Direct effect and indirect effect

General principle of EU Law

The European Court of Justice (ECJ) is relatively creative, as compared to English Courts, by using the purposive approach in ensuring the effectiveness of the EU Law. 

There are a number of general principles developed by the European Court of Justice, which are important and crucial to understand the application of EU Law in practice. 

In this post I will briefly discuss the principle of direct effect and indirect effect. 

You can download EU Treaties here: https://europa.eu/european-union/law/treaties_en

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Direct effect

The principle of direct effect is not found in the Treaty but has been created and developed by the ECJ in a series of judgments. Under the doctrine of direct effect, EU law creates rights and obligations which individual may rely on and enforce in their national courts.

A distinction must be made between direct effect and direct applicability. Direct applicability means that a measure is directly applicable in the sense that it automatically becomes part of the national law without incorporation by the Member States.

Direct effect - Treaty Article

In Case 26/62 van Gend en Loos v Nederlandse Administratie der Belastingen (1963), van Gend en Loss has imported some goods from Germany to the Netherlands and the Dutch custom authorities charged them a tariff which was contrary to the Article 12 of the Treaty of Rome (now replaced by Article 30 TFEU). Van Gend en Loos sought to retrieve the money in the national court and the national court made a request for a preliminary ruling to the ECJ, asking whether Article 12 conferred rights on the nationals of a member state.

The Dutch and Belgian government argued that this was a matter of national constitutional law. ECJ held that an individual (both natural and legal persons) could rely directly on a Treaty Article and enforce it in his own national court although the Treaty Article had not been legislated into the Member State’s legal system. ECJ stated that:

“The Community constitutes a new legal order in international law, for whose benefit the States have limited their sovereign rights, albeit within limited fields, and the subjects of which comprise not only the Member States but also their nationals… according to the spirit, the general aspect and the terms of the Treaty, Article 12 should be interpreted in such a sense as to produce direct effect and to create individual rights which internal courts should protect.”

According to ECJ, for a Treaty Article to have direct effect there are several conditions:

(a) It must be clear and precise

(b) It must be unconditional

(c) Its operation did not require a legislative implementing measure on the part of the state

(d) It must lay down a negative prohibition, rather than a positive obligation

The fourth requirement was dropped in the Case 57/65 Alfons Lütticke GmbH (1966).

If those conditions were fulfilled, individuals could enforce the Article directly in their national court. This was a right conferred on individuals ‘in addition to the supervision entrusted by Articles 169 and 170 (now Articles 258 and 259 TFEU) to the diligence of the Commission and of the Member States’.

It should be noted that until the Maastricht Treaty in 1993 there was no sanction against a Member State which failed to remedy the breach after the Court had declared it to be in breach under Article 258, other than the possibility to bring the Member State before the ECJ. The case then set a precedent to ensure the effectiveness of EU Law.

According to Case 43/75 Defrenne v SABENA (1976), whenever the Treaty includes a time limit within which such further action should take place, once that time limit has expired, the measure has direct effect. Here Ms. Defrenne worked as a flight attendant for the Belgian national airline SABENA and she was forced to retire at the age of 40. She argued that this has infringed her right to equal treatment on grounds of gender under Article 119 EC (now Article 157 TFEU).

A national court has jurisdiction over an EU provision, even though there is a lack of clarity of the provision in question, because the national court can seek clarification from the ECJ through the Article 267 TFEU preliminary reference procedure if necessary.

Treaties are vertically and horizontally directly effective, which means that it is enforceable in a national court against a Member State or individual.

In Case 26/62 van Gend en Loos v Nederlandse Administratie der Belastingen (1963), the parties were in a ‘vertical’ relationship since the case was between an individual and a Member State. In Case 43/75 Defrenne v SABENA (1976), ECJ confirmed that Treaty has horizontal direct effect.

Direct effect - Regulation

Article 288 TFEU (ex Article 249 EC) defines the relationship between the various types of Union secondary legislation and national law. Article 288 states that a Regulation is ‘directly applicable’ in all the Member States. Regulations, therefore, become automatically part of National law and this will normally mean that they can be relied on by individuals in their national courts and thus also have direct effect.

