(Progressively formed) res iudicata all'italiana: or how EU law's supremacy can deactivate final judgments (C-213/13)

In its Judgment in Impresa Pizzarotti, C-213/13, EU:C:2014:2067 the CJEU followed the Opinion of AG Wahl (EU:C:2014:335, commented here) and determined that, on a proper construction of the applicable public procurement directives, where the main object of a contract is the execution of a work corresponding to the requirements expressed by the contracting authority (in the case at hand, the building of a new city of justice in Bari), that contract constitutes a public works contract and is not, therefore, covered by the exclusion applicable to public service contracts for the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or concerning rights thereon, even if it contains an undertaking to let the work in question.
 
From the strict perspective of procurement law, the Impresa Pizzarotti Judgment is straightforward and clarifies the fact that a decisive influence of the contracting authority in the design of the works to be carried out suffices to trigger the application of the procurement rules (paras 39-52). Hence, in the case at hand, the lack of tender for the contract which implementation Pizzarotti intended rendered it illegal and, under the applicable remedies Directives, excluded any legal value to such contract for the future lease of buildings still to be constructed.
 
In my view, however, the case raises a second issue that may be much more relevant. As part of the convoluted litigation that led to the referral to the CJEU, the Italian Consiglio di Stato had recognised certain rights to Pizzarotti under the applicable Italian administrative law provisions. However, giving effect to those rights would result in a situation contrary to EU law, given the (unfulfilled) obligation to tender the contract for the lease of the buildings to be constructed. The difficulty of avoiding the breach of EU law derived from the fact that the previous ruling of the Consiglio di Stato had become final and had the force of res iudicata
 
In those circumstances, however, the Consiglio di Stato indicated to the CJEU that its own case-law made provision for an exceptional "progressively formed res iudicata" that would allow it to "supplement the original operative part of one of its judgments by an implementation decision" (para 27 or, rectius, disregard its finality?) and asked whether it was appropriate to do so under the circumstances of the case.
 
The CJEU reacted in the only possible manner and, after stressing the importance of the principle of res iudicata and its belonging to the procedural autonomy of Member States, did not let the opportunity of relishing a capriccio all'italiana in the form of progressively formed res iudicata.

