Status updated: can a ‘relationship’ be a ‘contract’? CJEU says it’s complicated in Granarolo, and complements the Handte formula.

Update 15 January 2020 thank you Michiel Poesen for signalling a Court of Justice comparative note on the underlying substantive law issues.

Update 4 October 2017 for the eventual judgment by the Cour de Cassastion see here: contractual relation upheld.

In C-196/15 Granarolo, extensive reference is made to Brogsitter, in which the CJEU held that the fact that one contracting party brings a civil liability claim against the other is not sufficient to consider that the claim concerns ‘matters relating to a contract’ within the meaning of Article 7(1) Brussels I Recast. That is the case only where the conduct complained of may be considered a breach of contract, which may be established by taking into account the purpose of the contract, which will in principle be the case only where the interpretation of the contract which links the defendant to the applicant is indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the former by the latter. 

Kokott AG Opined that there was no such contractual relationship in the case at hand: see my review of the Opinion. The Court held last week and was less categorical. It suggests a contractual relationship between the parties (which did not have a framework agreement in place: rather a long series of one-off contracts) should not be excluded: the long-standing business relationship which existed between the parties is characterised by the existence of obligations tacitly agreed between them, so that a relationship existed between them that can be classified as contractual (at 25).

What follows can be considered a CJEU addition to the rather byzantine double negative C-26/91 Handte formula: ‘matters relating to a contract is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another’. In Granarolo at 26 the Court notes

The existence of a tacit relationship of that kind cannot, however, be presumed and must, therefore, be demonstrated. Furthermore, that demonstration must be based on a body of consistent evidence, which may include in particular the existence of a long-standing business relationship, the good faith between the parties, the regularity of the transactions and their development over time expressed in terms of quantity and value, any agreements as to prices charged and/or discounts granted, and the correspondence exchanged.

These criteria obviously are quite specific to the question at hand yet it is the first time the Court, carefully, ventures to give indications of some kind of a European ius commune on the existence of ‘a contract’.

Whether any such contract then is a contract for the sale of goods or one for services, is not a call the Court wishes to make. It lists the various criteria it has hitherto deployed, with extensive reference in particular to C-9/12 Corman-Collins, and leaves the decision up to the national court.

Make a mental note of Granarolo. It may turn out to have been quite pivotal. Geert.

(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.11.2, Heading 2.2.11.2.9

A break on the Commission’s efforts to harmonise tax through the backdoor? Kokott AG in X

Postscript December 2014: the ECJ held on 18 december in favour of The Netherlands. Idem in Q.

Postscript 2 October 2014: the AG opined along similar lines in Q, with respect to a question also referred by the hoge Raad, as follows: ‘Does the importance of the conservation of national natural heritage and cultural heritage, as addressed in the Natuurschoonwet 1928 (Law on nature protection 1928), constitute an overriding reason in the public interest which justifies a scheme whereby the application of an exemption from gift tax (recovery facility) is limited to estates situated in the Netherlands?’

In X, Case C-87/13, the Hoge Raad of the Netherlands asked in essence whether  EU law, in particular the rules on freedom of establishment and on free movement of capital, preclude[s] a resident of Belgium who, at his request, is taxed in the Netherlands as a resident and who has incurred costs in respect of a castle, used by him as his own home, which is located in Belgium and is designated there as a legally protected monument and village conservation area, from deducting those costs in the Netherlands for income tax purposes on the grounds that the castle is not registered as a protected monument in the Netherlands?

Kokott AG opined on 4 September last (the Opinion at the time of writing was not yet available in English) and suggested The Netherlands should be allowed to go ahead with such distinction. She focussed her opinion on the free movement of establishment, suggesting the same analysis applies mutatis mutandis for free movement of capital.

