egs of WPI GROUNDS + GOALS

egs of WPI GROUNDS

The Claimant: SOS does not have the power to make regulation 9 and that, even if he did, the process by which he made it was so rushed and inadequate as to render it unlawful.

The Claimants contend that the government has a policy or practice by which people have been appointed to positions critical to the government’s response to the COVID-19 pandemic without open competition, that only candidates with some relevant personal or political connection to the decision-maker are appointed

We could claim that the government strategy or decison… is reckless and unlawful, and in breach of the Equality Act because the strategy ….promotes discrimination and inequalities between economic classes.

A government strategy or decision …. promoting economic class inequality and discrimination, is illegal and flawed, on these grounds: the decision fails to improve communication between hospitals, GPs and pharmacies, on patients’ medicine updates. This failure does not happen in the private medical sector because they work coherently.

consequences: public contracts based on such government decision/strategy, may be illegal and void.

Friends of the Earth, ClientEarth, Good Law Project v Secretary of State for Business, Energy and Industrial Strategy

The claimants apply for judicial review in relation to the decisions on 17 October 2021 (a) to approve the proposals and policies prepared under s.13 (as set out in the NZS) and (b) to publish the NZS as a report under s.14.

the defendant contended that Good Law Project could not rely upon s.3 of the HRA 1998 in relation to ground 3, being a party not affected by any breach of a human right…..thus, a successful application was made to join Ms. Joanna Wheatley as a second claimant, as her witness statement shows that she has sufficient status as a “victim” for the purposes of the human rights claim, in so far as that may be necessary for ground 3.

Ground 1: the Section 13 ground

The defendant erred in law regarding his obligation under s.13 of the CCA 2008, in that:

(i) On a proper interpretation of s.13, he was not entitled to reach the conclusion that the proposals and policies in the NZS would enable the carbon budgets to be met, where the quantified effects of those measures were estimated to deliver less than 100% (i.e.around 95%) of the emissions reductions required to meet CB6;

(ii) Through insufficiencies briefed to the defendant, he failed to take into account relevant material considerations, and therefore failed to consider matters which he had to consider under s.13 of the CCA 2008, namely:

(a) the time-scales over which the proposals and policies were expected to take effect;
(b) the contribution which each quantifiable proposal or policy would make to meeting the carbon budgets; and
(c) in relation to his qualitative judgment, which proposals and policies would enable the 5% shortfall for CB6 to be met.

Ground 2: the Section 14 ground

The defendant failed to include in the NZS the information legally required to discharge his reporting obligations under s.14 CCA, namely:

(i) an explanation for his conclusion that the proposals and policies within the NZS will enable the carbon budgets to be met;
(ii) an estimate of the contribution each of those proposals and policies is expected to make to required emissions reductions in so far as they are judged to be quantifiable; and
(iii) the time-scales over which those proposals and policies are expected to have that effect.

Ground 3: the Human Rights ground

In the alternative, ss.13 and 14 of the CCA 2008 have the effect for which the Claimants contend applying s.3 of (“the HRA 1998”), because to construe them in the way for which the defendant contends would contravene or risk contravention of Convention rights.

NGO ClientEarth has brought an application for permission to bring a judicial review against the UK’s Financial Conduct Authority (FCA):

alleging that the FCA’s approval of an energy company’s prospectus was unlawful as the prospectus did not adequately disclose the climate-related risks associated with the company’s activities. This case is the first climate-related case brought against a financial regulator in the UK.

The FCA approved Ithaca Energy’s prospectus in November 2022. ClientEarth’s case is that the approval was unlawful, as the FCA cannot approve a prospectus unless it is satisfied that it meets the requirements of the Prospectus Regulation, including certain risk disclosure requirements. Ithaca Energy did include a climate-related risk factor in its prospectus, noting that climate change, abatement legislation, changes to carbon pricing systems and political and societal perception of the production and use of fossil fuels may have a material adverse effect on the hydrocarbon industry. However, ClientEarth says that the prospectus did not meet the requirements of the Prospectus Regulation as the risks it disclosed were too general in nature and the prospectus does not explain how Ithaca’s business aligns with important sustainability objectives (the International Energy Association’s stance on the development of new climate change infrastructure or the Paris Agreement goals). ClientEarth argues that this information is necessary for investors to make an informed assessment of the company’s financial position.

ClientEarth’s application for judicial review should be seen in the context of the position paper it published in August 2022 advocating how the FCA should amend the listing regime to take account of climate-related risks. Its recommendations are that the FCA should:

  • make alignment to Paris Agreement goals a condition of listing for climate-exposed companies;
  • treat climate-exposed listings as “high risk” transactions subject to heightened scrutiny during the eligibility review; and
  • issue clear and authoritative guidance to the market explaining its approach to climate-exposed listings.

The High Court will now decide whether to grant permission for the judicial review to be brought. Given the implications that this case could have on the approach to disclosure of climate risk in financial markets and the potential associated impact on valuations, the progress of this case will be of interest to a wide range of companies and their advisors.

https://www.clientearth.org/latest/documents/

Clientearth.org Position paper on the UK listing regime and climate change (PDF)

Climate change presents unique systemic risks which threaten: (a) the financial position of companies and investors; and (b) the integrity of the UK (and global) financial markets. The London Stock Exchange (LSE) is already significantly exposed to financial risks associated with fossil fuel assets held by listed companies. Moreover, the UK has committed to ‘ensure financial flows actually shift towards supporting net zero’.

Nevertheless, the current UK listing regime permits companies to list on the main market of the LSE even when their business models are incompatible with the climate goals of the Paris agreement and the transition to a low-carbon economy, exposing investors and markets to additional risk.

It is essential that the UK listing regime is brought into line with UK climate commitments, and the recognition that climate-related financial risk must be adequately disclosed and managed by companies on an ongoing basis once they are listed.