Given the relatively surrealist reasoning to which the CJEU is forced by the naivety of the Consiglio di Stato's referral, it is worth reproducing it almost in full:
53      [...] the referring court asks, in essence, whether it may decide that a ruling which it has made which has led to a situation which is incompatible with the EU legislation on public works contracts is ineffective.
54      [...] 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, but must be consistent with the principles of equivalence and effectiveness (see, to that effect, the judgment in Fallimento Olimpiclub, C‑2/08, EU:C:2009:506, paragraph 24 and the case-law cited).
55 In its request for a preliminary ruling, the referring court indicates that, according to its case-law, it may, under certain conditions, supplement the original operative part of one of its judgments by implementation decisions, that possibility giving rise to what it terms ‘progressively formed res judicata’.
56 If — and it is for the referring court to ascertain whether this is the case — the conditions for applying that procedure are met in respect of the decision in Judgment No 4267/2007, a decision which is mentioned in paragraph 15 of this judgment and which — according to the order for reference — alone has the force of res judicata in the present case, it is for that court, having regard to the principle of equivalence, to make use of that procedure, favouring, from among ‘the numerous different possibilities of implementation’ which it states may be used in respect of that decision, the solution which, in accordance with the principle of effectiveness, ensures compliance with the EU legislation on public works contracts.
57      [...]
58 On the other hand, if the referring court is led to the view that the correct application of that legislation conflicts, having regard to the applicable domestic rules of procedure, with its Judgment No 4267/2007 or with its decisions of 15 April and 3 December 2010 implementing that judgment, 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 both stability of the law and legal relations and 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 connection can no longer be called into question (judgments in Kapferer, C‑234/04, EU:C:2006:178, paragraph 20; Commission v Luxembourg, C‑526/08, EU:C:2010:379, paragraph 26; and ThyssenKrupp Nirosta v Commission, C‑352/09 P, EU:C:2011:191, paragraph 123).
59 Therefore, EU law does not 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 domestic situation which is incompatible with EU law (see, to that effect, the judgments in Eco Swiss, C‑126/97, EU:C:1999:269, paragraphs 46 and 47; Kapferer, EU:C:2006:178, paragraphs 20 and 21; Fallimento Olimpiclub, EU:C:2009:506, paragraphs 22 and 23; Asturcom Telecomunicaciones, C‑40/08, EU:C:2009:615, paragraphs 35 to 37; and Commission v Slovakia, C‑507/08, EU:C:2010:802, paragraphs 59 and 60).
60 Accordingly, EU law does not require a judicial body automatically to go back on a judgment having the authority of res judicata in order to take into account the interpretation of a relevant provision of EU law adopted by the Court after delivery of that judgment.
61 That analysis cannot be undermined by the judgment in Lucchini (C‑199/05, EU:C:2007:434), cited by the referring court: it was in a highly specific situation, in which the matters at issue were principles governing the division of powers between the Member States and the European Union in the area of State aid, that the Court found, in essence, that EU law precludes the application of a provision of national law, such as Article 2909 of the Italian Civil Code, which seeks to lay down the principle of res judicata, in so far as the application of that provision would prevent the recovery of State aid which was granted in breach of EU law and which has been found to be incompatible with the common market in a decision of the European Commission which has become final (see, to that effect, the judgment in Fallimento Olimpiclub, EU:C:2009:506, paragraph 25). However, issues of that nature, relating to the division of powers, do not arise in the present case.
62 That said, if the applicable domestic rules of procedure provide the possibility, under certain conditions, for a national court to go back on a decision having the authority of res judicata in order to render the situation compatible with national law, that possibility must prevail if those conditions are met, in accordance with the principles of equivalence and effectiveness, so that the situation at issue in the main proceedings is brought back into line with the EU legislation on public works contracts.
63 In that regard, it should be emphasised that that legislation contains fundamental rules of EU law in that it is intended to ensure the application of the principles of equal treatment of tenderers and of transparency in order to open up undistorted competition in all the Member States (see, to that effect, the judgments in Commission v Portugal, C‑70/06, EU:C:2008:3, paragraph 40; Michaniki, C‑213/07, EU:C:2008:731, paragraph 55; Commission v Cyprus, C‑251/09, EU:C:2011:84, paragraphs 37 to 39; and Manova, C‑336/12, EU:C:2013:647, paragraph 28).
64 In the light of the foregoing, the answer to the second question is that, to the extent that it is authorised to do so by the applicable domestic rules of procedure, a national court — such as the referring court — which has given a ruling at last instance, without a reference having first been made to the Court of Justice under Article 267 TFEU, that has led to a situation which is incompatible with the EU legislation on public works contracts must either supplement or go back on that definitive ruling so as to take into account any interpretation of that legislation provided by the Court subsequently (C-213/13 at paras 53-64, emphasis added).
In my view, given the consequences that an infringement of EU law by the domestic courts can have and the ensuing potential for State liability claims (see Traghetti del Mediterraneo, C-173/03, EU:C:2006:391], Member States would be quite foolish not to adopt the concept of (progressively formed) res iudicata all'italiana, at least for instances of subsequent violation of EU law. Unless they take legal certainty and predicatability seriously, that is!

When the CJEU opens the umbrella, lawyers and economists get ready for a warm shower of damages claims (C-557/12)

In its Judgment in Kone, C-557/12, EU:C:2014:917, the Court of Justice of the European Union (CJEU) has followed the highly controversial proposal of AG Kokott (see my criticism here) and has bought into the theory of 'umbrella damages', hence determining that "Article 101 TFEU must be interpreted as meaning that it precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions."

In my opinion, this Judgment must be strongly criticised and shows a very dangerous path of judicial activism that the CJEU is for some reason willing to engage with in the area of private law, but that it avoids in the area of public law and fundamental rights (see my remarks on the CJEU's total lack of will to effectively become EU's constitutional court here). Only on this asymmety of approach towards the development of EU rights in the public law / private law area (or, more bluntly, in the fundamental rights/economic rights divide) should give us all some food for thought about the role of the CJEU.
 
Further than the general criticism already spelled out against AG Kokott's Opinion, I think that the Judgment gives rise to even more specific arguments against the findings of the CJEU on the basis of the 'umbrella damages' theory of harm. I am lucky to have colleagues such as Dr Sebastian Peyer with whom to discuss these issues and, on this occassion, we clearly  coincide in our negative reading of the case. In this post, we put together our thoughts. Mine are slightly more general, so they will come first. Sebastian will then follow on with more specific and ellaborate points on the basis of his expertise in private enforcement of EU competition law.

My own criticism
From a general perspective of EU law and its effectiveness, the Kone Judgment really makes no sense and potentially impinges on the Member States' competences to regulate non-contractual liability and tort remedies [this point is common to previous criticisms against the EU's competence to regulate in the area of damages actions, as Francisco Marcos and myself stressed in “Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law through the Back Door?” (2008) 16(3) European Review Private Law 469-488].
 
