European Union Law - The principle of indirect effect effectively bridges the gap between vertical and horizontal direct effect.

This question is concerned with an analysis of European Community legislation and its enforcement by individuals within Member States. The Community is always keen to ensure the “effet utile” (or effectiveness) of its measures and this policy demand often informs its decisions. It will be important to appreciate indirect effect in its proper context, i.e. as one putative method of effective judicial protection among other interlinked remedies and channels of enforcement.

Direct effect is the mechanism by which Community law is applied in national law. A provision that has “vertical” direct effect automatically confers rights on individuals against the State, whereas “horizontal” direct effect confers rights and obligations on individual private citizens.

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Claimants and defendants may rely on any directly effective provision of Community law before a court of a Member State. A directly effective provision must be clear and unambiguous and designed to give rights to individuals, whether legal or natural persons .

Because following Article 249 and Euratom 161 regulations and decisions normally have direct effect no national legislation is usually needed in order to give effect to them . It is important to remember that regulations are the legal acts that allow the Community to encroach furthest on the legal systems of Member States and because of their Community power they apply in full in all Member States.

For this reason, a Member State has no power to apply a regulation incompletely, nor do regulations require transposition in to national law, which means that they confer rights and impose obligations on Community citizens to the same extent as national law. This is a crucial difference from other treaty acts such as directives. Regulations are binding on individuals and state bodies and therefore automatically possess horizontal direct effect. For this reason, there is no gap between vertical and horizontal and direct effect in their use. The same is true of Treaty provisions, as has been confirmed by the Court .

However, because Articles 249 and 161 Euratom refrain from declaring that directives are directly applicable it is here that the principles of vertical and horizontal direct effect have the greatest impact. Directives leave “the choice of form and methods” to national authorities and, therefore, when a directive has laid down an objective, Member States are permitted to achieve that objective using whatever means they think are appropriate.

Directives have a separate purpose from regulations. They are the mechanism by which Community law tries to achieve necessary uniformity while at the same time accommodating national diversity and tradition, as far as is possible. A directive does not supersede the laws of Member States, but rather places Member States under an obligation to adapt their law so that it is in line with Community rules. This situation leads to a two-stage process.

Because of their nature and the fact that they are addressed to Member States rather than individuals, the ECJ has held that directives can only confer rights on individuals against the State, i.e. they can’t impose obligations on individuals in favour of the State or other individuals. Accordingly, in the terms of this essay, directives are strictly capable of “vertical” direct effect, but not “horizontal” direct effect.

The ECJ has been notably inconsistent in its approach as to whether directives can have “horizontal” direct effect and, therefore, whether there is any “gap” at all as posed by this question. However, the Court has stated explicitly that a directive “may not of itself impose obligations on an individual” and that “a provision of a directive may not be relied on as such against such a person” . A Full Court, i.e. consisting of thirteen judges, has reaffirmed this position .

It is in fact necessary to question the existence of any “gap” between vertical and horizontal direct effect, since the ECJ has at times pushed the concept of vertical direct effect to its outer limits, for instance in CIA Security v Signalson and Securitel . This case concerned EC Directive 83/189 , which required that all “technical regulations” had to be notified to the Commission. The case concerned a Belgian law passed in 1990 which required that security firms had to obtain authorisation from the Government. Neither the law nor the decree had been notified.

The two defendant companies in this case were private companies who brought proceedings in Belgium claiming that CIA Security’s alarm systems did not meet Belgian requirements. CIA Security brought the above case in an attempt to prevent the defendants from making such statements, during which a reference was made to the European Court. The ECJ ruled that the 1991 decree should have been notified to the Commission as a “technical regulation”. Since all of the companies involved with this action were private parties it could be argued that this outcome is, for all purposes, horizontal direct effect.

On further analysis, however, it appears that the division between vertical and horizontal direct effect is concerned more with policy than with principle. It could be argued that the Belgian decree in question imposed an obligation on an individual, i.e. it barred an individual from selling an alarm system that hadn’t been approved. If however, a public authority had tried to enforce the decree, CIA Security would have been able to invoke the directive as a defence, i.e. they could have invoked vertical direct effect. It might be argued that it would be unfair to place a private claimant in a weaker position than a public authority. Such an analysis suggests that the framework of direct effect is flexible depending on the nature of right in question.