This position paper sets out a series of recommendations as to how the Financial Conduct Authority (FCA), as UK Listing Authority, must strengthen its approach to climate change-related risk at the point a climate-exposed company applies for listing, consistently with its regulatory objectives, UK climate commitments, and the protection of investors.

In summary, the FCA should use its existing powers to:

  • Make Paris-alignment a condition of listing for climate-exposed companies;
  • Treat climate-exposed listings as “high risk” transactions subject to heightened scrutiny during eligibility review; and
  • Issue clear and authoritative guidance to the market explaining its approach to climate-exposed listings.

https://sustainability.freshfields.com/

This is the second case that ClientEarth has brought in a financial services context; it has previously brought an action against the Belgian National Bank to try and influence the ECB’s review of its monetary policy strategy and, to encourage the ECB to make changes to its corporate bond purchase programme to make it less favourable to carbon-intensive companies (see our report of the initial case and the withdrawal of the appeal here ).

In the first case of its kind, the NGO ClientEarth has brought proceedings against the Belgian National Bank (BNB) on the basis that the bank has breached environmental and human rights laws when implementing the corporate sector purchase programme set up by the European Central Bank (ECB) and purchasing assets under it.

this is the first case in which a claimant is demanding such an ambitious and sweeping change in policy, and which tackles the very complex question of how the financial sector should approach the transition to a low-carbon economy.

Financial services firms will be interested in the way that this case progresses through the courts, given the sophistication of the challenge and its potential impact on the financial markets if the ECB restricts its asset purchases to certain sectors or to companies which meet specified criteria.

ClientEarth alleges that the BNB’s purchases are effectively directing capital into sectors which fuel the climate crisis. It asks the Belgian courts to refer the question of whether the ECB’s decision to establish the purchase programme in 2016 was valid to the European Court of Justice, and to make orders halting the BNB from making purchases under the programme. ClientEarth’s case is that the purchase programme is biased towards greenhouse gas-intensive companies, as studies have shown that over half of the assets purchased under it have been issued by greenhouse gas-intensive sectors. It says that the ECB and the BNB owe legal obligations to maintain price stability, support the economic policies of the EU and contribute to the achievement of the EU’s objectives, take into account environmental protection requirements when setting monetary policy, and respect and observe the principles in the EU Charter of Fundamental Rights, and that the ECB’s decision to establish the purchase programme was in breach of all of these obligations and therefore invalid. It also says that the ECB must mitigate climate-related financial risks in its balance sheet through its corporate asset purchases, and that in establishing the purchase programme it has failed to do so.

Strategic timing

ClientEarth has brought its case as the ECB is reviewing its monetary policy strategy – and it has written to the ECB in parallel to ask it to use the review as an opportunity to reform the purchase programme. ClientEarth’s letter asks the ECB to align the purchase programme with the Paris climate agreement goals by:

  • excluding companies whose activities are clearly incompatible with achieving the Paris climate agreement goals or are associated with high transition risk;
  • stopping or restricting purchases of bonds from carbon-intensive companies if they do not adopt a credible Paris-aligned strategy to achieve net-zero emissions by January 2023; andsetting a comprehensive strategy on how the ECB itself will align its monetary policy portfolios and activities with the Paris goals, including issuing an annual report disclosing its progress in line with the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD)

WPI GOALS

ESSES WPI JR GROUND

How the concept of ‘essential elements’ [ESSE] of a legislative act, continues to elude the Court

< > padi can JR PB decisions based on delegated acts, if they touch upon essential elements of legislation….so the court should annul the decision, on 2 grounds:

a. involve a particular wpi [=EEAC, so that padi has standi]

b. and also because is an illegal decision, because it is from a body without the democratic power to make such decision (based on a delegated act)

Diff:

-(formal) legislation 

-delegated acts [DAs]= [ implementing acts [IAs]] : can only be (self) adopted (eg by ec) , to deal with non esses, or to deal with esses not reserved in [legislation = 290 TFEU]

Case C-355/10, European Parliament v. Council of the European Union:   Judgment of the ecj

the Parliament challenged a decision of the Council implementing the Schengen Borders Code (SBC, a delegated act), because the decision allegedly touched upon essential elements of Article 12(5) of SBC

Frontex is the EU agency responsible for supporting the Member States in the management of the external borders, and has the competence to coordinate the members’ border surveillance operations. 

Examples of Frontex’ coordinated operations are Poseidon and Hermes. In its operations at the EU’s southern border (i.e. the Mediterranean Sea), Frontex has been confronted with boat refugees, persons often in distress and requiring assistance. This led to a number of problems since Frontex had not been established as a search and rescue agency and the different Member States cooperating in Frontex missions interpret the relevant rules of international law, [inter alia the principle of non-refoulement], differently.

ec proposed to use Article 12(5) SBC to adopt eu common rules

The Poseidon operation targets the illegal migration at the Turkish-Greek Border. The Hermes operation was initiated at the request of Italy because of the large influx of North-African immigrants around the isle of Lampedusa.

Under the heading “interception”, the Commission’s draft measures which could be taken during an interception, inter alia the possibility to board, search and seize a ship, apprehend the people on board, or order it to modify its course, conducting it to a third country or a Member State participating in the Frontex operation.

the EP President started proceedings before the Court, in 2010. The EP put forward three pleas which came down to two arguments:

1- the rules laid down in the decision contained “essential elements” which should have been laid down in the legislation itself and could not have been the subject of the Commission’s implementing powers. Specifically, the EP claimed the decision did not merely supplement or amend the non-essential elements of the Schengen Borders Code as Article 12(5) of Regulation provided, but added new essential elements (first plea) and altered existing essential elements (second plea).

2-the (implementing) decision interfered with the (legislative) Frontex Regulation.

the council raised a plea of inadmissibility, arguing that the European Parliament could not challenge the decision and that it should have instead exercised its veto right under the PRAC procedure.

 the Advocate General dismissed the plea of inadmissibility, by recalling the Court’s previous jurisprudence in which the notion of “essential elements” figured. These were mostly cases related to the Common Agricultural Policy (CAP).

