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12th June 2020
Internal Market

Op-Ed: “Can Article 18 TFEU fill in gaps in the Treaties in the name of equality among Europeans? After RB (C-581/18), the answer is no”, by Daniel Sarmiento

The expectations were so high, that the Court of Justice was doomed from the very beginning. The case in RB v. TÜV Rheinland LGA Products GmbH and Allianz IARD SA (C-581/18, ‘RB’) was construed by the Frankfurt Regional Court as a leading case on a key Treaty provision, such as Article 18 TFEU, which precludes discrimination on the ground of nationality, now applied to contractual discrimination.

The case was set to be a landmark precedent that could open EU law review to private commercial conduct entailing unjustified discrimination, direct or indirect, based on the grounds of nationality. If the Court was to open such a door, the consequences would be enormous. Contracts throughout the EU with suspicious clauses that could entail any kind of discrimination on the grounds of nationality would be put under scrutiny. The effects of such review, if the illegality was to be confirmed, would be of a severe nullity, because Article 18 TFEU is an imperative provision that should produce the outright nullification of the contractual clause or, in some cases, maybe the whole contract. In sum, the judgment in RB had the potential of becoming a transformative ruling with a deep impact on the scope of EU law and in contractual practice throughout the European Union.

But that is not exactly what happened yesterday.

First, the facts: RB is a German resident who in 2006 had breast implants inserted in Germany. The implants were manufactured by PIP, a French company established in France and marketed by a Dutch undertaking. PIP was inspected and certificated by TÜV Rheinland, a ‘notified body’ established in Germany and governed by Directive 93/42. In 2010, PIP was found to have used unauthorised industrial silicone and national authorities, including Germany’s, recommended doctors who had inserted such implants that they should notify patients and have the implants removed. After having the implants removed in 2012, the applicant brought an action for damages against TÜV Rheinland and PIP’s insurer, Allianz.

PIP had an insurance policy with Allianz covering its civil liability, but the contract included a clause limiting the geographical extent of the insurance coverage to harm that had occurred in France. As a result, the applicant was, in principle, excluded from the coverage, but on grounds that were indirectly discriminatory: a victim residing in France, in exactly the same situation as RB, would have access to a successful claim against the insurer.

In the civil proceedings against the notified body and the insurer, the Frankfurt Regional Court made a reference for a preliminary ruling to the Court of Justice on the prohibition of discrimination on the grounds of nationality under Article 18 TFEU and whether it is applicable to private parties. In the same way that the provisions of the Treaties on discrimination on the grounds of sex can be invoked against private parties, the case at hand raised the broader issue of whether the general clause of Article 18 TFEU could also play the same role.

The response of the Court of Justice, delivered yesterday morning, was in the negative. However, the reply did not imply that Article 18 TFEU does not apply to contracts among private parties. What the Court of Justice ruled is that the facts of the case did not provide any link with EU primary and secondary law. Therefore, the response is subtler: Article 18 TFEU could be applicable inter privatos (or maybe; it wasn’t openly stated), but in order to invoke the provision it is necessary to trigger it together with another rule of EU law.

Before we go into the details of the outcome, it is necessary to go through the traditional stance of the case law on Article 18 TFEU. This is a peculiar provision, because it operates subject to two conditions: first, it can only be invoked when the case is ‘within the scope of application of the Treaties’; and second, the rule plays a role ‘without prejudice to any special provisions contained [in the Treaties]’.

Article 18 TFEU has not been used widely precisely because of these two conditions: if the case at hand is within the scope of application of the Treaties, there will usually be a provision of EU law covering the facts and providing a solution. If there is a Directive governing the issuance of licences to operate within the internal market, Article 18 TFEU will not be needed because the Directive will provide sufficient normative comfort. And if there is no Directive but there is a cross-border link, a provision on free movement will apply and thus provide a solution to the case, with no need to rely on Article 18 TFEU.

So when would Article 18 TFEU be of use? The question is still pertinent, because there are indeed situations in which the Treaties have gaps and Article 18 TFEU can fill in the void. For example, in Neukirchinger (C-382/08) the Court was confronted with a penalty imposed on a company for flying commercial balloons without a licence in Austria, although the company held a German licence. Commercial balloons were not governed by Regulation 1008/2008 and Article 58 TFEU introduces a derogation from the provision of free movement of services when applied to transport, which relies exclusively on secondary law. Since commercial balloons were not covered by Regulation 1008/2008, in a case in which a German licence-holder is fined for not holding an Austrian licence it is obvious that there is a gap, and the Court was eager to fill it through Article 18 TFEU.