The complex nature of this analysis is shown by a later case, Lemmens , which turned on the notification procedure under Directive 83/189. Where this would technically have been a case of horizontal direct effect, the Court chose to restrict the CIA Security principle to cases where the application of the national regulations would hinder the use or marketing of a product not in conformity with them. The policy overtones of such a decision are, indeed, clear. It is possible to criticise such a decision as being offensive to the rule of law, since it introduced some uncertainty into the law: private parties to an action might not know whether the requirements of Directive 83/189 had been satisfied in their case.

This phenomenon has been called “incidental horizontal direct effect” and it does, indeed, seem to be the case that there has been some blurring of incidental horizontal direct effect and indirect effect.

It is possible to argue that having denied the existence of horizontal direct effect the ECJ then attempted to bridge the “gap” in later decisions by broadening the class of bodies that are regarded as being part of the State. Following the Marshall case the bodies which have been classed as “emanations of the State” include a police chief constable and a privatised water company . It has indeed been held that widening the concept of the State is the ECJ’s method of “recovering…lost ground” .

It should be remembered that the term “indirect effect”, also known as “harmonious interpretation”, is not actually used by the ECJ. Nonetheless, it is possible that this mechanism may diminish the importance of vertical and horizontal direct effect, since the Court looks now to the implicit purpose of a directive rather than the explicit right(s) enumerated within the provision. The doctrine of indirect effect requires that Community provisions, even if not directly effective, must be taken into account when interpreting national legislation. Indirect effect usually applies solely to directives and for this reason it can be argued that it provides an indirect mechanism for horizontal direct effect disguised as interpretation.

The introduction of “indirect effect” represented a fundamental step in the move towards effective judicial protection. It came in Von Colson and Kamann v Land Nordrhein-Westfalen which concerned a directive on sex discrimination. The ECJ concluded that “it is for the national court to interpret and apply the legislation adopted for the implementation of the directive in conformity with the requirements of Community law, in so far as it is given discretion to do so under national law. ” The doctrine now applies to national legislation which has not been adopted to implement any directive and, indeed, which was passed before the directive. In this way it follows that national courts have an obligation to interpret national law in order to guarantee claimants an effective and adequate remedy.

In Marleasing , a case in which all the parties were private, the Court extended the application of the Von Colson principle to national legislation passed before the directive. The decision in Marleasing suggests that the result envisaged by a directive must be attained irrespective or whether or not there is any doubt as to the meaning of the national provision and irrespective of whether or nor the words of that provision could reasonably bear the meaning required by the directive. This would be a very wide use of the indirect effect doctrine and the House of Lords stated in Webb v EMO Air Cargo that it didn’t accept such a wide application of the doctrine. The ECJ has determined that the obligation to interpret national law in accordance with Community law applies only to the extent that this interpretation is possible . The ECJ has recently signified its continuing support to the mechanism of indirect effect as a means of effective judicial protection in Pfeiffer .

The effect of the Court’s ruling in Marleasing was that a defendant could invoke a directive as a defence to a claim based on pre-existing national law, which led to suggestions that the Court was “introducing horizontal direct effect by the backdoor.” It is arguable therefore that indirect effect was filling the gap or, indeed, that it was replacing the gap. However, as a matter of strict law, the defendant was deriving protection from the directive indirectly via national law and not via Community law, as would be the case with horizontal direct effect. To this extent the procedures are distinct.

Thus, it is not necessarily the case that indirect effect bridges the direct effect gap since it creates great uncertainty; it is very hard to know how unclear national law must be before indirect effect operates.

It may be seen that the use of indirect effect varies with the area of law in question. In particular, the judgment in Arcaro suggested that the interpretative obligation reached a limit where doing so would aggravate “the liability in criminal law of persons who act in contravention of that Directive’s provisions.” However, this decision occurred during criminal proceedings brought by a Member State against an individual: where, therefore, the issue of horizontal direct effect would not strictly arise. This limitation has been termed “inverse indirect effect” , but many post Arcaro decisions such as Pfeiffer and Centrosteel – all civil cases between private parties - have reaffirmed the conventional line.