A summary of the Court of Justice’s case-law on the main exceptions to the free movement of capital (and, also per Kokott AG, similarly applicable to free movement of establishment), may be found in par. 42 of Jaeger, Case C-256/06:

According to the case-law, in order for national tax legislation such as that at issue in the main proceedings, which, for the purposes of calculating inheritance tax, distinguishes between assets situated in another Member State and those situated in Germany, to be considered compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by overriding reasons in the general interest.

The Advocate General suggested the Court find the two situations objectively comparable, given that listed property in both countries is likely to be subject to various restrictions. Simply quoting budgetary reasons for limiting the possibility of tax offset to assets in the State of taxation is not enough under EU law. However she did find merit in the argument that the limitation to listed property in The Netherlands, is in the general interest: in contrast with other cases (e.g. Petersen C-544/11), the general interest identified by the Member State concerned, cannot be met by market participants in other Member States (at 41): allowing set-off for maintenance of listed property in another Member State, does not serve the goal of preserving Dutch national heritage, a relevant interest illustrated eg. by the references to national  heritage in Articles 36 and 167 TFEU.

If adopted by the Court, the AG’s Opinion in my view would be very welcome. The EC have been using an extensive interpretation of the free movement of capital essentially to skate around its limited progress in tax harmonisation (which is subject to national veto).

Geert.

Germany v Commission re toys: ECJ confirms that recourse to precautionary principle is no walk in the park.

The ECJ this morning held in Germany v Commission (for context see my earlier posting). On 1 March 2012, the European Commission only partially (and temporarily) granted Germany approval for upholding stricter limits on limit values for lead, barium, arsenic, antimony, mercury, nitrosamines and nitrosatable substances in toys (for the decision, see here).
The ECJ stood with Germany only in its appeal against the EC’s decision on values for lead: this decision was internally inconsistent (acknowledgement of higher public health protection in the German measures while at the same time unfounded (and vague) limitation in time for those German measures). However for all other substances, the ECJ rejected Germany’s appeal. In doing so it emphasises the burden of proof which the precautionary principle implies (often misrepresented by opponents of the principle). The review of the available scientific evidence shows first of all the challenges associated with the different methods employed by Germany cq the EC. The latter’s measures employ migration limits (migration being the amount of toxic substances not just released from the product but effectively absorbed by the human body), while Germany’s measures rely on bioavailability (the amount of chemical substances released from the product and available for human absorption, even if not all of that is necessarily effectively absorbed).

The ECJ supports the room for Member States to have divergent opinions on risk than those of the EC, however, it needs to show that the national measures better protect human health and do so in a proportionate way. The crucial shortcoming in Germany’s proof turned out to be that its exposure scenarios were, in the view of the ECJ, unrealistic (and not supported by further scientific reporting): they imply simultaneous exposure of a child to all possible toy safety Directive scenarios: dry, brittle, powder-like or pliable toy material; AND liquid or stocky toy material; AND scraped-off toy material.

Hum. That such simultaneous exposure should necessarily be unrealistic is of course open to debate. Many of us have tales to tell of children achieving the impossible with toys clearly not designed for the game a child or group of children might at some point concoct . (Reminiscent of the inherently flawed furniture endurance tests displayed by large furniture chains: I have always thought that letting our family loose on the displayed piece of kitchen, bathroom or dining room furniture would be a more realistic test than an engineered testroom).

As often with risk assessment and risk management: the final conclusion almost always remains open to discussion.

Geert.

 

REACH safeguard clause: EC allows first use by France and hints at flexible application

At the end of October, the European Commission authorised the first use, by a Member State, of the safeguard clause contained in the REACH Regulation. France has been allowed to ban cellulose wadding insulation materials used in buildings, to protect the public from exposure to ammonia released from ammonium salts in the materials. The authorisation will lapse in July 2015 lest an EU-wide ban on the substance, prepared  by France, will replace it by then.

As this was the first use of the measure, it remained to be seen how the EC would assess the French ban and the reasons for introducing it. It has adopted a great measure of deference to the national justifications invoked (in particular, incidents reported and initial measuring), even if the language of the safaguard itself is fairly restrictive.

