CJEU requires EU law compliant interpretation of national principles of res iudicata (C-505/14)

In its Judgment of 11 November 2015 in Klausner Holz Niedersachsen, C-505/14, EU:C:2015:742, the Court of Justice of the European Union (CJEU) has reiterated that the requirement of effectiveness (effet utile) of EU law is incompatible with national principles and rules of finality of judicial decisions (res iudicata) that would prevent a court from drawing all the consequences of a breach of the EU State aid rules in Art 107(1) and 108(3) TFEU because of a (related, previous) national judicial decision which has become definitive.

The case does not set any new principle of EU law. The CJEU has repeatedly stressed that the effectiveness of EU law trumps res iudicata considerations under the domestic rules of the Member States--which has led some of them to develop a progressive approach to determining the finality of judicial decisions when not doing so would result in an infringement of EU law [regarding Italy, see Impresa Pizzarotti, C-213/13, EU:C:2014:2067 and comments here]. 

However, in my view, the case is interesting because the CJEU expands its case law as far as the application of the principle of consistent or harmonious interpretation is concerned, by indicating that domestic courts must try to reinterpret the principle of res iudicata itself in accordance with EU law so as not to impar its effectiveness and, only where that consistent interpretation is not possible, then proceed to a strict analysis of the principle of res iudicata under the principle of effectiveness of EU law.

In Klausner Holz Niedersachsen, the CJEU starts its reasoning by reiterating its settled case law on the duty of consistent interpretation and its limits. 
30 While accepting that the principle of res judicata, as construed in national law, has certain objective, subjective and temporal limitations and certain exceptions, the referring court notes that that law precludes not only re-examination, in a second action, of the pleas already expressly settled definitively, but also the raising of questions which could have been raised in an earlier action and which were not so raised. 
31 In that regard, it is appropriate to recall that it is for the national courts to interpret, as far as it is possible, the provisions of national law in such a way that they can be applied in a manner which contributes to the implementation of EU law (judgment in Lucchini, C-119/05, EU:C:2007:434, paragraph 60).
32 It is true that this principle of interpreting national law in conformity with EU law has certain limitations. Thus the obligation on a national court to refer to the content of EU law when interpreting and applying the relevant rules of domestic law is limited by general principles of law and it cannot serve as the basis for an interpretation of national law contra legem (see to that effect, judgments in Impact, C-268/06, EU:C:2008:223, paragraph 100, and Association de médiation sociale, C-176/12, EU:C:2014:2, paragraph 39).
34 In that regard, it must be borne in mind that the principle that national law must be interpreted in conformity with EU law also requires national courts to do whatever lies within their jurisdiction, taking the whole body of domestic law into consideration and applying the interpretative methods recognised by it, with a view to ensuring that EU law is fully effective and to achieving an outcome consistent with the objective pursued by it (see, to that effect, judgment in Dominguez, C-282/10, EU:C:2012:33, paragraph 27 and the case-law cited).
35 Thus, it is for the referring court to ascertain, on that basis, whether it can find such an interpretation ... (C-505/14, paras 30-35, emphasis added).
The CJEU then proceeds to extend the analysis where an EU law compliant interpretation of the principle of res iudicata is not possible. Unsurprisingly, it resorts to the principle of effectiveness of EU law, and reasons as follows:
38 If such a measure or interpretation should, however, prove not to be possible, attention should be drawn to the importance, both in the legal order of the European Union and in national legal systems, of the principle of res judicata. In order to ensure stability of the law and legal relations, as well as the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that regard can no longer be called into question (see judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 22, and Târșia, C-69/14, EU:C:2015:662, paragraph 28).
39 Therefore, EU law does not always require a national court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a breach of EU law by the decision at issue (see judgments in Kapferer, C-234/04, EU:C:2006:178, paragraph 22, Fallimento Olimpiclub, C-2/08, C:2009:506, paragraph 23, Commission v Slovak Republic, C-507/08, EU:C:2010:802, paragraph 60, Impresa Pizzarotti, C-213/13, EU:C:2014:2067, paragraph 59, and Târșia, C-69/14, EU:C:2015:662, paragraph 29).
40 In the absence of EU legislation in this area, the rules implementing the principle of res judicata are a matter for the national legal order, in accordance with the principle of the procedural autonomy of the Member States. However, such procedural rules must not be less favourable than those governing similar domestic situations (principle of equivalence) and must not be framed in such a way as to make it in practice impossible or excessively difficult to exercise the rights conferred by EU law (principle of effectiveness) (see judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 24, and Impresa Pizzarotti, C-213/13, EU:C:2014:2067, paragraph 54 and the case-law cited).
41 As regards application of the principle of effectiveness, the Court has held that every case in which the question arises as to whether a national procedural provision makes the application of EU law impossible or excessively difficult must be analysed by reference to the role of that provision in the procedure, its conduct and its special features, viewed as a whole, before the various national bodies. In that context, it is necessary to take into consideration, where relevant, the principles which lie at the basis of the national legal system, such as the protection of the rights of the defence, the principle of legal certainty and the proper conduct of the proceedings (see, to that effect, judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 27, and Târșia, C-69/14, EU:C:2015:662, paragraphs 36 and 37 and the case-law cited).
42 In that regard, it must be noted that an interpretation of national law ... can have the consequence, in particular, that effects are attributed to the decision of a national court ... which frustrate the application of EU law, in that they make it impossible for the national courts to satisfy their obligation to ensure compliance with the third sentence of Article 108(3) TFEU
43 It follows therefrom that both the State authorities and the recipients of State aid would be able to circumvent the prohibition laid down in the third sentence of Article 108(3) TFEU by obtaining, without relying on EU law on State aid, a declaratory judgment whose effect would enable them, definitively, to continue to implement the aid in question over a number of years. Thus, in a case such as that at issue in the main proceedings, a breach of EU law would recur ... without it being possible to remedy it.
44 Furthermore, such an interpretation of national law is likely to deprive of any useful effect the exclusive power of the Commission ... to assess, subject to review by the EU Courts, the compatibility of aid measures with the internal market. If the Commission, to which the Federal Republic of Germany has in the meantime notified the aid measure constituted by the contracts at issue, should conclude that it is incompatible with the internal market and order its recovery, execution of its decision must fail if a decision of the national court could be raised against it declaring the contracts forming that aid to be 'in force' (C-505/14, paras 38-44, emphasis added).
The CJEU concludes that a significant obstacle to the effective application of EU law and, in particular, a principle as fundamental as that of the control of State aid cannot be justified either by the principle of res judicata or by the principle of legal certainty (C-505/14, para 45). The final result leaves the open question of whether the initial analysis under the duty of consistent interpretation was at all necessary.

