of the 4 million tourists who visited the town’s coffee shops each year. The ‘weed’ of the coffee shop may well be replaced by the distant sound of tumbleweed breezing gently down a deserted Maastricht high street as tourists who might otherwise have visited instead decide to stay at home, perhaps visiting their local street drug dealer instead. At least the residents of Maastricht whose businesses are likely to suffer considerable losses in consequence of the loss of tourist trade will still be able to sit back and enjoy a strong cup of coffee…


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The price of Justice: Cost efficiency and Criminal Trials Steve Terrett

Government statistics show that more than two-thirds of criminal cases that reach the Crown Court end in a guilty plea instead of a full trial. Clearly this leads to wasted costs, since the court room which would otherwise be used for that trial now stands empty and the jury will sit around drinking tea instead of hearing that trial. The fees of the lawyers will still need to be paid, albeit at a reduced rate than if the trial went ahead, and witnesses who have attended and expected to give evidence may have experienced unnecessary trauma and distress in the weeks or months leading up to the trial. This has been described by the new Conservative-Liberal government as one of the worst inefficiencies in the court system and has led to a Green Paper on how to reform this (i.e. a document, intended to invite ideas and discussion of law reform, prior to the government making its position officially known in a White Paper that will become a Bill to be discussed in Parliament).

to enter their original plea prior to having being “committed for trial at the Crown Court” (in the case of indictable offences). In the latter case, a defendant’s guilty plea will mean that no full trial takes place in the Crown Court -instead there will merely be a hearing to impose sentence, which is much shorter and does not involve a jury. The “savings” made to the criminal justice system by such a guilty plea are reflected in a reduced sentence for the defendant. In the former case, defendants are now entitled to ask magistrates for a “sentence indication” before they plead – essentially, this involves the defendant asking “hypothetically, if I were to plead guilty to this crime, what kind of sentence do you think you would impose?” Some have criticised this as brining in a strange style of plea bargaining which occurs between the defendant and the court, as opposed to between the defendant and the prosecution, which is not possible in English law but is part of other legal systems, including the American system.

The government’s initial position is that defendants who plead guilty at the earliest stage would receive a 50% reduction in the sentence they would otherwise have received. Those who fail to plead guilty and insist ongoing to full trial, but are subsequently found to have committed the offence with which they were charged, will receive no such ‘discount’ because their refusal to acknowledge their guilt will have led to greater costs in the justice system.

In effect, the current proposals would continue a trend of reforms which mean that “the quicker the admission of guilt, the lighter the sentence”, whereby those placed in the worst position will be those defendants who insist upon having their guilt assessed by a jury of their peers. This inevitably leads to enormous savings – the costs of a full trial

A version of this system already exists, but with lesser ‘discounts’ available – the maximum being one third of any sentence or fine. As early as the police station a defendant, suspected of a non-indictable offence, may acknowledge his guilt and receive a police ‘caution’ which will mean that there is no trial at all – such cautions may be “simple cautions” (in which case the admission of guilt is recorded in a police database and may be relied upon later if the person commits another offence so as to increase his sentence) or “conditional cautions” (whereby the police establish conditions to be fulfilled by the offender, such as appearance at the police station at regular intervals, attending drug or alcohol rehabilitation programs etc.) Defendants who do not admit their guilt whilst in police custody (NB. it is incorrect to speak of them “pleading guilty” at this stage, since there is formally no charge for them to “plead” guilty to) are provided with another opportunity to reduce their eventual sentence when they first appear before the Magistrates Court. Remember that every defendant will appear before this court, either to have their trial dealt with in full (in the case of summary offences) or


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at Crown Court are over ten times the costs of a Magistrates Court trial and both courts are able to reduce their costs considerably if the a full trial is replaced by a guilty plea. Nevertheless, this raises serious – and difficult – issues concerning the purpose of the criminal justice system. Whilst it undoubtedly saves money to encourage the guilty to accept their blame as early as possible, the role of the courts has always been seen as to provide an impartial and controlled environment in which to assess a person’s guilt and the role of the jury has, since the Magna Carta in 1215, been viewed as an important part of this process. The danger in assuming that an early guilty plea is always the preferred outcome is that it may create enormous pressure on the accused to admit to crimes which, in fact, they have not committed, because they are scared by the increased sentences which will face them if they dare to demand a full trial. Anyone who has ever visited a police station will know that the balance of power is usually in favour of the policeman, as opposed to the accused, and many faint hearted individuals might be tempted to follow the advice of their arresting officer when he says “...sign this and there won’t be any prosecution at all.” Equally, a sentence indication from a magistrate which says that there is no intention of depriving the defendant of their liberty might be accepted, even where the person is innocent, in order to avoid the greater sentencing powers and reduced discounts that will be applied by a Crown Court judge. Of course, there are always difficult political decisions to be made about how best to protect the innocent whilst not over-protecting the guilty, but this author would not wish to see English law create a situation in which, despite the Magna Carta’s guarantee of

a “right to trial by a jury of your peers”, the average defendant is too scared to pursue this option. The reformers standard retort to such fears is to highlight a number of cases in which guilty defendants have “played the system” and costs the taxpayer huge amounts of money as a result. However, such stories may always be countered with cases where innocent people have served lengthy jail sentences as a result of wrongful imprisonment based on confessions and guilty pleas that were exhorted or fabricated. The question we should all ask is: which system would I want if I were innocent but accused?