The Council further argued that because the SBC’s main focus was on border checks, whilst only laying down the basic rules governing border surveillance, the legislature had left the power to work out all other rules as necessary to the Commission, subject to these rules being in conformity with the basic rules laid down in the SBC. The Commission similarly argued that the power to add new non-essential elements to legislation implies the power to impose completely new obligations or regulate new activities if this is necessary or useful to implement the basic instrument, as long as this is not contrary to the basic instrument.

But the Advocate General felt that some of the measures [  for example seizing the ship, apprehending persons on board and conducting the ship to a third country], fell outside the SBC, and related to essential elements of border surveillance, which should accordingly be laid down in the basic instrument itself (the SBC)

 to come to this conclusion, the Advocate General relied on three considerations.

  • First, the Advocate General referred to the “sphere” of which the basic instrument formed part (i.e. the sensitive nature of border control policy).
  • Secondly, he noted that the notion of surveillance is fundamental in the sphere of border control.
  • Lastly, the Advocate General referred to the “strong measures” which the contested decision laid down.

to determine which elements are essential we must “assess the characteristics and particularities of the domain concerned.”…. and such assessment does not depend on the view of the legislature alone, but must be based on objective factors amenable to judicial review

the Court held: diff: 

  • esential elements;
  • elements that require political choices : cannot be delegated.

the Court noted that deciding which enforcement powers should be exercised by border guards “entails political choices falling within the responsibilities of the European Union legislature” since it requires conflicting interests to be weighed up against each other

. The Court further noted that if enforcement measures are taken against ships, the exercise of these enforcement powers might interfere with the sovereign rights of third countries depending on the flag State of the ship.

 the Court recalled that the powers conferred on border guards by the contested decision might interfere with the human rights

thus, The Court concluded that the council decision required “political choices to be made . so, is a matter for the legislature…ie, the decision adds new essential elements….which are illegal, because essential elements cannot be delegated)…. the decision’s annulment became inevitable.

ec’s CAP [Common Agricultural Policy] powers :

the parties to the proceedings agreed on the importance of the judgment in this case for the post-Lisbon system of delegated acts.

esses have been upgraded under Article 290 TFEU [compared to Article 5a of the Comitology Decision], since it is now primary law.

In Germany v. EC, the Court had clarified its ruling in Köster, stating that if the legislature “has laid down the esses, it may delegate to the ec the implementing power without having to specify which particular esses have been delegated

however, 290 TFEU now says that “the objectives, content, scope and duration of the delegation of power shall be explicitly defined in the legislative acts.

thus, esses cannot be delegated (eg to ec). thus, ec’s discretion on esses is reduced under the Lisbon Treaty.

to determine if ec has respected 290 TFEU (by not adoping DAs that are reserved in legislation-tfeu) , the court must consider:

a. the ec’s power of (self) adoption of delegated acts is even less, if the policy is sensitive or relates to high politics, as was the case in casu.

b. when the subject matter is not related to the “core” of the legislation (tfeu), the ec’s power of (self) adoption of DAs, grows. In casu, this condition was not met, since border surveillance is fundamental to border control.

c. the intensity of the IA : if the measures adopted (by ec) are too intense, it shoud not be allowed…. but this is a proportionality test …. but a stricter proportionality test should be applied by the judiciary when assessing delegated legislation 

d. esses are political choices (policy fields) …. thus, ec’s decision (to adopt DAs with esses) could interfere with the sovereign rights of third countries and with the fundamental rights of individuals…. thus,  matters involving fundamental rights cannot be dealt with through das. das may only marginally touch upon persons’ fundamental rights

EU WPI GOALS

Article 16 EC ; Article 14 Tfeu ; the Protocol on services of WPI to the Treaty of Lisbon – [WPEI : OJ 2008, C115/306]

‘quasi-markets’ = WPIM (markets), EG: environmental protection, adequate health care

Protocol on Services of WPEI – Economic Interest:

In the Netherlands, hospitals are considered to be undertakings and must compete. Government intervention is minimal and agreements and concentrations between hospitals are subject to competition supervision..this netherlands system is one of less competition but more markets, causes inefficiency, neocorporatism and protectionism.

The SCOPE of quasimarkets: 

  1. the meaning of ‘undertaking’ 
  2. the meaning of ‘effect on trade between Member States’

the exceptions to 1. or 2. should be construed more narrowly, to enable supervision based on EC cl.

The Emissions Trading Directive, Directive 2003/87, OJ 2003, L 275/32, concerning greenhouse gases is the most prominent example but other Directives also allow for market-based mechanisms in their implementation by the Member States, see for example, Directive 2001/81 on National Emissions Ceilings (NEC), OJ 2001, L 309/2, and Directive 94/62 on Packaging and Packaging Waste, OJ 1994, L 365/10.

[WPIM = quasimarkets are subject to market failures and thus need intervention to ensure they function in the public interest….But… neither legislature (parliament) nor an authority (eg cma) will ever possess the knowledge of that industry, to offer proper regulation…This brings regulatory capture ( may involve an Act of Parliament) .. Such regulatory capture would normally not be open to claims [by a (potential) competitor or consumer] before member states courts, if it is about an Act of Parliament. ….EC competition law, however, allows such private parties to claim v such regulation, on the basis that is not really a full wpi… Therefore, cl serve a democratic purpose in ensuring the rule of law.