In my view, the CJEU tried to show deference towards the general principles of law of the national domestic orders of the Member States, while at the same time reaffirming the supremacy of the general principles of EU law. And in doing so, indicated to the Member States' courts that they should try to mediate any possible conflict by recourse to the duty of consistent interpretation, so as to 'domesticate' the requirement of effet utile of EU law. It will be interesting to see to what extent that leads to a reinterpretation of the German principle of res iudicata, which may well become 'progressive' all'Italiana. Who said that debates on general EU law were a thing of the past?

"Ask responsibly": a warning on the hypertrophy of referrals for preliminary rulings

The tendency towards saturation and the risk of a bottleneck in the activities of the Court of Justice of the European Union (CJEU) are one the main concerns that prompted the recent changes in the rules of procedure of this institution (adopted on 25 September, published in the OJ and due to enter into force on the 1st of November). 

As the CJEU expressly remarked: 
"Faced with a constant rise in the number of cases brought before it, dominated by references for a preliminary ruling, the Court is adapting its rules of procedure to ensure that the particular features of those cases can more readily be taken into consideration, while at the same time strengthening its ability to dispose within a reasonable period of time of all the cases that are brought before it" (see press release here, emphasis added). 
Indeed, references for a preliminary ruling account for more than 60% of the CJEU’s caseload and the hypertrophy of this mechanism for the consistent and harmonized interpretation and enforcement of EU Law risks leaving us with a CJEU without time and resources to effectively deal with any of its other duties under the Treaties.

In that regard, the proactive approach adopted by the CJEU in changing its rules of procedure must be welcome, but at the same time it should be stressed that preventing the hypertrophy of the preliminary ruling mechanism is a two way avenue and that referring courts should also make an effort to "ask responsibly" and avoid referring unnecessary questions to the CJEU. However, the open question is whether the current drafting of Article 267 TFEU allows them to do so. 

As is well known, according to Article 267 TFEU, the CJEU shall have jurisdiction to give preliminary rulings concerning: (a) the interpretation of the Treaties; and (b) the validity and interpretation of acts of the  institutions, bodies, offices or agencies of the Union. And domestic courts are under an asymmetrical duty/possibility to raise such questions before the CJEU. Indeed, where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon. However, where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.

In my view, the imposition on the highest courts of the Member States of an absolute duty to refer cases for a preliminary ruling prevents them from exercising the basic degree of judicial discretion required to "ask responsibly" and generates a potentially non-negligible number of unnecessary referrals without the national courts or the CJEU being able to avoid them. Even if those unnecessary referrals can be replied by way of a reasoned order under the new Article 99 of the rules of procedure of the CJEU, that still takes significant time and costs. Therefore, in my view, some flexibility needs to be introduced to prevent such cases from the very beginning.

The recent Judgment of the CJEU of 18 October 2012 in case C-385/10 Elenca Srl Ministero dell’Interno is an example of an unnecessary referral. The case involved the interpretation of Council Directive 89/106/EEC of 21 December 1988 on the approximation of laws, regulations and administrative provisions of the Member States relating to construction products as amended by Regulation (EC) No 1882/2003, and also the interpretation of the free movement of goods in the TFEU. More specifically, the case involved a mandatory requirement for construction materials used in chimney pipes sold in Italy to bear the CE mark.

Under the applicable Italian rules, all products used to insulate chimneys and make them fire proof had to bear a CE mark that ensured compliance with a given European technical standard. However, the complainant in the case was using innovative materials for which there exists no equivalent European standard and, consequently, cannot bear the CE mark. As put by the complainant, the contested Italian rule infringed Articles 34 TFEU to 37 TFEU because it made the marketing of a product originating from another Member State of the European Union (in this case, Hungary) subject to a technical condition, namely the affixing of the CE marking, a requirement that is impossible to fulfill because there is no corresponding harmonized standard in Hungary, which makes it impossible in practice to import and distribute the product in question.

The Italian Council of State shared the complainant's doubts as to the validity of the national legislation under European Union law but had to refer the case regardless of such doubts. It should come as no surprise that the CJEU indeed ruled that, in the absence of a harmonized standard for those specific construction products,
18 [... Directive 89/106] provides that the Member States are to allow such a product to be placed on the market in their territory if it satisfies national provisions consistent with the Treaty until the European technical specifications provide otherwise [...]
19 It follows that a Member State may not require the affixing of CE marking on a construction product not covered by [a harmonized European standard], originating from another Member State, in order for that product to be marketed on its territory. That Member State may subject the placing on the market of that construction product only to national provisions which comply with its obligations under the Treaty, in particular with the principle of the free movement of goods set out in Articles 34 TFEU and 36 TFEU.
20 [...] Directive 89/106 must be interpreted as precluding national provisions which automatically make the marketing of construction products, such as those at issue in the main proceedings, originating from another Member State, subject to the affixing of CE marking.
Moreover, the CJEU also dismisses very clearly any possibility to consider such a disproportioned restriction of free movement of goods justified on public interest grounds:
28 Although [...] it is established that, in the absence of harmonising rules, the Member States are free to decide on their intended level of protection of human life and health and on the need to monitor the goods concerned when being used (see, to that effect, Case C-293/94 Brandsma [1996] ECR I-3159, paragraph 11, and C-432/03 Commission v Portugal [2005] ECR I-9665, paragraph 44), it must be observed that legislation which prohibits, absolutely and automatically, the marketing on national territory of products lawfully marketed in other Member States because those products do not have CE marking is not compatible with the requirement of proportionality imposed by European Union law.
29 [...] such a strict requirement of CE marking, which prevents at the outset the very application of the principle of mutual recognition of products for which the European legislature has not effected full harmonisation or drawn up European technical approvals, by prohibiting compliance by the products in dispute with the required safety standards on the basis of approval and certification procedures conducted in the Member State of origin, goes beyond what is necessary to attain the safety objective pursued.
30 [...] Articles 34 TFEU to 37 TFEU must be interpreted as precluding national provisions which automatically make the marketing of construction products, such as those at issue in the main proceedings, originating from another Member State, subject to the affixing of CE marking.
The outcome of the case seems rather straightforward to anyone acquainted with the case law on free movement of goods and, consequently, it seems that the Italian Council of State (which already indicated its position by sharing the doubts of the complainant) did not need this answer from the CJEU in order to be able to give a judgment consistent with EU Law. Therefore, this is a good example of an unnecessary preliminary ruling that has taken up time and resources of the CJEU (and the Italian Council of State) without facing an actual difficulty of interpretation of EU Law. Therefore, in terms of prioritization in the development of EU Law, such a case ranks very low, and should have been avoided.

In my opinion, this shows that we need to allow all domestic courts, including the highest courts of the Member States against whose decisions there is no judicial remedy under national law to "ask responsibly". Otherwise, the risk of hypertrophy of the preliminary ruling instrument and the suffocation of the European Courts will still be a storm over our heads.

CJEU stresses that consistent interpretation of domestic laws with EU provisions cannot give rise to, or aggravate liability in, criminal law

The Court of Justice of the European Union's Judgment of 28 June 2012 in Case C-7/11 Criminal proceedings against Fabio Caronna has stressed once again the general principle of EU law that the duty for national courts to interpret and apply domestic laws in a manner that is consistent with EU law (ie consistent interpretation, on the basis of art 288 TFEU) has the clear limit that it must not give rise to, or aggravate liability in, criminal law (see press release: http://tinyurl.com/CJEUCaronna).

The case concerned the wholesale distribution of medicinal products in Italy. Generally, wholesale distribution of such products is regulated under EU law by Directive 2001/83/EC on the Community code relating to medicinal products for human use, as amended by Commission Directive 2009/120/EC. The Directive requires wholesale distributors to obtain a special authorisation, for which certain harmonised requirements are set. However, relevant Italian domestic legislation sets a different requirement, since it allows pharmacists and companies of pharmacists in possession of a licence to operate a pharmacy (ie to sell medicinal products at retail level) to also operate as wholesale distributors (and that 'standard' authorisation does not impose the same requirements that the Directive sets for the 'special' wholesale authorisation).

The common understanding, even by public prosecutors in the specific case, of the Italian rules  on retail and wholesale authorisations was that a pharmacist already authorised to retail medicinal products was exempt from the obligation to obtain the special authorisation required under the material national and European Union rules applicable. On its face, the argument seemed deffective (as the referring Court of Palermo implicitly indicated by requesting the CJEU to issue a preliminary ruling), and it seems rather clear that Italian law has not properly transposed Directive 2001/83/EC, since it requires no special authorisation for wholesale distribution on top of the 'standard' retail authorisation given to pharmacists.

The point of interpretation of domestic law in light of the requirements of EU law was, then, to determine whether pharmacists engaging in wholesale trade on the basis of their 'standard' authorisation to distribute medicinal products at retail level were doing so unlawfully under EU rules. The issue was not minor since this could generate criminal liability, as Italian legislation also determined that any person that engages in unauthorised wholesale distribution of medicinal products was liable to punishment in the form of imprisonment for a term of six months to one year and a fine of between €10,000 and €100,000.

In the case at hand, the CJEU has been clear in distinguishing the consequences of consistent interpretation of Italian laws with Directive 2001/83/EC in general and for the more specific purposes of determining criminal liability.

In general terms, it has clearly indicated that the Directive imposes on Member States a general obligation to make the wholesale distribution of medicinal products subject to possession of a special authorisation, and that the requirement under the Directive to obtain authorisation for the wholesale distribution of medicinal products is applicable to a pharmacist who, as a natural person, is also authorised under domestic law to operate as a wholesaler in medicinal products; since it cannot be presumed from the simple fact that pharmacists satisfy the conditions laid down by the Member States for retail supply that they also comply with the conditions laid down by harmonised rules at EU level for wholesale distribution.

