Sources and Scope of European Union Law

Introduction

The extent to which EU legal rules and principles, concerning commercial activities, are enforceable within member states will be critically assessed in this essay. This will be done by reviewing certain aspects of EU law and considering the extent to which EU law can be invoked under the principle of direct effect. It will be shown that whilst individuals and businesses will be capable of invoking EU law through national courts, this will always be subject to restrictions to ensure that the market is not being distorted in anyway.

Main Body

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The ‘direct effect’ principle is used to confer rights or impose obligations upon individuals in accordance with European Union (EU) law. National courts are bound under this principle to recognise and enforce certain EU legal rules and principles (Dashwood, 2008: 229). If EU law is inconsistent with a law of a member state, the doctrine of supremacy seeks to ensure that EU law prevails. Direct effect was first established in Case 26/62 Van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1 when it was held by the European Court of Justice (ECJ) that individuals rights, as enshrined under the Treaty Establishing the European Economic Community, were capable of being invoked before the courts of EU member states.

This case demonstrated how EC Treaty provisions were directly effective against members states, and was a welcoming development in ensuring that member states complied with their Treaty obligations. As a result of this doctrine, EU law is enforceable within all member states, which has an overall impact upon many commercial activities. This was recognised by Moens and Trone who pointed out that; “the importance of this unique feature lies in the fact that it is futile for business people to seek to invoke a legal act of an EU institution which could not be relied upon in a national court” (Moens and Trone, 2010: 367). Firstly, in order to be able to rely on a legal act of an EU institution, it is necessary to establish whether the act is directly effective. If the act is not directly effective, then its provisions cannot be relied upon in a national court (Moens and Trone, 2010: 367).

The ECJ in Van Gend en Loos formulated a test to determine whether a treaty provision has direct effect. In doing so, it was noted that a treaty provision will be directly effective where “a) its text is clear and unambiguous; b) it imposes and unconditional prohibition; and c) its implementation does not depend upon any further legislative action by the Member States” (Moens and Trone, 2010: 367). It was made clear in Case 2/74, Defrenne v SABENA [1974] ECR 631 that there exists two different types of direct effect; vertical and horizontal. Vertical direct effect is the relation between individuals and the state, whereas horizontal direct effect is the relation between individuals (Kaczorowska, 2013: 264).

The ECJ in Belgische Radio en Televisie v SV Saban (127/73) [1974] ECR 51 held that the competition rules enshrined in Arts 101 (1) and 102 (previously Arts 81 (1) and 82 EC Treaty (TEC)) “tend by their very nature to produce direct effects in relations between individuals”. National courts consequently have a duty to ensure that the relations between individuals are being adequately safeguarded. Arguably, individuals can not only seek protection under EU law against the state, but they can also seek protection against private individuals.

Horizontal direct effect is generally used as a way for individuals to invoke EU legal rules and principles in respect of commercial activities. An example of this can be seen in Walrave v Association Union Internationale (36/74) [1974] ECR 1405; [1975] 1 CMLR 320 where the Court found that a measure, which affects a relationship between individuals, may be directly effective. Here, the prohibition of discrimination on the ground of nationality was deemed to have horizontal direct effect in respect of a relationship between individuals (employer and potential employee).

Since the principle of direct effect was first established, citizens and undertakings have benefited substantially because of the fact that individual rights have been conferred upon them which the national authorities and courts must safeguard under EU law (Europa, 2013: 1). For example, Arts 101 and 102 TFEU are designed to ensure that competition within the EU is not restricted or distorted. This protects businesses and consumers from unfair competition and commercial practices by producing direct effects in relations between individuals. Art 101 (1) prohibits agreements between undertakings, decisions by associations of undertakings or concreted practices which may affect trade between EU member states and which have as their object or effect their prevention, restriction or distortion of competition within the EU as identified in Case C-41/90 Hofner and Elser [1991] ECR I-1979.

Art 101 thus protects competitors and customers against dishonest behaviour, which is imperative in ensuring free competition within the EU. The application of Art 101 has been subject to much controversy on the basis that it has been applied to broadly, thereby catching agreements that were not actually detrimental to competition (Whish, 2012: 115). This rendered Art 101 exorbitant and demonstrated the need for courts to apply it more rigidly (Bright, 1996: 535). Three categories of exemptions now apply to Art 101, namely:

•  commercial activities that are beneficial to consumers;
• agreements of minor importance, and
• lock exemptions for different types of contract, such as vertical agreements (Bright, 1996: 535).