Geert.

/////

Text of the safeguard clause (courtesy of REACHonline):

ARTICLE 129: Safeguard clause
1. Where a Member State has justifiable grounds for believing that urgent action is essential to protect human health or the environment in respect of a substance, on its own, in a preparation or in an article, even if satisfying the requirements of this Regulation, it may take appropriate provisional measures. The Member State shall immediately inform the Commission, the Agency and the other Member States thereof, giving reasons for its decision and submitting the scientific or technical information on which the provisional measure is based.
2. The Commission shall take a decision in accordance with the procedure referred to in Article 133(3) within 60 days of receipt of the information from the Member State. This decision shall either:
(a) authorise the provisional measure for a time period defined in the decision; or
(b) require the Member State to revoke the provisional measure.
3. If, in the case of a decision as referred to in paragraph 2(a), the provisional measure taken by the Member State consists in a restriction on the placing on the market or use of a substance, the Member State concerned shall initiate a Community restrictions procedure by submitting to the Agency a dossier, in accordance with Annex XV, within three months of the date of the Commission decision.
4. In the case of a decision as referred to in paragraph 2(a), the Commission shall consider whether this Regulation needs to be adapted.

 

The TTIP and the EU’s regulatory standards: Do BITs require an environmental guarantee?

Consultancy Ecologic have released a report which they have prepared for the European Parliament. It reviews the impact which the Transatlantic Trade and Investment Partnership (TTIP) might have on the environmental ‘acquis’ of the European Union (the collected body of EU environmental law). A wide range of issues are discussed – best have a look at the report for all the details. Included are the risks associated with standing for private companies under classic BITs, which as I reported earlier, the EC have recently defended.

The report downplays the impact which the TTIP might have on ECJ case-law [‘The Court of Justice of the European Union (ECJ) has consistently held that international trade and investment agreements only have direct effect within the EU in very limited circumstances. Thus, in past ECJ cases, private companies have not normally been able to rely on e.g. WTO law for invalidating an EU action or claiming damages from the EU. This is likely to apply to TTIP as well.’] That I believe is a touch incautious. The ECJ might qualify its case-law, in particular given that the extent of integration of a trade agreement, is part of the reason for the ECJ to reject direct effect. If the TTIP eventually will include the type of deep(ish) integration forecast, the Court might well find it to have direct effect in certain circumstances.

The report suggests the EP keep a close eye on the provisions in the agreement with an impact on environmental law. This includes the type of regulatory co-operation which the TTIP might yield: a focus on process or on outcome, as neatly summarised by Simon Lester. It makes me wonder whether the Agreement might do with an Article 193 TFEU-type ‘environmental guarantee’.

Geert.

Know your biomass from your biomass! The ECJ allows less favourable treatment of wood and wood waste in Industrie du bois de Vielsalm

In Industrie du bois de Vielsalm, Case C-195/12, the ECJ yesterday held in favour of the Walloon Region of Belgium, finding that a regional support scheme providing for the grant of ‘green certificates’ to cogeneration plants, which grants a larger number of green certificates to cogeneration plants processing principally forms of biomass other than wood or wood waste, does not infringe the principle of equality and non-discrimination.

The Court found first of all that Directive 2004/8 on the promotion of co-generation does not exhaustively regulate national support schemes for cogeneration and electricity production from renewable energy sources: Member States are given wide discretion.

It then argued that there are sound environmental reasons for discriminating against wood and wood waste in co-generation support schemes:

‘ (…) even at the level of the renewable nature of the resource, and hence from the point of view of its availability, as also from the point of view of sustainable development, prudent and rational utilisation of natural resources, and security of supply, wood, which is a resource whose renewal requires a long period, may be distinguished from agricultural products or household and industrial waste, whose production takes place in a much shorter space of time. (at 74)

‘Furthermore, it is common ground that the overall environmental impact produced by the increased use of biomass for energy production likely to follow from support measures differs according to the particular characteristics of the type of biomass used. As regards the environmental impact that could follow from enhanced support measures for the use of wood and/or wood waste for energy production, it may thus prove necessary to take into account that any excessive or premature deforestation which may be encouraged by such support measures is liable to contribute to an increased presence of carbon dioxide in the atmosphere and adverse effects on biodiversity or water quality.