However, in other cases Article 18 TFEU has been used as a complementary tool, in parallel to other provisions of EU law in order to reinforce the overall solution. That was the case in Austria/Germany (C-591/17), one of the few Article 259 TFEU infringement cases, concerning Germany’s infrastructure use charge for passenger vehicles. In that case, the Court reviewed the German measures in light of Article 18 TFEU, but also under Articles 34 TFEU (goods), 56 TFEU (services) and 92 TFEU (transport) in an accumulative way, finding a breach of all four provisions.

We therefore had two approaches in the case law concerning Article 18 TFEU: one that uses the provision to fill in the gaps of the Treaties, and another intended to reinforce the protection granted by other rules in the Treaties. In yesterday’s ruling, the Court clearly opted for the latter.

In RB, it was obvious that there was a gap. A German consumer is the victim of a malfunctioning of the internal market. A French company, certified by a German certifying body, provides defective goods that cause harm in Germany after being marketed by a Dutch undertaking. However, only the French victims will benefit from the company’s insurance policy, since they are covered by the territorial scope of the coverage as provided in the contract. Seen in this light, it is clear that the internal market worked imperfectly and, as a result, the internal market’s rules should provide a remedy to the victim. That is what Advocate General Bobek pointed out when he insisted in having all the moral sympathy for the applicant. In such circumstance, in which there is no clear rule of EU law governing insurance policies of manufacturers, and the links of the service recipient with the service provider are all confined to one Member State, there could be force in relying on the role of Article 18 TFEU as a gap-filling rule in the Treaty. After all, that is exactly what the Court did in Neukirchinger in 2011, a judgment that has disappeared into oblivion according to yesterday’s reasoning.

In RB the Court has therefore taken a route that restricts Article 18 TFEU and precludes it from taking a gap-filling role. In the Court’s reasoning, it is obvious that this provision is only to be used now when there are sufficient links with EU law. And then, the provision interacts in parallel with the relevant rules that justify the link, as in Austria/Germany. In case of gaps, there appears to be no role for Article 18 TFEU anymore.

Is this a restrictive outcome that should be criticised? I believe that the answer is two-fold and deserves a positive and a negative answer.

The judgment is problematic because it seems to consolidate a trend that diffuses the real role of Article 18 TFEU. If this provision is to act as a safeguard to ensure that no discrimination on the grounds of nationality is tolerated within the EU, this judgment openly and willingly allows for such discrimination to exist. By renouncing a gap-filling role for Article 18 TFEU, the Court is admitting that the Treaties will have gaps and the victims of such discrimination will just have to live with it. As a message it is quite a daunting one.

But the judgment also deserves merit because it actually intends to reinforce the role of Article 18 TFEU as long as there is a link with EU Law. In other words, in case of gaps, the applicant is doomed. But if he or she manages to prove such a link, the protection under the Treaties is higher, since it will include not only the solution provided by a Directive or a free movement rule, but also the protection available through Article 18 TFEU. The Court is sacrificing the protection of those who are not governed by EU law in order to reinforce the position of the genuine right-holders of EU Law. This is a balancing act in which the distribution of powers between the EU and the Member States is safeguarded, but at the price of sacrificing the victims who are left astray in purely internal situations.

The outcome of RB is interesting from many angles.

First, it confirms a trend in the case law of the Grand Chamber (and I insist on the fact that it is the Grand Chamber) which tries to clarify, in a pedagogical way, the situations in which EU law applies, providing guidance to national courts so that they make good but proper use of EU law. It started with Ullens de Schooten (C-268/15) and it is now reconfirmed in RB.

Second, it is a judgment that also confirms the trend of reinforcing the protection under the Treaties, but as long as such a protection is clearly under the scope of EU law. The Court has been restricting such a scope in a subtle way in order to pacify national concerns, and a good example is TSN (C-609/17) and, more recently, Fetico (all Grand Chamber rulings). It is now evident that the Court is trying to redefine more strictly the frontiers of EU law, at least in certain areas which touch on sensitive national policy fields, such as the Charter, social policy, and now Article 18 TFEU.

And finally, I would add that this is a signal towards orthodoxy. In his Opinion in RB, Advocate General Bobek provided all the arguments in favour of a more orthodox and structured approach towards Treaty rule implementation. He was followed by a Grand Chamber eager to be didactic, and the result is a judgment that puts the pieces of the puzzle in a more orderly position.

However, one question still remains: can Article 18 TFEU be invoked inter privatos? And that is a question that drives us once again towards unorthodox terrain, particularly in cases in which a non-transposed Directive faces contracts with discriminatory clauses, or such contracts have a trans-frontier link. That was, in fact, the main question that the referring judge was eager to find a solution to. But that is exactly the question that the Court of Justice left yesterday unresolved.

 

Daniel Sarmiento is a Professor of EU Law (Complutense University of Madrid) and Editor-in-Chief of EU Law Live

 

 

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