R v Ministry of Agriculture, Fisheries and Food ex p Hedley Lomas [1991]

European Law

R v Ministry of Agriculture, Fisheries and Food ex p Hedley Lomas
‘The Sheep Farmer’ by Barry Ross Smith

The application of a Treaty article while a harmonising Directive precludes the right to endorse sanctions for Member State non-compliance, results in a loss of licence for Ireland, when exporting sheep for slaughter. This led to a preliminary ruling to ascertain if such a Directive could reasonably deny, or even restrict, exportation to Member States failing to uphold the aims of the assigned article.

For clarity, art.43 EC and art.100 EC were designed to reduce the suffering of animals sent for slaughter through the use of stunning and killing within specific guidelines under Directive 74/577/EEC, while art.36 EC includes restrictive measures surrounding the importation and exportation of products (including livestock) when acting in the interests of public safety, security and protection of human, animal and plant life.

When Spain transposed Directive 74/577/EEC it mirrored the terms of art.1 of the Directive with the exception of sanctions for non-compliance,  and so the UK Ministry of Agriculture, Fisheries and Food prohibited sheep exportation to Spain through the denial of specific export licences, which left an Irish sheep farmer unable to export his livestock to a fully compliant Spanish slaughterhouse.

Having sought judicial review and damages in the High Court, the court requested a preliminary ruling under art.177 EC, and so asked the European Court of Justice: 

1. Did the terms of Directive 74/577/EEC prevent restrictive measures under art.36 EC? 

2. Did the effects of art.36 EC have universal effect, or were they subject to specific criteria?

3. Where ineffective, was the Member State applying the article liable for compensation where an export licence was denied?

Whereupon the Court held that:

1. Although the terms of Directive 74/577/EEC did not expressly outline the penalties for non-compliance, it did confer those measures to the Member States in order for legislative powers to ensure the observation of those terms, however the actions taken by the UK were entirely subjective as opposed to evidence-based, therefore to rely upon the effects of art.36 EC was to act without authority when denying the free movement of goods by another Member State.

2. The terms of art.36 EC did not allow one Member State to exercise restrictive powers over another, while the route taken must be one of either action, or complaint to the Commission under art.170 EC or art.186 EC, while continuing to allow the movement of goods unless or until proven correct.

3. When acting in breach of art.43 EC it is the obligation of the acting Member State to provide reparation for damage caused by the breach, as was established in Francovich and others v Italy and Van Gend en Loos v Nederlandse Administratie de Belastingen, and that when deciding the measure of compensation it must rely upon its own domestic legislation observe the principles of non-discrimination and effective remedy when discussing the matter in the courts and calculating the amount payable, while further reminding the parties that:

“A Member State cannot take unilateral action against defaults by other Member States. The Treaty of Rome created an original legal order in which the procedures necessary for establishing and penalizing a breach of its provisions are strictly regulated.”

Marleasing SA v La Comercial Internacional de Alimentación SA [1990]

European Law

Marleasing SA v La Comercial Internacional de Alimentación SA [1990]
‘Sunset Over Sagrada Familia’ by Ana Maria Edulescu

The composition and function of incorporated companies and the fraudulent and deceptive manner in which their assets are contained, becomes central to a contention between founders and creditors when nullity is sought before the national court.

When creditor and claimant (Marleasing SA) discovered that one of the three founders of La Comercial Internacional de Alimentación SA had used the firm to avoid third party recovery of assets, it took action against them in order to expose the company as an illegally created organisation as defined under arts.1261 and 1275 of the Spanish Civil Code.

In response the defendant founder sought the protection of art.11 of Directive 68/151/EEC (also known as the ‘First Directive’), which included an exhaustive list of qualifying conditions for company nullity, yet none of which included the grounds relied upon by the claimant, and so when debated by the Juzgado de Primera Instancia e Instrucción it was agreed that as transposition of the Directive had not been undertaken, the issue remained unsolved without reference to the European Court of Justice under art.177 EC, and so on this occasion the court asked:

1. Were the relevant terms contained in art.11(2) of Directive 68/151/EEC enforceable between individuals despite a failure to adopt them into national Spanish law?

After observing the disparities between existing domestic statute and the meaning of the Directive, the Court explained that no terms of a Directive could be used between individuals under Community law, however a failure to transpose a Directive could result in individual action against the Member State where clarity and specificity of the Directive was shown, on grounds that it remained the Member State’s obligation to align the principles of the Directive against existing statute in order that the Directive’s effect superceded domestic laws.

Going further still, the Court also held that in relation to the protection of nullity under art.11(2)(b) of Directive 68/151/EEC nullity may be provided for where the objects of the company are unlawful or contrary to public policy, or where the number of founding members is less than two, and so in conclusion the Court finally outlined how art.12 nullity entailed dissolution and thereby failed to affect the validity of the company or its dealings despite the presence of unlawful operation or intent, therefore it was down to the discretion of the national courts to determine how best to meet the needs of both the claimant and the defendant, while observing the meaning and effect of Directive 68/151/EEC, before clarifying to the parties that:

“[O]bligation on the part of the national courts to interpret their national law in conformity with a Directive, which has been reaffirmed on several occasions, does not mean that a provision in a Directive has direct effect in any way as between individuals.”