HOT OFF THE PRESS

Gay civil partnership found to be equivalent to marriage when assessing existence of discrimination, according to County Court January 2011 ruling.

COURT NOTES After a witness had spent some time gesticulating with his hands and pulling faces to explain how the defendant had reacted during a conversation they had, the judge instructed him that (in order for the evidence to be written down by the court reporter) he could no longer provide evidence in this way. Judge: I must warn you that, from now on, all of your answers must be oral. Do you understand? Witness: Yes Judge: Good. [To the prosecuting barrister] You may continue with your questioning. Prosecution: So please continue. How would you describe the defendant’s behaviour during your meeting? Witness: Oral


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UK delays in implementing ECHR decision could itself breach the ECHR

Citizen and the State

Steve Terrett

O b i t e r

In November 2005 the European Court of Human Rights ruled that the UK’s 140year prohibition on allowing the vote to all convicted prisoners was unlawful. The first statute to implement such a prohibition was the Forfeiture Act 1870, but a similar common law prohibition has existed since the reign of Edward III (1312 – 1377).

rable to those of the European Court of Justice. However, Article 46 ECHR states that failure to implement a judgment itself constitutes a breach of the Convention. Recently the Strasbourg court has communicated that, if the UK does not reform its law in line with the judgment within 6 months, it will rule that this Article has also been infringed.

The Strasbourg (NOT Luxembourg!) court’s ruling followed the dismissal of the case brought to the High Court of England and Wales in 2001 by John Hirst, a convicted axe murderer. The High Court concluded that States enjoyed a wide margin of discretion in deciding whether or not to grant prisoners the right to vote and that, accordingly, there had been no breach of the ECHR.

The new Conservative -Liberal government has been left with the unenviable task of reforming the law in an area which is clearly politically sensitive and likely to incur the wrath of many members of the general (voting) public. However, failure to do so could mean that the UK has to pay up to £160m in damages to the 2,500 prisoners who have already sued the government for denying them their right to vote. In such a situation, it could be expected that the rest of the UK’s prison population (totalling over 70,000) would quickly file identical claims.

The Strasbourg court thought otherwise and concluded that the UK’s outright ban on voting to all prisoners was incompatible with Article 3 of Protocol 1 to the Convention. Nevertheless, the UK was entitled to maintain a selective prohibition, denying the vote to a more limited category of convicts. Since that judgment, the former Labour government refused to change the law and maintained the blanket prohibition. The Council of Europe, as the organ responsible for the ECHR, has no direct powers to implement judgments of the European Court of Human Rights and the Court itself has no fining powers compa-

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The government’s current plans appear designed to comply with the spirit of the

COURT NOTES Judge: Please state your date of birth Witness: 15th July Judge: Which year? Witness: Every year


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Strasbourg court’s judgment, whilst avoiding to much political flak from right-wing voters. Prisoners who were convicted for sentences of 4 years or longer would still remain ineligible to vote whilst all other prisoners would be granted the vote. Some critics have emphasised the arbitrary nature of such a line-drawing exercise, whilst others have argued that it goes too far and would allow 29,000 convicts to vote, of whom 6,000 were convicted of violent crimes and some 1,700 are sex offenders. This case shows the interesting inter-action between a number of institutions and actors. Firstly, despite the entry into force of the Human Rights Act 1998 the English courts still appear capable of misinterpreting the demands of the ECHR and dismissing cases which are subsequently won in Strasbourg, requiring the defen-

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dant to “exhaust his local remedies” and appeal to all available English Courts. Secondly, even following a negative judgment from Strasbourg, various English governments have shown that they are far from treating the ECHR as something which needs to implemented in a hurry or with any real political support. Thirdly, although competence for matters concerning “justice” have been devolved to the Scottish Parliament, this issue was clearly something that Scottish MP’s did not want to entangle themselves in, so they are arguing that it should be treated as a “reserved matter” and legislated on only by the Westminster Parliament. Clearly, legislative competence and power are not always desirable – as the Conservatives and Liberal Democrats are also now discovering...

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Letters to the Editor Dear Editors of the BLC Obiter Dicta, In this new 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.

My attention was drawn to the piece in the last issue (June 2010) 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

Dear editor In the 2nd edition of Obiter Dicta, the article entitled The Age of Innocence reported that the European Court of Human Rights’ conclusion that the UK’s setting of the minimum age of criminal liability at 10 years of age did not breach the ECHR. The court stated that this was because “...the age of ten could not be said to be so young as to differ disproportionately to the age limit followed by other European States” (such as Ireland and the Netherlands [12] and France *13+). Surely, by this logic, a Member State’s “bad” legislation will remain legal under the ECHR if other countries also have similar “bad” legislation. Instead of concluding that there was no breach, the Court should have concluded that the legislation in Netherlands and France also breached the ECHR. The ECHR was intended to set minimum human rights standards to be applied throughout Europe, and not to encourage States to follow an approach of “lowest possible protection, but only slightly lower than other Member States”. The Court’s reasoning does not indicate any cut-off point at which the age of responsibility would breach the ECHR. Although the UK now has the lowest age of criminal responsibility, would a breach be found if Ireland then lowered it’s minimum age to 9, or would the Court then conclude that this did not differ disproportionately to the age limit followed by other European States (i.e. the UK’s 10-year limit)? This process could continue ad infinitum and fails to clearly mark where the Convention would be breached.

Tomasz Kalwat (Warsaw)


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Obiter dicta 3rd edition