<> wpims may cause capture  <>

thanks to using ec cl, – and only if the case to fall within the scope of EC cl:   PADI v regulator,

on the ground that, the regulated wpi, either :

a. is causing the wpim to be captured… thus, the regulated wpi is not really fully a wpi, and therefore should be reduced, or terminated, by updating the regulation… and padi also seeks compensation from the regulators whose failure of:

(a)duty to observe the wpi  (to be exposed in the court’s proportionality test of a national measure), which brings with itself, the subsequent failure to meet

(b) the duty to observe that the regulated wpi was inadequate, was causing the wpim capture.

b. or, is helping to avoid the capture of the wpim… thus, the regulated wpi is really fully a wpi, and therefore its scope should be redefined and upgraded by updating the regulation

from early case law, to more recent cases, the jurisprudence on Article 86 EC still deals with:

a. Member State sovereignty and

b. the appropriate level of EC intervention

<> Thus, a. and b. are very good grounds to be used by padi, since are matters where courts’ arguments are still ongoing

2 ways for member states to influence cl :

  • interventions, through the European judicial system,
  • through Treaty amendments…as in Herren der Verträge

The ‘French’ removal of the ‘competition principle’, and the ‘Dutch’ Protocol on Services of General Interest in the Treaty of Lisbon are prominent examples.

Member State influences, on cl, have had a knock-on effect on ecj’s application of these important concepts:

  • Member State sovereignty 
  • the appropriate level of EC intervention
  • The SCOPE of quasimarkets: the meaning of ‘undertaking’ + the meaning of ‘effect on trade between Member States’

EC cl should shift from jurisdiction to justification.

the failure of the duty by a member state to take into account wpi will be exposed and require justification….but the ecj is now more reluctant to accept jr on this grounds, to seek this justification….this restricts of the scope of judicial review [ the courts are not accepting jr applications based on the failure of the duty by a member state, to take into account wpis]….and this is damaging the wpis goals (pursued by the national measures).

<> padi jr application on this grounds, and also on the ground that , should padi’s jr application be refused, it would further damage the wpis goals…. for which the court could be responsible. ?

MARKETS AND NON-ECONOMIC OBJECTIVES

The externalities involved in these wpis: [environmental protection and information asymmetries], connected with the liberal professions, are just two examples. the external nature of environmental costs means that use of the environment does not translate into costs incurred by the person using the environment. This results in an incentive to overexploit the environment.

Similarly, the inability for the average consumer to judge quality in relation to price, means that competition on the market for the liberal professions may focus exclusively on price, possibly to the detriment of quality.

The solution is for public authorities to regulate such markets.

eg. in complex financial structures used for cross-subsidisation and bottleneck infrastructure logistics, regulatory capture occurs, so there is no guarantee that regulation enhances either efficiency or the wpi goals of that market, as the regulation is rent-seeking

regulatory capture is reduced when the regulatory process employs competition between regulated entities.

However, this requires an open and transparent regulatory process in which (contemplated) regulatory decisions clearly state who has submitted the views leading to it, as well as how these views were incorporated in the decision. Moreover, the trialogue (possible cartel etc) relationship between the regulator and two or more regulated entities must be open to judicial review.

<> padi apply for jr v regulator and regulated entities + request new law societies , to compete with sra

Competition Law and [Quasi-Markets = wpims] :

state intervention in (quasi-)markets:

the useful effect doctrine [UED] =

  • Article 10 in connection with Article 81 EC
  • Article 86
  • Article 87 EC.

they are about: wpims: scope , and justification, intra-community trade, and the involvement of an ‘undertaking’.

Albany case:

concerned Netherlands regulation of pension funds. The pension funds administrator firm was engaged in economic activity and thus, as an undertaking. However, the Court admitted that the regulatory rules made it less competitive…so the administration of the pension funds was declared non-economic, thus, not an undertaking, thus, not subject to cl, thus, they could justify their regulated monopoly.

This clearly demonstrates the link between Article 86(2) EC and the exceptions to the concept of an undertaking:.

the Court relates jurisdiction to justification. The [UED] does not apply to collectively negotiated labour agreements. According to the Albany-exception, collectively negotiated labour agreements (CNLAs) are outside the scope of Article 81 EC on the basis of an interpretation of the EC Treaty as a whole.

the most obvious justification relates to Article 81(3) and the so-called rule of reason or the exception for inherent restrictions.

Concerning Article 86 EC, the required causal connection between the granting of the exclusive right, and the infringement of the EC Treaty, as adp, defines the scope of Article 86(1). This allows the Court to differentiate between similar exclusive rights

The striking difference in outcome between Dusseldorp and Sydhavnens provides a good example 

C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie (Albany) [1999] ECR I-5751. 24 Case C-67/97 Albany [1999] ECR I-5751, para 86. 25 Case C-67/97 Albany [1999] ECR I-5751, paras 52-60.

Wouters) [2002] ECR I-1577, paras 97-110

In both cases, operators challenged exclusive rights that sought to ensure the profitability of a public undertaking charged with waste management obligations. The justification in Article 86 can be found in the second paragraph, and can result in the non-applicability of the entire EC Treaty if this is necessary to ensure the fulfilment of a service of general economic interest.

exceptions to the scope of Article 87(1) in wpis goals are in the selectivity requirement, the requirement that state funds must be involved, and the requirement that the aid must result in an advantage for an undertaking: [the Altmark Trans exception].

Again a justification can be found in Article 87(2) and (3).

(quasi)-markets are about regulatory competition between the Member States.

EC Competition Law as a Regulatory Instrument on the Regulatory Market Notably in relation to Article 86, and 87 EC, enforcement is primarily within the domain of the Commission. This allows the Commission’s position to be characterised as a regulator on the regulatory market, or the market for regulation.

regulatory barriers to entry:

These may be barriers that restrict entry as such, but they may also be barriers that make entry less attractive.

A good example of such regulatory barriers to entry can be seen in BUPA, a new entrant on the market, was confronted with a risk equalisation fund that had the practical effect of imposing on BUPA an obligation to transfer funds to the incumbent competitor.

This effect was so pervasive that BUPA stated that it would consider ceasing its activities within the Irish market.

As part of its attempt to challenge the Commission’s decision to approve the risk equalisation fund, BUPA referred to the Netherlands risk equalisation fund that has less restrictive and distorting effects on competition. This demonstrates that BUPA was trying to induce regulatory competition leading to better regulation by creating, as it were, a trialogue between the Commission, the Irish and Netherlands authorities.

EC law plays a regulatory role in a market for regulatory competition.

The provisions on the fundamental freedoms, and on mutual recognition, is like the comparison site for regulatory regimes, and will bring healthy competition, unless a restrictive regime is objectively justified.

ec is ultimately subject to the very entities it regulates: the Member States.

Smilarly, the touchstone of EC law is ultimately determined by the Herren der Verträge: an increased risk of capture

exercising sovereign rights is a form of regulatory capture.

regulatory capture [RC], is a powerful explanation of EC CL, to wpims.

ec adopts decisions that entail a rather minimal standard for supervision

In these 32 An overview of the BUPA saga is provided in paragraph 6 infra. 33 Case T-289/03 British United Provident Association Ltd (BUPA), BUPA Insurance Ltd and BUPA Ireland Ltd v Commission (BUPA) n.y.r., para 78. At this moment BUPA Ireland has been taken over by Quinn-healthcare. 34 Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein (Cassis de Dijon) [1979] ERR 649, para 8. 35 See on this role: N Reich, ‘Competition Between Legal Orders: A New Paradigm of EC Law?’ (1992) 28 CMLRev, pp 861-896. 36 Cf. the so-called Article 7 procedure, whereby National Regulatory Authorities have to inform the Commission in advance of regulatory measures pursuant to Article 7 of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (the “Framework Directive”), OJ 2002 L 108/33. For an overview of this procedure in practice, see: Commission Communication on Article 7, COM (2007) 401. Hans Vedder (2009) 6(1) CompLRev

<> padi v the European Courts, for failing an adequate standard of review, as part of their (also failed) duty to ensure the observance of the law, in the application of the EC Treaty.

 in EC competition law, the Courts can exert considerable influence, not just on EC cl, but equally on EC cp (competition policy).

the regulatory role is not ascribed to an institution, [such as the ec, or Court of First Instance], but rather to ECCL (as it may be applied and interpreted by those institutions).

<> padi JR v  Decision by ec, or the eu courts, on the ground that they have failed to:

a. correctly, interpret and/or apply, eccl ,[ eg. regarding wpims.], and/or

b. identify, in good time, that eccl has become a captured regulator.

This is seen clearly in the judgment in British Aggregates Association:

the Aggregates Levy, which amounts to a tax on virgin aggregates. secondary aggregates and by-products, are tax exempted, with a view to encouraging their use, thus reducing the environmental impact of virgin aggregate production. ec  decided that it did not constitute State Aid within the meaning of Article 87(1) because it did not constitute a selective advantage.

ie, ec reduced the scope of Article 87(1)

ecj:    jurisdiction has 2 aspects:

a.  the Court of First Instance’s generous approach to the selectivity criterion, in light of the environmental objectives of the Aggregates Levy as well as the integration principle in Article 6 EC, is found to constitute an error in law.

held: it is open to the Member States, which retain their powers on environmental policy, to introduce sectoral environmental levies in order to attain those environmental goals (wpis). the Member States are free, in balancing the various interests involved, to set their priorities as regards the protection of the environment and to DECIDE which goods or services to subject to an environmental levy.

held: the need to take account of requirements relating to environmental protection, however legitimate, cannot justify the exclusion of selective measures, even specific ones, such as environmental levies, from the scope of Article 87(1) EC 

Here we see the Court recognising the wpi within Article 87(3), whilst taking it out of the jurisdictional element of selectivity.

the Association submitted that the Court of First Instance erred in law when it looked only for manifest errors of appraisal, whereas it should have carried out a comprehensive review of the Commission’s findings concerning the applicability of Article 87(1) EC.44

The Court concurs that the first instance court carried out a limited review…. the “State aid, as defined in the Treaty, is a legal concept which must be interpreted on the basis of objective factors. For that reason, the Community Courts have a duty to carry out a review as to whether a measure falls within the scope of Article 87(1) EC.”

British Aggregates Association case, both ec the Court of First Instance, restricted the scope of their review, thus shifting the focus of their supervision from justification to jurisdiction.

the UK government’s Aggregates Levy needs to be scrutinised in more depth, introducing more supervision of this intervention in a (disfunctioning) environmental market. another legal dam blocking the [mainstream of life = wpis]

the Court indicated that environmental concerns are best pursued via Article 87(3) EC…but, this would entail an enhanced role for ECCL as a regulatory instrument

MARKETS FOR ENVIRONMENTAL PROTECTION

The most prominent example of a quasi market fraught with market failures is the market for environmental protection in the form of the EU Emissions Trading Scheme (EUETS).

Although there are several environmental markets in existence, the market for greenhouse gas allowance trading, is by far the biggest and most developed. A quick glance at Directive 2003/87 immediately reveals it to be a highly regulated market, with a strong role for national governments and the Commission. Moreover, it is a market with a serious risk of national regulatory capture in that the Member States involved possess an incentive not to impose strict, and thus expensive, emissions reductions standards upon their national industry. This can take place in the National Allocation Plans in which the Member States allocate the starting amount of allowances over the various sectors and undertakings active in the sectors.

Emissions trading can only work if there is no over-allocation, and the amount of allowances on the market corresponds to the total amount of emissions. In this case ensuing reductions of the amount of allowances will mean the attainment of emissions abatement objectives, as well as the creation of the scarcity all markets need to function. In an environmental market, restrictions of emissions go hand in hand with distortions of competition.

the compatibility of National Allocation Plans [NAPs] ,with the rules on establishment and State Aids, was recognised in the ETS Directive. Therefore the courts have a duty to test this compatibility. 

ec’s review of NAPs, however, was insufficient, in that extensive lobbying from industry resulted in over-allocation across the board in many Member States. This type of overallocation is not particularly damaging from a competition perspective. What is more damaging to competition is an allocation that benefits certain sectors of the industry, or certain companies within a sector. This is what Energie Baden-Württemberg argued as a response to the Commission’s approval of the German NAP. EnBW’s argued that the German Plan contained a number of elements which entailed a competitive advantage for one of Germany’s two largest energy firms.