Wagner Miret v Fondo de Garantía Salarial [1993]

European Law

Wagner Miret v Fondo de Garantía Salarial
‘Coastal Fort, Catalonia’ by Alan Page Smith

Directive 80/987/EEC was drafted to protect the lost earnings of employees subject to the liquidation of their employers, however when a higher management employee was later made redundant through company dissolution he was subsequently denied lost earnings under Spanish law on grounds that when adopting the effects of the Directive the government had chosen to exclude domestic servants from the guarantees afforded them, and yet applied that caveat when deciding his case in the Juzgado de lo Social (Social Courts).

Having challenged the judgment in the Tribunal Superior de Justice (Superior Court of Justice) it was argued that when applying the terms of Directive 80/987/EEC the legislature had relied upon Royal Decree No.1382/85 to deliberately deny higher management the rights afforded other employees through the pay guarantee fund, as established under art.33 of Law No 8/80 (‘The Employees’ Statute’).

This left the Court unable to fully address the claim without reference to the European Court of Justice for a preliminary ruling under art.177 EC, and so three questions asked:

1. Whether the terms of Directive 80/987/EEC included all employees of the Member States?

2. Whether the failure of the Spanish government to encompass higher management staff within the annexe excluding domestic servants, provided for prevention of a claim?

3. If the answer to question 1. was yes, should the payment should come from the guarantee fund or State compensation?

With consideration of the historic debate surrounding this contentious matter the Court held that when transposing the terms of the Directive the Member States should determine what constitutes employment under the meaning of national law, and where agreed those employees were to be protected under the effects of art.1(2) of the Directive.

In relation to the exclusion of higher management it was agreed that unless expressly contained in the annexe to Directive 87/987/EEC (later amended to Directive 87/164/EEC) those occupying such roles were entitled to received compensatory payment, while with regard to the source of payment the Court clarified that in similar instances it was the role of the Member State to devolve payment to the fund created, or if no such fund existed the compensation was due from the Member State itself, before reminding the parties that:

“[I]n so far as national law classifies members of the higher management staff as employees, a Member State cannot exclude that category of employee from the scope of application of Directive 80/987/EEC, as amended by Directive 87/164/EEC, if it is not included in the Annex to that directive.”

R v Secretary of State for Transport ex parte Factortame Ltd (No.2) (1990)

English Constitutional Law

R v Secretary of State for Transport Ex parte Factortame Ltd
‘NERIED, Cannery Tender’ by Steve Mayo

Direct effect compatibility, and the obligation owed by Member States to transpose Directives and Treaties as binding upon national laws, was a ruling that would soon unearth conflicts of interest. On this occasion, the contention was brought about by aggressive amendment to statute in favour of the UK fishing industry.

Until 1988, those parties involved in domestic commercial fishing were required to register under the Merchant Shipping Act 1894; an Act that allowed overseas companies to operate outside British waters, but still have their fleets registered under UK incorporation. As a means of preventing ‘quota hopping’ (over-fishing), it was enacted by Parliament to include Part II of the Merchant Shipping Act 1988 and Merchant Shipping (Registration of Fishing Vessels) Regulations 1988, to the effect that all those trading were to re-register under new conditions.

These terms required that in order to qualify for registration, the company must have a minimum of seventy-five percent British ownership, and where ownership fell outside the United Kingdom, there needed to be a seventy-five percent share hold by British citizens. This translated that the appellants, who had been previously registered for over almost twenty years, were now unable to re-register, as the owners were Spanish and therefore exempt from the new legislation.

Having appreciated the United Kingdom’s position as a Member State, and subsequent membership to EU Community law, the firm sought proceedings under the principle that the choice taken to exclude other EU members from registration had displayed an overt refusal to comply with art.177 of the EEC Treaty. Furthermore, it was claimed that where Community rights were held to have ‘direct effect’, it was the onus of the national courts to suspend challenged legislation, with the granting of interim relief where proven necessary.

When heard in the Divisional Courts, the claim was supported and provisions made to allow the unfettered trading of the claimants, until such time that clarification was found in the challenge against the amended Act. However, when appealed by the Secretary of State, Court of Appeal Court set aside the previous finding, while granting leave of appeal to the House of Lords.

In this instance, the House agreed that should the claimants’ fail in their argument, the financial damage would be sufficient enough to cause irretrievable damage to the firm, but that without a preliminary ruling by the European Court of Justice (COJ), it was impossible to determine (i) if the courts were empowered to suspend legislative effect, and (ii) how best to determine what form the interim relief should take.

Upon deliberate consideration by the COJ, it was unanimously agreed that when the objectives of direct effect were designed, they were done so in a way that intended literal application with immediate purpose, and that unless under exceptional circumstances, it was the duty of the national courts to hold the powers of Community law above those of domestic interest, whereupon the House held that:

“[N]ational courts are required to afford complete and effective judicial protection to individuals on whom enforceable rights are conferred under a directly effective Community provision, on condition that the Community provision governs the matter in question from the moment of its entry into force…”