However, notwithstanding these limitations on the operation of indirect effect, its scope has recently been enlarged to deal with matters that fall under the EU’s third “pillar”, i.e. the policy area that is concerned with police and judicial co-operation in criminal matters. By extending the Community principle of indirect effect to the field of EU criminal co-operation the Court has offered a potential remedy to individuals seeking to invoke rights generated by the third pillar. The recent Pupino judgment highlighted the importance of the principle of loyal (or sincere) co-operation as enshrined in Article 10 EC which has been used by the ECJ to form the basis of decisions on direct and indirect effect. It can be argued that it imposes an obligation upon Member States to ensure the effectiveness of Community law. This decision has, arguably, broadened the ambit of both Article 10 EC and the mechanism of indirect effect. However, it is a moot point whether this extension can be seen as “bridging a gap” because indirect effect is now being used to create remedies where previously there were non available, particularly with respect to third “pillar” matters.

The ECJ has employed other, less interventionist methods since the early 1990s in an attempt to regain the ground lost following the Marshall judgment. The Francovich case, which concerned an EC directive and the development of state liability, is of great importance. In this case the Court followed its decision in Wagner Miret , and demanded that that the claimant should be entitled to an alternative claim in the form of an action for damages brought against the State for failure to implement the Directive. This recognises the fundamental limits inherent in indirect effect. The ECJ ruled that there is a general principle in Community law that a Member State is liable to compensate individuals for loss caused to them which results from a violation of Community law by a Member State. Interestingly the Court used arguments grounded in “effet utile” and Article 10 EC when it justified its ruling. Arguably, this principle exists because it is in the interests of the Community that it should exist .

A remedy won’t always be available since three requirements must be satisfied: the result to be achieved under the directive must always confer rights on individuals; these rights must be identifiable from the provisions of the directive; and there must be a causal link between the violation of the Community law by the Member State and the loss suffered by the applicant. Initially national courts provided the appropriate remedy following a ruling on liability from the ECJ, however, the Court has widened the ambit of this remedy.

The ruling in R v Secretary for Transport, ex parte Factortame shows that such a remedy will be available even where the provision which has been violated is a Treaty article, i.e. Article 43 EC, which was directly effective. In this way, the Francovich principle goes further than “bridging a gap”. The Court dismissed the UK’s argument that there could be no liability where the wrongful act – passing a statute – had been committed by a national legislature. By doing so the Court created a new remedy. However, as always the Court was guided by the principle of effectiveness over everything else .

This approach has been strongly criticised and it has been claimed that the ECJ is “turning its back on effective judicial protection” . It can be argued that this level of protection is illusory since an individual litigant would need to clear numerous hurdles before succeeding in a claim for damages. Furthermore, an action for damages could bring compensation but not necessarily protection of a Community right. Crucially the application of the remedy remains with national courts. It is therefore arguable that in practice the Francovich principle will not bring the increased effet utile that the ECJ hopes for.

It can be argued that the Court has introduced a new “selective deference” approach to allow it to deal with the problem of individual remedy. It appears that the Court may now intervene to guarantee effective judicial protection where it considers it to be appropriate, as in Courage Ltd v Crehan in which the ECJ allowed an individual to claim damages in contract against another party. This has been termed a “bolder, but generally more flexible approach” .

Effectiveness is therefore the cornerstone of the ECJ’s policy when handing down its decisions. It can be seen that the Court has resorted to a piecemeal approach when it deals with individual rights in respect of EC provisions. Indirect effect provides one important weapon in the individual’s quest to invoke or protect their Community rights in national courts, although it seems that the Court has chosen latterly to bypass the vertical/horizontal/indirect effect debate focusing instead on a remedies-based approach. Indirect effect, like direct effect, is a blanket solution to the problem and, given the ECJ’s desire for effet utile in an expanding Community, it maybe that the Court determines in future that being effective means being selective.

Bibliography

Hartley, T.C., The Foundations of European Community Law, 5th ed., (2003) (Oxford)

Fletcher, M, Extending Indirect Effect to the Third Pillar: The Significance of Pupino, European Law Review, E.L. Rev 2005, 30 (6), 862-877

Drake, S, Twenty Years after Von Colson: The impact of “indirect effect” on the protection of the individual’s Community rights, European Law Review, E.L. Rev 2005, 30 (3), 329-348

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