Directive 2003/87, OJ 2003, L275/32 envisages NAPs for the initial allocation of allowances, to be drawn up by the Member States (Article 9(1)). However, such NAPs are subject to guidance (Article 9(1)) as well as scrutiny by the Commission (Article 9(1) and (3))….Interestingly, the ETS Directive only lays down a minimum amount of allowances to be grandfathered, Article 10. This allows for considerable differences in the costs imposed on industries by NAPs….However, this is not the case where international competition is taken into account.

It also reduces the environmental effectiveness of the trading scheme.

ec’s decision to approve the plan, was said to be contrary to ec’s obligation to check whether the plan was compatible with the State Aid provisions. The Court of First Instance did not, however, rule on the substance of this case, and declared EnBW’s action to be inadmissible. 

The Court found that ec’s decision contained only a preliminary appraisal of the State Aid aspects, that would not stand in the way of the full State Aid investigation under Article 88(3) and (2) EC, or the direct effect of the former provision. As a result, EnBW now has an incentive to start a full State Aid procedure concerning the German NAP, to expose the possible selective over-allocation. Whether this will be successful, however, remains to be seen in view of the Court of First Instance’s judgment in the Netherlands, about ec’s appraisal under the State Aid rules of the Netherlands emissions trading scheme for nitrogen oxides.

This trading scheme is a so-called dynamic cap or Performance Standard Rate (PSR) trading scheme, whereby there is no absolute cap on emissions allowances (as in the EU ETS) but an environmental performance standard (the amount of NOx emitted per amount of energy used) that will decrease annually.

An undertaking that increases the environmental performance to a level that exceeds the PSR (i.e. emits less NOx per unit of energy than prescribed by the PSR) will get NOx credits to be, for example, banked or sold to less environmentally efficient companies that did not meet the PSR. The Commission concluded that the scheme entailed a State Aid because the NOx credits are intangible assets that were handed out for free.

As a result the Netherlands government foregoes revenues that could have been achieved in an auction, or other form of sale of the NOx credits. However, ec considers the aid compatible with the common market on the basis of Article 87(3)(c) EC. According to the Netherlands government, the NOx trading scheme did not constitute a State Aid within the meaning of Article 87(1) because it entailed no advantage financed through state resources, and because it lacked selectivity [the Court finds that the measure lacks selectivity because it is limited in its scope to installations with a certain thermal capacity]. Regarding the former argument, the Court of First Instance sides with the Commission in finding that the tradability of the NOx credits constitutes an advantage. 

This is also interesting from the regulatory capture perspective in that the Commission admits that it relied on the explanations given by the German authorities

Moreover, even if the scope would entail a differentiation between those undertakings subject to a PSR [and thus able to participate in the trading scheme], and those who are out, this differentiation is considered objectively justified by the Court. The fact that those in the scheme are large emitters of NOx, objectively justifies treating them differently [on ecological grounds] , from those outside the scheme’s scope.

This is unreasonable, because many small emissions will damage the environment just as much as a few large emissions.

The result of Netherlands NOx is that the trading scheme no longer constitutes State Aid and this causes the disappearance of the reporting obligations that ec imposed in its decision ex Article 87(3)(c) EC.

While this may prima facie seem like a good thing (why would anyone want burdensome reporting duties for something as laudable as environmental protection), ec had imposed the reporting requirements because it doubted the environmental effectiveness of the NOx trading scheme. Just as with EnBW, State Aid supervision may enhance competition as well as the environmental effectiveness of the scheme.

The combined logic of Netherlands NOx and ec’s approach to State Aid supervision concerning the NAPs, removes room for State Aid supervision, as a result of the high(er) standard for proving selectivity, in combination with the ec’s considerable deference to Member State NAPs.

the scope of State Aid supervision has been significantly reduced to the detriment of both competition and the environment.

The solution to this conundrum has been a radical one:

The post 2012 climate change package envisages a new emissions trading directive that entails a much more harmonised regime. For one, NAPs and their scrutiny by the Commission have been replaced with allocations fixed on the Community level. Furthermore, the Member States’ discretion concerning the choice between auctioning and grandfathering is reduced.

What is more interesting is that this higher degree of harmonisation, and the resulting centralisation of decision making, was the result of the Member States themselves because they restricted the room for regulatory competition and capture, by submitting themselves to a stricter regulatory regime. This obviates the need for State Aid supervision, except for the Commission’s supervision of the more traditional State Aids in the form of subsidies etc.

Concerning these forms of State Aids, supervision remains strict and takes account of the environmental effectiveness as well. The centralisation of regulation, however, means that the risk of competitive distortions that detract from the environmental effectiveness is similarly centralised. This is reflected in the rules on carbon leakage. Carbon leakage relates to the ‘export’ of greenhouse gas emissions as a result of the higher carbon price in the EU. This undermines the environmental integrity of the emissions trading directive as well as the competitive position of the EU industry.

The logical complement of the centralised and harmonised rules on allocation and auctioning is therefore a centralised regime on carbon leakage. This, however, presupposes that, for example, the exact rules for determining the industries exposed to a significant risk of carbon leakage, are sufficiently clear so as to avoid regulatory competition. In this regard, the result of the negotiations does not look that promising. For one, the definition of industries exposed to carbon leakage takes place at NACE-3 level and where appropriate and where the relevant date are available, at NACE-4 level. Leaving aside the discretion inherent in making NACE-4 level disaggregation, dependent on appropriateness and availability of data, requires a market definition, which cannot be equated to a NACE determination.

MARKETS FOR THE PROFESSIONS

Liberal professional services are provided on markets similarly fraught with market failures, mostly relating to information asymmetries and positive externalities. Moreover, many governments have allowed for (semi) self-regulation by those professions. This will frequently take the form of the public authorities only laying down the framework of general rules; the members of the profession are then responsible for further elaborating and enforcing these rules. This situation has the potential to result in overly restrictive rules that benefit neither competition nor the consumer.

As a result, consumers may complain or members of the profession may want to challenge rules, to expose overly anticompetitive regulations. Again, EC competition law, and notably the useful effect doctrine – UED, allows exactly that. The useful effect doctrine was developed in connection with (semi) self-regulation by private parties. Generally this (semi) self-regulation takes the form of a private initiative (self-regulation). Whereas pure self-regulation could fall under Article 81 EC, public authorities’ involvement in such semi self-regulation, is governed by the UED.

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Such (semi) self-regulation is particularly prominent in the professions, where governments need to reconcile public tasks with the fact they are administered by private parties operating partly in their own interest. The results are inefficiencies, resulting from barriers to entry, tariff regulations, and regulation of market conduct.

One explanation for these inefficiencies is regulatory capture. The fact is that a transfer of consumer welfare to the producers and deadweight loss, cannot be explained through democratic mechanisms, because the number of consumers by far exceeds the number of producers in this market, which would result in producers having a negligible democratic impact.

The UED and Article 81 EC have discovered such inefficient (semi) self-regulation and separated the chaff from the wheat.

Wouters, for example, deals with a self-regulation by the Netherlands Bar Association, which prohibited structural cooperation between members of the bar and accountants. According to the Court, this rule does not go beyond what is reasonable to ensure the proper practice of the legal profession.

The judgment indicates the possible pro- and anticompetitive effects of multidisciplinary partnerships, and then juxtaposes the independence required of accountant, with the partisan nature of the members of the bar. This is like many little ducklings all agreeing that they will not be eaten by four foxes because otherwise no one would eat the duckweed, so they prefer to eat the weed, which would be bad for the foxes , if they eat them….If one thinks that an abundance of duckweed is something to be avoided, an agreement between four foxes not to eat ducklings would seem more logical or proportionate. 

This case concerned the way in which fees charged by members of the Italian bar were determined. a draft tariff drawn up by a committee of representatives from the bar association. this committee was not under any particular duty to take general interests into account.This, however, did not keep the Court from finding the situation compatible with the UED, because of the role played by the Minister and Italian courts. The minister would have to approve the tariffs, and could do so, only after having obtained the advice from the Council of State and the Interministerial Committee on Prices.

court:  the Minister has the power to have the draft amended by the CNF’,… Notice that the Minister cannot amend the draft independently, but rather must rely on the bar association to do so.

But, to what extent these entities represent the wpi ?:  their powers are only advisory. the Interministerial Committee on Prices consists of representatives of the various ministries, producers and trade unions, i.e. the supply side of the industry.

the Italian courts settle the tariffs on the basis of the seriousness and number of issues. Moreover, they could set aside the tariffs in exceptional cases. In sum, the Minister’s involvement offers little guarantees for the protection of the wpi, and the Court’s role may reduce, but does not rule out price fixing effects of the binding tariffs

the Mauri case deals with access to the legal profession. Mauri’s failure to pass part of the bar exam, prompted him to appeal against this decision and, before the administrative judge, he objected to the composition of the examination committee, which consisted of two judges, a law professor and two members of the bar, elected by the bar association.

The presence of the bar members could, in theory, allow for the bar exam to be used as a means not only to control the quality but also the quantity of those admitted to the bar. The Court noticed that the members of the bar only made up two fifths of the committee, also noticed the possibility of an appeal against the decisions of the committee, and the possibility for ministerial intervention. As a result, the examination committee was found to have sufficient guarantees to operate in the wpi to prevent it from acting only in the interests of the bar association; which seems a sensible decision

Cipolla case:  

Again, the Italian lawyers’ tariffs were at stake. Unsurprisingly, the judgment in Cipolla closely follows that in Arduino, with the Court focussing on the procedural guarantees that ensure that the tariffs are in the wpi, and not just in the interest of the bar association that fixes the draft tariff.

More controversial is the Court’s appreciation of the tariffs under the free movement rules.

Although it is true that a scale imposing minimum fees cannot prevent members of the profession from offering services of mediocre quality, such a scale prevent lawyers from competing against each other, by offering services at a discount, with the risk of deterioration in the quality of the services provided.

price competition may be bad for the quality of services provided, but minimum fees cannot guarantee good quality services.

The test for an exception to UED:

 (1) the public authorities of the Member State concerned exercise effective control over the content of the agreement;

(2) the State measure pursues a legitimate aim in the public interest, and

(3) the State measure is proportionate to the aim which it pursues. It may be noted that the current case law as it stands does not include the proportionality test put forward by Jacobs and Léger.

As a result the Court is unable to conduct a serious review of the proportionality of the tariff rules. This appears to be the trade-off for more legal certainty, because if the court was able to conduct such serious review, the proportionality test would open up the debate on the proportionality of the regulation itself, and not of not just lawyers’ tariffs.

MEDIA MARKETS

The media also suffers from market failure. At the time of writing, dealing with the issue of positive externalities arising from quality investigative journalism in a democracy is particularly topical in the Netherlands, given that a committee has just advised that a levy on internet access be raised to subsidise newpapers.

US research on broadcasting regulations and frequency allocation, wpi [media broadcasting and funding] , this wpi is (partly) subsidised, whereas the public service provider also performs commercial activities.

the public financing of public service obligations, has created recently innovative case law: court held that such compensation amounted to State Aid within the meaning of Article 87 EC, irrespective of the possible applicability of Article 86(2) EC.