Increased development of agricultural products intended for energy production is liable for its part to increase various forms of pollution specifically linked with agricultural activities, in particular with the use of fertilisers and pesticides, such as adverse effects on the water supply. (at 75 ff)

Finally, factors such as the quantities in which the various renewable energy sources are present in the territory of the Member State concerned, or the level of development that may already have been achieved there as regards recourse to one or other renewable energy source for cogeneration or electricity production, are also capable of influencing the choices to be made with respect to the renewable energy sources to be promoted in that Member State for the purposes of environmental protection and security and diversification of the energy supply. (at 79)

 

It concluded

‘Having regard to all the foregoing, it must be considered that, in the light in particular of the objectives pursued by Directives 2001/77 and 2004/8 and the aims of the European Union in the field of the environment, and of the broad margin of discretion allowed to the Member States by those directives for the adoption and implementation of support schemes intended to promote cogeneration and electricity production from renewable energy sources, and having regard to the individual characteristics of the various categories of biomass capable of use in a cogeneration process, those categories must not be regarded in the context of such support schemes as being in a comparable situation for the purposes of the possible application of the principle of equal treatment, observance of which is ensured by European Union law.

The need to be able to treat those various categories of biomass differently and, in particular, in the light of various environmental considerations, to make choices as to the types of substances to benefit from support and to draw distinctions as regards the specific details of that support, including the amount of the support, must on the contrary be regarded as inherent in that context, without it being possible to consider, in the present state of European Union law, that by taking the view that those various categories of biomass are not in the same situation the Member States manifestly exceeded the limits of their broad discretion in the matter (see, by analogy, Luxembourg v Parliament and Council, paragraphs 50 and 51). ‘(at 80-81)

 

This last para is a textbook application of the principle of non-discrimination: treating different situations like, may also constitute a violation of the principle of equal treatment. Here, the difference in circumstance is entirely explained by the ECJ by recourse to the environmental qualities of different types of fuel.

Geert.

 

 

Wahl AG in Unamar: national gold-plating of Union law does qualify as lois de police under the Rome Convention

I flagged earlier that regardless of the outcome for the Unamar case itself, an important consideration would be what the Court’s eventual answer will teach us about the Rome I Regulation on the applicable law for contracts (as opposed to its Treaty predecessor, the Rome Convention, which applies to the case at issue). Wahl AG’s Opinion was published this morning (as often, the English version was not yet available at the time of writing). It focuses almost entirely on the Rome Convention – for which from a legal point of view it cannot be faulted.

Belgium’s stronger protection of the agent, long held by Belgian law to be of overriding mandatory rules calibre, gold plates the regime of the Commercial Agents Directive, Directive 86/653. In Unamar, parties have agreed on Bulgarian law being applicable law (as well as incidentally on the case having to go to arbitration in Bulgaria first, attempting to circumvent Belgian law which proscribes the use of arbitration for disputes such as those at issue; the AG notes that this issue was not actually part of the questions referred by the Hof van Cassatie, hence he does not entertain it). The question therefore arises as to whether Belgian law, the lex fori, can justifiably trump Bulgarian law of which no suggestion is being made that it does not meet the minimum standard of the precited Directive.

In view of the minimum harmonisation character of the commercial agents Directive, and of there being no indication that such application leads to infringement of primary EU law, the AG suggests that Belgium courts are justified to qualify the Belgian gold-plating as being of overriding mandatory character.