In Case 34/73 Fratelli Variola SpA, the ECJ confirmed that Regulations could be both directly applicable and directly effective because of its nature, Regulations have immediate effect and confer rights which national courts have a duty to protect. However for the Regulation to have ‘direct effect’, it must satisfy the three ‘van Gend en Loos’ standard conditions.

According to Case 39/72 Commission v Italy (Slaughtered Cows) (1973), the ECJ held that a Regulation is directly applicable in all Member States and come into force at the date of its publication or the date specified in its publication. This is so even if the Member States have failed to implement the Regulation on time: Case 128/78 Commission v UK (Tachographs) (1979).

In Case 403/98 Azienda Agricola Monte Arcosu Srl v Regione Autonoma della Sardegna, ECJ held that a Regulation does not create rights and obligation before their implementation in the national legal system. For a Regulation to have direct effect, it must be clear and precise to be enforced by a court. In this case, it is necessary for the Member States to define the criteria of ‘farmer practicing farming as his main occupation in the case of persons other than natural persons’ before the Regulation is to offer protection to them.

Direct effect - Decisions

Article 288 TFEU does not state that Decisions are directly applicable, but simply states that they are ‘binding in their entirety on those to whom they are addressed’.

In Case 9/70 Franz Grad v Finanzamt Traunstein (1970), a German finance court asked ECJ for interpretations of a decision and Directive. The ECJ affirmed that decisions could have direct effect. Three reasons were given for this finding. First, ECJ emphasised that this would increase the effectiveness (‘effect utile’) of the Community measure. Second, although the effects of a decision are not identical with those of a provision contained in a Regulation, this difference did not per se preclude the result that an individual may enjoy the same right to invoke the measure before the court. Third, Article 267 TFEU has dual effect: It does not only empower ECJ to determine the validity and interpretation of Union matters, but also empower individual to invoke all such acts before the national courts.

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Direct effect - International agreement

An international agreement does not necessarily have direct effect. For an international agreement to have direct effect, it must satisfy the three ‘van Gend en Loos’ standard conditions, and more importantly, the international agreement in question must be compatible with the ‘spirit’ of the Union.

In Case 21-24/72 International Fruit Company v Producktchap voor Groenten en Fruit (No. 3) (1972), the question posted was whether the GATT (General Agreement on Tariffs and Trade) provisions could have direct effect. The court concluded that ‘the spirit, the general scheme and the terms’ of the provisions were different from those in the EEC Treaty and the provisions were not sufficiently precise and unconditional for direct effect to apply.

In Case C-280/93 Germany v Council (1994), the ECJ held that under very limited circumstances a GATT provision could prevail over an EC provision, but only if the relevant EC provision expressly referred to the GATT provision.

In Case 270/80 Polydor Ltd v Harlequin Record Shops Ltd (1982), free trade agreements were also held not to be capable for direct effect to apply as their aim was not to create a single market. However, in Case 104/81 Hauptzollamt Mainz v Kupferberg (1982), another provision of the same agreement was found to have direct, as it did fulfill the conditions and fell within the purpose of the agreement. This concerned Portugal, which, although not a Member State at the time, did become one soon after.

Direct effect - Directive

Article 288 TFEU provides,

“A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods.”

Unlike Regulation, Directives are meant to be implemented, which mean that it is to be brought into effect by national legislation within a certain time period. Hence, Directives by its nature can never fulfill the ‘van Gend en Loos’ conditions because they require ‘further implementing measure’. In fact, according to Case 41/74 van Duyn v Home Office (1974), Directives are to be treated differently when determining whether it has direct effect.

In Case 41/74 van Duyn v Home Office (1974), the court held that Ms. van Duyn could rely on a clause in a Directive which the UK had not introduced into national law.  Ms. van Duyn, a Dutch national, claimed the British Government, through the Home Secretary, infringed Article 48(3) EEC (now Article 45(3) TFEU) by denying her an entry permit to work at the Church of Scientology. The question posted to the court was whether Article 45(3) TFEU and Directive 64/221 have direct effects as to confer on individuals rights enforceable by them in the national courts. The answer to the first question was yes as the provision imposed a precise obligation which did not require the implementing measure that involves the discretionary power of Member States or community institutions.

ECJ also stated that Directives, in principle, could be directly effective for the practical effectiveness of Directives. The effect of directives would be weakened if individuals were prevented from relying on them before their national courts. Furthermore, the preliminary reference procedure empowers the national courts to refer questions of validity and interpretation ‘of all acts of the community institutions, without distinction’. Hence, direct effects could therefore in principle arise from directive - this would have to be assessed on a case by case basis, taking into consideration ‘the nature, general scheme and wording of the provision in question’.

Case 148/78 Pubblico Ministero v Ratti (1979) introduced the concept of estoppel to EU Law, namely where a Member State is at fault (either failed to implement the Directives within the prescribed period or has done so inaccurately), an individual can claim against the state the rights he or she could have had if the Directives had been correctly implemented.

Furthermore, Case 148/78 Pubblico Ministero v Ratti (1979) also confirmed that a Directive can only be directly effective after the expiry of the time limit given for its implementation. 

The Court has confirmed in Case 152/84 Marshall v Southampton and South West Hampshire AHA (1986) that Directive can only have vertical direct effect but not horizontal. Here Ms. Marshall was dismissed from her job upon reaching the pensionable age of 62. The state retirement age for men was 65, and she argued that the dismissal is contrary to Directive 76/207 on equal treatment between women and men. Her employer was not a public authority but an independent health authority. Although it was admitted that there was sex discrimination in this case but according to Article 288 TFEU the Directive is only binding upon those to whom it is addressed, which are the Member States. As a result, Directives only have vertical direct effect as it is only possible to rely it against the Member States by an individuals.

Directive - Public Authority and the concept of 'emanation of the state'

The decision gives rise to the question that what is the definition and scope of ‘public authority’. Guidance was given by the Court in the following case.

In Case C-188/89 Foster v British Gas (1990), Mrs. Foster was required to retire from her job at British Gas when she was 60 years old, while men could continue until they were 

British Gas was a statutory body created by the Gas Act 1972 and it is responsible for developing and maintaining the system of gas supply in Great Britain, and had a monopoly supply of gas. The board member of British Gas was appointed by Secretary of State, who had power to direct British Gas in questions relating to national interest. Furthermore, British Gas was required to submit the Secretary of State periodic reports on its functions, management and programmes, which were laid before the Parliament. However, it was privatised under the Gas Act 1986 – renamed British Gas plc, it inherited the rights and liabilities of its predecessor. ECJ concluded that British Gas was a body against whom a directive could be invoked.

According to ECJ, an ‘emanation of the state’, whatever its legal form, pursuant to a measure adopted by the State, has been made responsible to provide a public service under the control of State and has for that purpose special power going beyond those of normal commercial undertakings.

The scope of this definition was unclear – to what extent could other bodies and institutions be held legally responsible for failure to comply with provisions. It has introduced a general test rather than criteria, and did not give conclusive guidance. The definition is wide enough to cover many situations, and thereby has extended the reach of the vertical direct effect of Directives.

In Eventech Ltd v The Parking Adjudicator (2012), the Parking Adjudicator was found to be an ‘emanation of the state’.

In National Union of Teachers and others v Governing Body of St Mary's Church of England (Aided) Junior School (1997), the English Court of Appeal held that a voluntary-aided church junior school is an ‘emanation of the state’ for the purposes of EC Law. Teachers who were dismissed when the school closed down were consequently entitled to rely directly on rights contained in the EC Business Transfers Directive in proceedings against the school's governing body.