 
Quite simply, in my view, Kone has carried the application of the principle of supremacy and effectiveness of EU law too far and the contrast between the findings in Kone and its original application to the competition law damages field in Courage and Crehan [C-453/99 EU:C:2001:465, paras. 23 and ff] is simply abysmal. Courage 'just' made the point clear that damages actions should not be impossible and that they were governed by the general principles of equivalence and effectiveness of remedies (para. 29). This general mantra has been repeated over and over but, in its repetition, the effectiveness part has been gaining relevance and, at least in Kone, the CJEU has completely disregarded the principle of equivalence (despite mentioning it in para. 25).
 
Given the split of competences between the EU and the Member States in many areas of the law and, in particular, in many areas that govern the remedies available for breaches of EU (and domestic) rules, the principle of equivalence needs to be understood as a functional tool to provide effectiveness to EU rights without altering the Member States' competences. In that regard, it seems uncontroversial that, as even an undergraduate student of law can clearly express in an effective way: "The principle of equivalence ensures that EU rights receive the same protection as domestic ones" [David Murray, "EU law rights and national remedies: an uneasy partnership?" (2010) Diffusion 6(1)]. There is no reason to suggest that, in the absence of EU regulatory competences or specific EU remedies, EU rights should receive more intense protection than domestic ones.
 
However, the CJEU disregards this plain understanding of the general requirements of EU law and its supremacy and goes on to state that:
32 [...] it is, in principle, for the domestic legal system of each Member State to lay down the detailed rules governing the application of the concept of the ‘causal link’. However,  [...] national legislation must ensure that European Union competition law is fully effective (see, to that effect, VEBIC EU:C:2010:739, paragraph 63). Those rules must therefore specifically take into account the objective pursued by Article 101 TFEU, which aims to guarantee effective and undistorted competition in the internal market, and, accordingly, prices set on the basis of free competition. In those circumstances [...] national legislation must recognise the right of any individual to claim compensation for loss sustained.
33 The full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets.
In my view, this is truly far away from a pondered and acceptable balancing of the competing demands of the principles of equivalence and effectiveness and amounts to a suppression of the equivalence element that is essential to the test for compliance by Member States with their duty to ensure the effet utile of EU law under Article 4(3) TFEU and the existing case law.

Moreover, it prevents Member States from adopting clear and streamlined rules that avoid the need to engage in very complicated and costly case by case assessments of every claim, regardless of any indication of remoteness or weakness of basic causality links. Hence, the Kone Judgment should clearly be rejected and its implications limited (ie undone) by the CJEU itself at the closest opportunity.

What Sebastian has to say
The Court's judgement does not only show some dangerous judicial activism, as my colleague and host Dr Albert Sanchez Graells has pointed out, it also raises more questions than it answers.

What do we talk about when we talk about umbrella pricing? In a standard cartel case the damages claimant, typically a direct customer of the cartel, has to show that the defendant overcharged him. For umbrella pricing the situation is different. The claimant has not purchased from the cartelist but from another firm in the affected market. Consequently, the claimant should demonstrate that the market price was inflated due to the cartel and that he suffered harm due to the higher market price. In European jurisdictions this is basically a question of causation and a question of the proof that is required by the courts whereas US courts deal with these issues under ‘antitrust injury’. In Kone, the Court has stated that national courts cannot categorically reject a causal link between the cartel and inflated market prices charged by non-cartelists (para. 34):

Consequently, the victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel […] where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel.

The Court addresses the two issues related to umbrella pricing (Was there an effect on the market? Did the market effect cause damage to the claimant?) in one sentence and merges them into one “be liable” test. It is left to the Member States to establish the rules and standards for proving these effects. The Court also seems to introduce some element of knowledge on part of the cartelist ("could not be ignored"). This may turn out to be impossible to prove.
 
Sadly, the ruling fits into the line of recent cases that appear to be claimant-friendly but may not contribute much to the effectiveness of enforcement. On the face of it, cases such as Pfleiderer [C-360/09, EU:C:2011:389] or Donau Chemie [C-536/11, EU:C:2013:366] have opened the gates to private damages claims, allegedly improving the effectiveness of competition law enforcement through access to documents. But I think this does not hold true. In those rulings the court replaced categorical rules with a case by case approach. So far, this has not really helped claimants but forced courts to justify why they have decided to, for example, deny access to leniency material (Pfleiderer). With regards to umbrella pricing, the CJEU has followed this approach replacing a 'fixed rule' with a case by case approach. We shall see if the claimants can get anything out of this apart from more complicated litigation.
 
Overall, the CJEU’s decision is extremely short for a ruling that could turn out to be expensive for both claimants and defendants. The cost associated with proving and calculating umbrella pricing could be prohibitive and adds to the generally high litigation costs of follow-on damages actions. I would expect most umbrella claimants to fail at the quantification stage, even if they have actually managed to master the causation hurdles.

The implications of this judgement for national causation rules are also worrying. Member States are supposedly able to govern causation and remoteness of damages under the procedural autonomy principle the Court stressed in the Kone ruling but also in Courage, Manfredi, Pfleiderer and Donau Chemie. However, in AG Kokott (see her opinion in Kone) and the Court disregard earlier statements that it is for the domestic legal system to regulate a causal relationship. So, what does this mean for the domestic legal systems?
 
Regarding the UK, I could imagine that the autonomous decision of a third party not to undercut the cartel is an intervening event breaking the chain of causation. It could also become a struggle to show that damages were foreseeable because they depend on the buyer's decision to contract with a non-cartelist and on the non-cartelist’s decision to charge an inflated price in the shadow of the cartel. However, the TheWagon Mound (No1) holds that only the kind of damage has to be foreseeable, not the extent of it. The CJEU’s decision in Kone has certainly created many more questions. Now, the ball is in the national courts.

Is Costa v Enel forgotten? CJEU trips over supremacy and direct effect in case concerning Art 41(2)(c) CFREU (C-313/12)

In its Judgment of 7 Movember in case C-313/12 Romeo, the Court of Justice of the EU issued an important ruling concerned with the extension of the obligation to state reasons derived from Article 41(2)(c) of the Charter of Fundamental Rights of the EU in purely domestic situations.
 
In the case at hand, the CJEU was especifically presented with a query regarding the compatibility with Article 41(2)(c) CFREU (and, more generally, with the case law on the duty to state reasons) of an Italian rule whereby faulty administrative decisions would not be quashed if the authorities supplemented their statement of reasons in subsequent court proceedings.
 
In my view, the reasons offered by the CJEU to decline jurisdiction to respond to the questions referred by the Italian court show a poor understanding of (or a lack of willingness to give effect to) the changed nature of the Charter after the entry into force of the Treaty of Lisbon. As very clearly stated, 'the EU Charter of Fundamental Rights is now legally binding, having the same status as primary EU law' [for discussion, see S Douglas-Scott, 'The European Union and Human Rights after the Treaty of Lisbon' (2011) Human Rights Law Review 11(4): 645-682].
 
In that regard, keeping in mind that Article 6(1) of the Treaty on European Union now very clearly indicates that 'The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights of the European Union of  [...] which shall have the same legal value as the Treaties' (emphasis added), it is very hard to understand how the CJEU can have unblinkingly held that:
it cannot be concluded that [...] Article 41(2)(c) of the Charter or indeed other rules of European Union law concerning the obligation to state reasons for acts have been made directly and unconditionally applicable (sic), as such, by [the relevant Italian rules], so that internal situations and situations relating to European Union law are treated in the same way. Therefore it must be held that, in the present case, there is no clear European Union interest in a uniform interpretation of provisions or concepts taken from European Union law, irrespective of the circumstances in which those provisions or concepts are to apply (C-313/12 at para 37, emphasis added).

I cannot get my head around the fact that, as no one would doubt, the CJEU has kept for time immemorial the position that the Treaties (now including the Charter of Fundamental Rights  for these purposes) are supreme and directly effective without any need for internal measures that receive them or recognise that they are directly and unconditionally applicable in all EU Member States--and, yet, it shows a stark resistance to apply these principles to the Charter (see also C-482/10 Cicala).
 
As very clearly summarised in Costa v Enel,
A Member State's obligation under the [Treaty], which is neither subject to any conditions nor, as regards its execution or effect, to the adoption of any measure either by the States or by the Commission, is legally complete and consequently capable of producing direct effects on the relations between Member States and individuals. Such an obligation becomes an integral part of the legal system of the Member States, and thus forms part of their own law, and directly concerns their nationals in whose favour it has created individual rights which national courts must protect (6/64, summary, point 7).
This, together with Art 6(1) TEU surely determines the supremacy and direct effect of the Charter--as also supported by an a contrario interpretation of Protocol No 30 on the Application of the Charter of Fundamental Rights of the European Union to Poland and the United Kingdom (what would be the purpose of the Protocol if not precisely to exclude such supremacy and direct effect regarding the UK and Poland?). Then, if the CJEU has not forgotten Costa v Enel, the only relevant question is: how are Judgments like Cicala and Romeo possible? Why is the CJEU (suddenly) so averse to (continuying to) act as constitutional court at EU level?