This has as the effect that the duty to notify, and the stand-still obligation, no longer apply to such compensation, whilst the Commission will no longer be able to attach any conditions to decisions declaring such aid compatible with the common market.

the Court did not apply or prescribe a cost-standard (benchmark), because it would allow subsidies for inefficient public undertakings, to completely escape competition scrutiny. This would entail a transfer of consumer welfare to an inefficient firm; such a transfer cannot possibly be wpi.

Furthermore, the judgment left Member States the power to subsidise other costs made in the wpi.

Under Ferring, such a situation would be immune from judicial review, as the lack of State Aid also renders inapplicable the notification duty and thus ec scrutiny

The later Altmark court decision strengthens the requirements for the inapplicability of the State Aid rules. thus, it promotes its applicability.  the requirements for the inapplicability of state aid rules, are:

1-the recipient undertaking must have clearly defined public service obligations to discharge

2-the parameters on the basis of which the compensation is calculated, must be established in advance in an objective and transparent manner, to avoid it conferring an economic advantage to the recipient undertaking, over competing undertakings.

3-the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations.

4-where an undertaking to discharge public service obligations, is not chosen pursuant to public procurement, which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport, to meet the necessary public service requirements, would have incurred, taking into account the relevant receipts and a reasonable profit for discharging the obligations.

the Court of First Instance held that this fourth Altmark requirement does not require the undertaking [that discharges the public service obligations] to be chosen by public procurement… This is a severe setback for private parties who want to challenge the way a service of general economic interest is operated in a Member State.

46/97 SIC – Sociedade Independente de Comunicação SA v Commission (SIC) [2000] ECR II-2125, para 84 and ECJ Case C-332/98 France v Commission (CELF) [2000] I-4833, paras 28-33. 106 Case C-53/00 Ferring SA v Agence centrale des organismes de sécurité sociale (ACOSS) (Ferring) [2001] ECR I-9067.  

Decision 2005/842 contains a block exemption for such compensation and widens the scope of Altmark, where overcompensation up to 20% of the costs is allowed for the social housing sector, provided that this is deducted from next years’ compensation.

in the case SIC II, the Court of First Instance seriously checks ec’s appraisal of the compensation. ec concluded that there was a verification system that ensures observance of the public service remit, and the costs arising…..but ec cast doubts regarding the functioning of this system. As a result, even though the decision was annulled on procedural grounds because the Commission had failed to undertake ‘a diligent and impartial investigation, ec is under a strict duty to investigate the documents furnished by the Member State , to establish that the public funds amount only to a compensation of costs. This shows that even the Commission is under scrutiny in order to avoid capture….Such capture is highly likely, particularly in the public broadcasting sector where the political stakes are high. 

the Member States included Article 16 EC, as well as a Protocol ,on the system of public broadcasting attached to the EC Treaty by the Treaty of Amsterdam….Article 16 EC states that it is ‘without prejudice to Articles 73, 86 and 87’, thus leaving the major legal components of the above mentioned debate untouched. The Protocol on Services of General Interest attached to the Treaty of Lisbon has a similar political character, without changing the legal framework. 

 the debate centres on the exact definition of the public service remit, as this defines the public service obligation, and thus the possibility for compensation. thus, ec’s decisions, as well as the Court of First Instance’s case law, show that effective supervision results in a more effective and efficient public broadcasting organisation.

In RTVE case, State Aid supervision triggered a study which revealed that the workforce employed by RTVE exceeded what was necessary for the public service obligation, resulting in a more efficient public broadcasting organisation.

the Court held that the exact definition of the public service remit is for the Member States. ….Indeed, the basic argument put forward by the commercial broadcasters – our programming isn’t that different from that of the public broadcaster – appears convincing….Nevertheless the Court holds that this would deprive the Member States of their power to define the public service remit.

 the public service obligation [PSO] = an obligation to deliver services that would not be provided in the absence of state intervention.

This means that public service broadcasters could provide non-public services (private programmes) barely different from those offered by commercial broadcasters, but such programmes must be provided in fair and undistorted competition with the commercial broadcasters.

The State Aid thus saved can then be put to good use, compensating actual public service broadcasting. Of course it is for the Member States to define what is ‘public service broadcasting’; however, a commercial broadcaster should be able to invoke a legal instrument to ensure that the public service remit is adequately defined and redefined to take account of technical, economic, political and societal changes. 

CONCLUSIONS

in what circumstances, and to what extent, legislation and courts become captured by politics, to the extent they no longer fulfil their regulatory role?:

The judgment in BUPA, similar to that in TV 2 Danmark, applies the Altmark criteria to the ec decision; declaring that the Irish risk equalisation scheme (RES)-payments did not constitute State Aid because they satisfied the Ferring criteria…..The RES payments are a means to equalise risks, between medical insurance companies with ‘bad’ risk population, and the average insured population, thus ensuring solidarity between insurance schemes and ultimately consumers. In BUPA the effect of the RES payments was that BUPA, a private medical insurance company with a market share of 15%, would have to transfer funds to VHI – the incumbent undertaking with an 80% market share….Unsurprisingly, the Court held that the Altmark criteria, and a marginal test,  should be applied to ec’s decision.

thus, a specific wpi obligation is distilled from nothing more than general requirements imposed on all companies offering private medical insurance, such as BUPA and VHI.134

in the bupa case, the requirements concerning the prevention of overcompensation and proportionality are glossed over (silenced) by the Court, as it held that its jr is limited to manifest errors of appraisal, in view of the complex economic facts.

 is BUPA the result of capture of both the ec and the Court of First Instance?

BUPA case creates a new rule that requires risk compensation, or the compensation of inefficiency and overconsumption.

The latter cannot be good for competition or the level of health care. Similarly, over-allocation of emission allowances, or an excessively lenient application of the provisions on carbon leakage, benefit neither the level playing field nor the fight against climate change.

A strict and thorough application of ECCL will help both competition and these non-economic objectives.

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