As I noted when I flagged the reference, in my view the answer would have to be different under the Rome I Regulation. In the absence of a reference to gold plating in Article 9, and (arguably) its presence in Article 3, effect utile requires that the allowance for national rules of overriding mandatory nature, does not cover gold plating. However in the Rome Convention which is applicable to the case referred, EU law as mandatory law does not figure at all, and the room for overriding rules is much wider than it is in the Rome Regulation.

One will have to wait for the ECJ’s judgment to assess whether the Court itself will reveal anything on its position vis-a-vis the Regulation.

Geert.

Current set-up for Common European Sales Law (justifiably) rejected by the UK

The UK Government, a short while ago [perusal was in my in-tray for a few weeks] concluded its consultation on the need for a Common European Sales Law, with a rejection. The main lines of respondents’ arguments, were:

‘Evidence of need: Respondents did not believe that sufficient need for the proposal had been demonstrated. They were unconvinced that contract law presented a significant enough barrier to warrant such a complex and wide ranging proposal.

I agree.

‘Legal uncertainty: Respondents believed that the content of CESL would lead to significant legal uncertainty. There was felt to be a fundamental problem in creating a distinct law for the sale and supply of goods and services, separate from other contractual procedures. Respondents argued this would only lead to uncertainty and incoherence. Jurisprudence in the area would also take years and perhaps decades to establish, creating an additional burden on the UK’s judicial system and on the Court of Justice of the European Union. This would lead to significant delays and expense in the resolution of disputes and interim uncertainty regarding the interpretation of the law.’

I agree. Current regulatory competition, including relevant case-law by national and EU courts, does the job the CESL wishes to address just fine.

‘Confusion: Respondents believed that the introduction of a second regime of contract law would create confusion for both consumers and businesses. They argued that a new law was neither necessary nor practical and specifically noted the length and complexity of the CESL proposal. Many respondents believed that the implementation of further legislation in this area would make it harder, not easier, for businesses to agree contracts and for consumers to know their rights with certainty when purchasing across borders.’

I agree. The CESL addresses alleged uncertainty by adding a layer of complexity.

‘Cost.’ (of disclosure, training, litigation). Here too I agree.

As prof MacQueen et al note on their blog entry on the topic, the UK’s rejection focusses very much on the draft CESL as it stands – it leaves quite a few doors open to either improvements of the draft, or alternative ways of achieving better results.

As often, one of the EU’s most recalcitrant Member States subjects its proposed laws to the most careful scrutiny.

Geert.

Once more unto the breach – German action against Commission Decision on the Toy safety Directive provides a master class in EU law

Pre-script: this case is now known as Case T-198/12, and on 15 May 2013 the Court by way of interim measure ordered the Commission to grant approval to the German measures in full, at least until such time as a judgment on the substance has been issued. It made specific reference to the precautionary principle. The ECJ eventually held in May 2014.

 

I have always thought of legislation on, and trade in, toys, as a perfect illustration for many regulatory mechanisms worldwide. Prof Francis Snyder’s work (see e.g. here) is a perfect illustration of same.

This is no different for the general workings, and finer mechanics, of EU law. Once more, the sector hands teachers and practitioners of EU law a perfect illustration of harmonisation techniques, exhaustion (pre-emption) arguments, and judicial review.

On 1 March 2012, the European Commission only partially (and temporally) granted Germany approval for upholding stricter limits on limit values for lead, barium, arsenic, antimony, mercury, nitrosamines and nitrosatable substances in toys (for the decision, see here)  [As an aside, it is often said that one should never watch laws and sausages being made. Reading that list of substances, prima facie (only) one might want to add toys to that list]. Germany has announced it will appeal that decision with the Court of Justice of the EU.

I can think of one or two areas for discussion: risk management and migration limits v bioavailability (or the cheese and chalk argument); limits to pre-emption; application of the ‘environmental and health guarantee’ of Article 114 TFEU, including the principle of proportionality. Expect that future judgment to feature in core readers of EU law.

Geert.

%d bloggers like this: