Op-Ed: “The conditional payment of EU’s own resources: from tales to clearly defined tool” by Michal Kianička
Judicial protection of the Member States in the area of the EU’s own resources was recently intensively discussed on EU Law Live – questions were raised, news was reported. For instance, Dolores Utrilla analysed the pioneering case Czech Republic v Commission (T-151/20). She also informed us about the judgment in Czech Republic v Commission (C-575/18 P, ‘the Czech appeal judgment’). Janek Nowak took these actions and their context as a starting point for a broader discussion on the current system of remedies provided for by the EU Treaties.
I wish to contribute to the debate by looking at the position of the Member States and how that has been subject to major change by the Czech appeal judgment.*
Before that, the Member States were in an unenviable situation. If the Commission asked them to pay certain sums of money which it deemed as (traditional) own resources, they basically had two options – either to pay the money or not to pay it, to argue with the Commission and to end up before the Court of Justice facing an infringement action.
It is true that the Court of Justice of the EU (‘CJEU’) has repeatedly referred, in its case law related to the EU’s own resources, to the possibility of payment subject to reservations (‘conditional payment’). It seems that for the first time, it was mentioned by the Court of Justice in case Commission v Netherlands (C-96/89, paragraph 17). However, this judgment, as well as further decisions referring to the mechanism, such as cases Commission v United Kingdom (C-359/97, paragraph 31), Finland v Commission (C-457/06 P, paragraph 39) or Spain v Commission (T-841/14, paragraph 46), included only a curt statement without any further explanation.
The mechanism was thus the great unknown, having something in common with Colombo’s wife – heard about repeatedly, but not seen. Its functioning and the consequences of its use were neither defined in any EU legal act, nor described in the case law of the CJEU. Apparently, Germany used this mechanism in the situation underlying the case Commission v Germany (C-442/08, paragraph 51), but the judgment also did not cast any light on the tool and its modus operandi. It effectively included one single reference to the conditional payment in the part describing the pre-litigation procedure. The same goes for the judgment in Finland v Commission (C-163/06 P), where the mechanism was at heart of the discussions. The Court clarified therein what the Member State cannot ask from the Commission rather than what it could seek, what the Commission would have to do or how exactly the conditional payment would help the Member State to get legal protection and access to court.
Thus, the mechanism of conditional payment has not provided much help in practice. Those Member States that used it expected that the Commission would deal with them as if they had never paid and eventually sue them before the Court of Justice, while not facing the risk of significant default interest. By comparison, the case was closed for the Commission with the payment, at least in recent times (see for instance paragraph 74 of the Czech appeal judgment), no matter whether the payment was with or without reservations.
The Czech appeal judgment is therefore a significant step forward. It provides valuable answers and guidance both for the Member States and for the Commission. First, the Court of Justice clarified that after a conditional payment, the Commission still can initiate infringement proceedings against the Member State concerned (paragraph 74 and 75). Here the Court of Justice adhered to the view of Advocate General Sharpston (paragraph 98 of her opinion). Second, the Court of Justice denied an obligation of the Commission to initiate infringement proceedings (paragraph 77). In other words, after the conditional payment, the Commission can, but does not have to pursue the Member State. Here, in turn, the Court of Justice did not follow the Opinion of the Advocate General (paragraph 105 of her opinion), sticking with the established case law regarding the wide margin of appreciation given to the Commission. Third, where a Member State has paid subject to reservations, the Commission must engage in constructive dialogue with that Member State. This obligation stems from the principle of sincere cooperation established by Article 4(3) TEU (paragraph 73). Fourth, if the Commission and the Member State are not able to settle the dispute through dialogue, the Member State can seek damages on account of the EU’s unjust enrichment and, if necessary, bring the respective action before the General Court (paragraph 81). Fifth, the Court of Justice clarified the scope of assessment by the General Court, stating that the latter would have to assess, simply put, whether or not the Member State was obliged by EU law to pay the disputed sum of money (paragraph 83). Interestingly enough, the Court of Justice did not see here any interference with its own competences in infringement proceedings.
This means there is now a clear way out for the Member States. Finally! Moreover, it turns out to be, at least in a certain way, a better option than the action for annulment, and more favourable for the Member States. Were the letters of the Commission actionable acts, the Member States would have only two months (plus ten days) to attack them before the General Court. It is not a lot, not at all, thinking for example of the factual complexities or the intra-state coordination issues. By contrast, Article 46 of the Statute sets the limitation period for non-contractual liability claims against the EU at five years from the occurrence of the event giving rise thereto. Therefore, the Member States have won significantly more time, although certain aspects still need to be clarified, such as when exactly the five-year period begins to run.
It is great that the Court of Justice has explicitly confirmed the existence of this avenue of legal protection for the Member States, even though it could have done so earlier. It is a huge step in the not yet finished transformation of a somehow mythical mechanism with unclear content to a solid instrument with enormous practical relevance. The conclusions of the Court of Justice in the Czech appeal judgment thus considerably strengthen the position of the Czech Republic in their unjust enrichment case T-151/20, as it shows it went the right way. However, to convince the General Court in substance, and thus to win the case as such, is another cup of tea altogether.
The Commission also will (or at least should) now change its attitude towards the Member States in disputes concerning (traditional) own resources. Instead of ignoring (at least some of) the Member States and playing possum, it should talk to them and thus engage in the dialogue required by the principle of sincere cooperation and mentioned by the Court of Justice. From now on, the existence of a legal obligation to do so cannot be contested. It even could be, if necessary, enforced through the action for failure to act in accordance with Article 265 TFEU. Nevertheless, here I am not optimistic about a prospective win of the Czech Republic regarding their action for failure to act in case T-13/19. It is now clear from the Czech appeal judgment that a Member State cannot reproach the Commission for not having launched the infringement proceedings after a conditional payment. Unfortunately, that is exactly what Czech Republic did in T-13/19. It might thus revise its strategy and think of withdrawing its action.
Be that as it may, although the Czech Republic fought regarding the same sum of money on three fronts in parallel, it does not have to win all the battles it went into. One win will be just enough. Apart from that, it has already recorded a victory with the Czech appeal judgment with what the Court of Justice said in its reasoning, despite the fact that they lost the case after all.
Although the Court of Justice has given (again, finally!) some answers, further questions arise. Will the Member States commence actions for failure to act if the Commission does not change its attitude and keep ignoring their reservations attached to certain payments? Or will they skip this step and proceed directly to the action for unjust enrichment? Will they be allowed to? Could for instance the prior dialogue, or at least a respective effort from the side of the Member State, be an admissibility requirement for the unjust enrichment actions? If so, how strict is this requirement going to be? Let us see what the future case law and/or legislation brings here. It will be interesting to follow further development in this area, which might at first sight look boring, but includes fascinating legal and practical problems.
* I wish to thank Jiří Vláčil for his helpful comments on an earlier version of this text.
Michal Kianička was a member of the Slovak EU litigation team from 2010 to 2020.