In Case C-91/92 Faccini Dori v Recreb srl (1994), Advocate General Lenz proposed that it is unsatisfactory that individuals should be subject to different rules, depending on whether they have comparable legal relations with a body connected with the State or with a private individual. Furthermore, it is contrary to the requirements of an internal market for individuals to be subject to different laws in the various Member States even though harmonising measures have been adopted by the Community. The Court, however, did not follow the AG but confirmed the original rule that Directives can only have vertical direct effect. Here the dispute was between two private contracting parties, where Ms. Faccini Dori claimed that she has a right of cancellation within 7 days under the Directive 85/577, which the Italy had not taken steps to transpose the Directive into national law.    

However, in recent years the Court has increasingly resorted to other measures to give effect to Union law in what would, at first sight, be purely horizontal.

In Case C-144/04 Werner Mangold v Rüdiger Helm (2005), the Court confined itself to dealing with the incompatibility of the national legislation with Community law where a general principle of Community law (non-discrimination) was concerned. It asserted that it was the responsibility of the national court to guarantee even before the date of expiry of the implementation period.     

Although horizontal direct effect of Directives has been rejected by the ECJ, the recent development of case law shows that provisions of Directives can, at least in certain circumstances, produce a direct effect in disputes between two individuals. The Court has been willing to give ‘incidental’ horizontal direct effect of Directives in triangular situations.

In Case C-194/94 CIA Security International v Signalson and Securitel Sprl (1996), the action involved private dispute concerning a Belgian Law, which is adopted in breach of Directive 83/189. It was held that CIA Security was capable of invoking Directive 83/189 to seek an order to prevent its competitors making statement that it did not comply with the Belgian Law, which did not comply with the Directive. The Directive required that such technical laws had to be notified to the Commission, which the Belgium had failed to do so. Advocate General Elmer distinguished this case from Case C-91/92 Faccini Dori v Recreb srl (1994) on the basis that the notification procedure in Directive 83/189 imposed a number of obligations on the Member States, therefore it didn’t aim to impose duties on individuals, whereas Directive 85/577 regulated the contractual relations between individuals.

In Case 441/93 Panagis Pafitis v Trapeza Kentrikis Ellados AE (1996), the former shareholders of a Greek Bank, Panagis Pafitis, brought proceedings against the bank and its new shareholder for the increases in the capital of the bank. The increases in the capital of the Bank were made in pursuant to the Greek legislation, and the plaintiffs claimed that this was contrary to the Directive 77/91. The court interpreted the Directive in favour of the plaintiffs and ruled that the Directive precluded national legislation. The reasoning given by AG Elmer in CIA Security cannot explain this case as Directive 77/91 regulates the capital of public limited liability companies.

CRAIG and de BURCA explains that although the Directives do not impose legal obligations on defendants in CIA and Panagis Pafitis, they nevertheless have an exclusionary effect on them, i.e. they remove the defendants from the protection of national legislation and expose them to potential liability under other provisions of national law.

In Case C-443/98 Unilever ltalia SpA v Central Food SpA (2000), Unilever sold olive oil to Central Food, which refused to pay on the ground that it was not labeled in accordance with the Italian law. This was in breach of the Directive 83/189. Unilever claimed that the relevant Italian law should not be applied and sued for breach of contract. ECJ upheld Unilever’s claim that the Italian law could not applied. The Court asserted that the Italian law that has been adopted in breach of Directive 83/189 was inapplicable and thus unenforceable against individuals.

It is clear that Directive 83/189 does not confer rights on or to create obligations for individuals and the reasoning offered, neither did it define the substantive scope of the legal rule to the extent it is sufficient to be relied on in a private dispute before national implementation. There exists the legal uncertainty issue, which may lead to legal and commercial uncertainty. As AG Jacobs argued that an individual trader now must be aware of the existence of Directive 83/189 and the relevant judgments, check if the Member States in question had complied with all the procedural requirements imposed by the Directive, in order to determine their potential liability under the Directive and the relevant national legislation. On the other, it is unfair for private parties to suffer because of the Member State’s failure to comply and implement the Directives.

In a nutshell, for a Directive to have direct effect, there are certain conditions:

(a) It must be clear and precise

(b) It must be unconditional

(c) The time limit for implementation of the Directive must have expired

(d) The action based on direct effect of the Directive can only be vertical – against an ‘emanation of the state’.

Although the ECJ refused to recognise horizontal direct effect of Directive, but it is lenient in interpreting the scope of ‘emanation of state’, and allow the use of ‘incidental’ horizontal effect in private actions. However, the scope of ‘incidental’ horizontal effect is unclear and it has given rise to many problems.

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Indirect effect

The concept of indirect effect partly deals with the problem for individuals who could not rely on Directives because the conditions for direct effect were not fulfilled.

In Case 14/83 von Colson v Land Nordrhein-Westfalen (1984), Ms. von Colson was refused a job as prison worker because she was a woman. Equal Treatment Directive 76/207 required Member States to give effect to principle of equal treatment. However the Directive has no direct effect because the provisions was not unconditional and was insufficiently precise to be enforced by a court. There was some national legislation which purported to implement the Community Directive but it had did so inadequately as the amount of compensation available was very small.

ECJ held that the national court is under a duty of harmonious interpretation, which including a duty to interpret existing national law, so far as possible, to achieve the result laid down by the Directive. The doctrine is based on the idea that national courts are part of the state and, consequently, are bound by what is now Article 4(3) TEU (formerly Article 10 EC). Article 4(3) requires Member States ‘pursuant to the principle of sincere cooperation’ to ‘take any appropriate measure…to ensure the fulfillment of their obligations’ under the Treaties. The effect of the ruling is to shift the responsibility for giving effect to Directives on to National courts in situations where their governments have failed to introduce adequate national implementing measure.  

In Case C-106/89 Marleasing SA v La Comercial Internacional de Alimentacion SA (1990), the ECJ confirmed that the duty of harmonious interpretation applies to all national legislation, whether passed before or after the relevant Union legislation, and whether intended to implement it or not. Furthermore, the duty can be applied horizontally, that is between two individuals.             

In Case 456/98 Centrosteel v Adipol (2000), the ECJ said that the duty to interpret national law in the light of the wording and purpose of the Community law applied even when this would impose a civil liability on private parties.

In Case C-185/97 Coote v Granada Hospitality Ltd (1998), Ms. Coote argued that after her dismissal her former employer had victimised her by failing to provide any reference regarding her employment which would assist her in obtaining alternative employment. There has been a claim for sex discrimination alleging that her former employer’s action in dismissing her had been motivated by her pregnancy. Her former employer had then refused to provide a reference because she had brought sex discrimination proceedings against them. The question posted to the ECJ was whether Directive 76/207 was wide enough to cover post termination protection against the act of victimisation alleged by her. ECJ held that the victimisation that Ms. Coote had suffered was intended to be covered by the Equal Treatment Directive and she should be entitled to legal protection from it.

The courts are only required to carry out this duty ‘as far as possible’ – so if there is not relevant national law, or if the relevant national law is only capable of limited interpretation, the doctrine could not be used. Following Case C-334/92 Wagne-Miret v Fondo de Garantia Salarial (1993), the duty did not require national judges to rewrite national law so that it took on a meaning contrary to its ‘ordinary’ meaning.

In Case 80/86 Criminal Proceedings Against Kolpinghuis Nijmegen (1987), the ECJ made it clear that the obligation of national court to interpret their national law in light of the wording and purposes of Directive is subject to the general principles of legal certainty and non-retroactivity.

In Case C-168/95 Criminal proceedings against Luciano Arcaro (1996), the ECJ held that where there is no implementing measure taken by the Member States, and the application of the doctrine has the effect of determining or aggravating criminal liability, the doctrine cannot be applied.

The rule nullem crimen sine lege was again upheld by the ECJ in Case C-387/02 Criminal proceedings against Berlusconi Arcaro (1996), where the Italian Prime Minister was involved in proceedings concerning allegations of fraud under Italian companies’ legislation pursuant to Directive 68/151. The Court stated that the Directive could not be relied upon against accused persons by the authorities of a Member State within the context of criminal proceedings, as the criminal liability of the accused could not be determined or aggravated by the Directive itself. 

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