However, as such finding could determine criminal liability for the pharmacists that behaved in accordance with national law but breached EU law, the CJEU reminded that
51 It should be noted, as correctly pointed out by the Commission, that even though national courts are required to interpret domestic law, so far as possible, in light of the wording and purpose of a Directive in order to achieve the result sought by the Directive and, accordingly, to comply with the third paragraph of Article 288 TFEU, that obligation to interpret national law in conformity with European Union law is subject to certain limits in criminal matters.
52 As the Court has held, the principle of interpreting national law in conformity with European Union law is limited by general principles of law which form part of the European Union legal system, in particular, the principles of legal certainty and non-retroactivity. Thus, a directive cannot, of itself and independently of a national law adopted by a Member State for its implementation, have the effect of determining or aggravating the liability in criminal law of persons who act in contravention of the provisions of that directive (see, inter alia, Case C‑60/02 X [2004] ECR I‑651, paragraph 61 and the case‑law cited).
55 [... ultimately] the principle that criminal penalties must have a proper legal basis, enshrined in Article 49(1) of the Charter of Fundamental Rights of the European Union, would prohibit the imposition of criminal penalties for such conduct, even if the national rule were contrary to European Union law (see, by analogy, X, paragraph 63).

In this other group of cases (the vast majority, predictably), the case law of the CJEU imposes a much more demanding exercise of consistent interpretation (which could almost go so far as to impose a 'disguised' contra legem interpretation). As explained elsewhere,

given that the limits of the principle of consistent interpretation remain somewhat blurry and that the CJEU has adopted an expansive approach to the issue of the obligation of Member States to guarantee the effectiveness of directives, it is submitted that the limits of legal construction of Member States’ law with conformity to EU directives should be interpreted restrictively in order to favour to the maximum extent the (indirect) effectiveness of EU law and the goals pursued by EU directives. This is all the more necessary in view of recent developments of the rules of construction developed by the CJEU that are superseding the traditional boundaries of the theory of direct effect and point towards a more general doctrine of ‘legality review’ of the legislative actions of Member States [S Prechal, ‘Does Direct Effect Still Matter?’ (2000) 37 Common Market Law Review 1047, 1051. cf C Hilson, ‘Legality Review of Member State Discretion under Directives’ in T Tridimas and P Nebbia (eds), European Union Law for the Twenty-First Century: Rethinking the New Legal Order (Oxford, Hart Publishing, 2004) 223] and towards the expansion of the boundaries of legal interpretation that conform to the TFEU and secondary rules (in what has been termed as leveraged development) [S Treumer and E Werlauff, ‘The Leverage Principle: Secondary Community Law as a Lever for the Development of Primary Community Law’ (2003) 28 European Law Review 124]—which seem to have overcome the notorious difficulties that the early developments of the direct effect doctrine generated (although they may pose some other interpretative problems of their own) [D Curtin, ‘The Province of Government: Delimiting the Direct Effect of Directives in the Common Law Context’ (1990) 15 European Law Review 195, 220–23]. The limit seems to lie where consistent interpretation requires national courts and authorities to overcome ‘merely’ interpretative functions (broadly defined) and to assume legislative functions [R Alonso García, ‘La interpretación del Derecho de los estados conforme al Derecho comunitario: Las exigencias y los límites de un nuevo criterio hermenéutico’ (2008) 28 Revista española de Derecho europeo 385, 401]. Nonetheless, drawing the dividing line will usually be a difficult task and, as already mentioned, the clear prevalence of a pro communitate interpretative principle must be identified in the relevant case law.
To sum up, it is submitted that (except in those cases where there is potential for criminal liability), Member States are under an almost absolute obligation to guarantee that domestic legislation is interpreted and applied in a manner that is consistent with EU law and, in particular in the case of directives, to ensure that their goals and intended effects are attained through national legislation—regardless of whether that legislation was adopted for the sake of transposing those directives, and regardless of the proper or improper transposition of those directives.
In my opinion, this seems like an area of EU law where case law will continue to develop in the recent future, particularly if national courts continue to refer cases for interpretation, for instance, in relation with the ever increasing number of soft law and hybrid instruments issued by EU institutions.
Even if the Caronna Judgment does not advance EU law in this field, it is a very clear reminder of the limits of consistent interpretation in cases where criminal liability is concerned, where the exercise required from national courts is much more restricted than in cases where no criminal liability is involved.