As a result of these exemptions, the extent to which Art 101 is enforceable within member states is unclear and it is likely that consumers and businesses will have difficulty demonstrating that certain commercial activities fall within the ambit of this Article and subsequently invoking EU law against a private individual. EU competition law does not intend to stand in the way of legitimate commercial activities, but to instead promote and maintain fair competition within nation states (Europa, 2013: 1). Whilst this is often deemed necessary to prevent unfairness and to regulate anti-competitive conduct, unnecessary restraints are capable of being placed upon commercial activities (Rodger, et al; 2009: 103). Arguably, it is imperative that some exemptions do exist so that the application of Article 101 is not exorbitant. This ensures that any positive benefits stemming from an agreement are balanced against the restrictions that apply to Art 101. Article 102 TFEU is primarily aimed at preventing those undertakings who hold a dominant position in the market. Through the principle of direct effect, individuals will be capable of invoking this Article by showing that an undertaking who holds a dominant position in the market has abused its position as highlighted in Case 27/76, United Brands Continental BV v Commission (1978) ECR 207. Such abuse may include; unfair purchase selling prices, unfair trading conditions, restricting production and applying different provisions to similar transactions (Kennedy, 2011: 237).

A degree of uncertainty surrounds the scope of Art 102 because of how serious a finding of infringement would be, which renders the extent to which Art 102 is being enforced in member states unclear. For a firm to be dominant, it is not necessary for there to exist no competition at all and instead it merely needs to be shown, as identified in Case 85/76 Hoffman-La Roche v Commission [1979] ECR 461, that the firm has an “appreciable influence on the conditions under which the competition develops”. It is likely to be extremely difficult for a private individual to establish that a firm has an appreciable influence on the conditions under which the competition develops and as such it is again questionable how far Art 102 will go in protecting private individuals and businesses through the principle of direct effect. Regulations are also subject to direct effect, meaning that they will be directly applicable in all EU member states, as provided for by Art 288 (ex Art 247 TEC). This was illustrated in Case C-253/00 Munoz [2002] ECR I-7289 when it was stated that “regulations operate to confer rights on individuals which the national courts have a duty to protect”. EU decisions and Directives are also directly effective in member states, as signified in Foster v British Gas (1990) C-188/89. This case exemplified the courts willingness to confer horizontal direct effect upon individuals and signified how EU law concerning commercial activities are enforceable within member states.

Conclusion

Overall, whilst there are some restrictions in place to regulate the application of EU law, it is evident that many EU rules and regulations will be capable of being enforced within all member states. This is necessary when it comes to commercial activities as it is important that some form of protection exists to prevent the market from being abused. The extent to which EU law applies will always be subject to some controversy because of the fact that certain exceptions will apply. Though this is necessary in preventing abuse and ensuring that a balance is being maintained. The extent to which this balance is achieved is likely to be open to much debate though it is evident that member states have made some attempt to invoke EU law provisions concerning commercial activities.

References

1. Bright, C. (1996) ‘EU Competition Policy: Rules, Objectives and Deregulation’ Oxford Journal of Legal Studies, Volume 16, Issue 4, 535-559.
2. Dashwood, A. (2008) ‘The Principle of Direct Effect in European Community Law’, Journal of Common Market Studies, Volume 16, Issue 3, 229-245.
3. Europa. (2013) ’50 Years of Direct Effect of EU Law Benefitting Citizens and Companies’ Press Release Database, [Online] Available: http://europa.eu/rapid/press-release_CJE-13-56_en.htm [27 August, 2014].
4. Rodger, B. MacCulloch, A. and Galloway, J. (2009) Cases and Materials on UK and EC Competition Law, Oxford University Press: Oxford.
5. Kaczorowska, A. (2013) European Union Law, Routledge: London.
6. Kennedy, T. P. (2011) European Law, Oxford University Press: Oxford.
7. Moens, G. and Trone, J. (2010) Commercial Law of the European Union, Springer Science & Business Media: London.
8. Whish, R. (2012) Competition Law, Oxford University Press: Oxford.

Cases

1. Belgische Radio en Televisie v SV Saban (127/73) [1974] ECR 51
2. Case 85/76 Hoffman-La Roche v Commission [1979] ECR 461
3. Case C-41/90 Hofner and Elser [1991] ECR I-1979
4. Case 27/76, United Brands Continental BV v Commission (1978) ECR 207
5. Defrenne v SABENA [1974] ECR 631
6. Foster v British Gas (1990) C-188/89
7. Van Gend en Loos v Nederlandse Administratie der Belastingen Case 26/62, [1963] ECR 1
8. Walrave v Association Union Internationale (36/74) [1974] ECR 1405; [1975] 1 CMLR 320

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