The CJEU between lack of horizontal direct effect and disapplication of internal legislation

Luca Ratti (Associate Professor, University of Luxembourg)

Last 18th January 2022, the CJEU in its Grand Chamber setting decided an important case (Thelen Technopark Berlin (C-261/20)) concerning the (lack of) horizontal direct effect of EU directives. The case originated from the Services Directive 2006/123 which inter alia renders incompatible with EU law the establishment of minimum tariffs for self-employed professionals unless they satisfy certain conditions. In particular, Article 15 of the Directive requires Member States to examine existing fixed minimum and/or maximum tariffs with which the provider must comply and eventually repeal them unless they result being non-discriminatory, necessary, and proportional (Article 15(3)).

In previous cases, the German system of tariffs for architects and engineers (Honorarordnung für Architekten und Ingenieure - HOAI) of 10 July 2013 had already been considered contrary to EU law. In case C‑377/17 Commission v. Germany, the Court held that the HOAI system of minimum tariffs “is, in principle, capable, having regard to the characteristics of the German market, of helping to ensure a high level of quality of planning services and, consequently, of achieving the objectives pursued by the Federal Republic of Germany” (para 88). However, “national legislation is appropriate for securing attainment of the objective pursued only if it genuinely reflects a concern to attain that objective in a consistent and systematic manner” (para 89). As a consequence, “the fact that planning services may be provided in Germany by service providers who have not demonstrated their professional capacity to do so indicates a lack of consistency in the German legislation in relation to the objective, of preserving a high level of quality of planning services, pursued by the minimum tariffs”, meaning that the German tariffs system is not suitable for attaining the objective pursued by the law.

In a subsequent case C-137/18 hapeg dresden – decided with an ordonnance by the CJEU due to the fact that the question submitted was identical to that of the abovementioned case C-377/17 – the same tariffs system was considered contrary to EU law, but the Court left unresolved the more general issue whether the provisions of Directive 2006/123 “are applicable in the context of a dispute between private individuals only, which is not the subject of the present reference for a preliminary ruling” (para 21).

Case Thelen Technopark Berlin (C-261/20) further elaborates on the incompatibility of German law with Directive 2006/123 by reiterating consolidated case law and combining two established principles.

On the one hand, on the lack of horizontal direct effect of EU directives, the CJEU held that “a directive cannot of itself impose obligations on an individual and cannot therefore be relied on as such against that individual before a national court. In accordance with the third paragraph of Article 288 TFEU, the binding nature of a directive, which constitutes the basis for the possibility of relying on it, exists only in relation to ‘each Member State to which it is addressed’; the European Union has the power to enact, in a general and abstract manner, obligations for individuals with immediate effect only where it is empowered to adopt regulations. Therefore, even a clear, precise and unconditional provision of a directive does not allow a national court to disapply a provision of its national law which conflicts with it if, were that court to do so, an additional obligation would be imposed on an individual” (CJEU 24 June 2019, Popławski, C‑573/17, EU:C:2019:530, paragraphs 65 to 67 and the case-law cited). From this, the CJEU derives that the national judge is not required to disapply national legislation which is contrary to EU law “solely on the basis of EU law”, the solution rather being that of disapplying, on the basis of domestic law, any provision of national law which is contrary to a provision of EU law that does not have such effect.

On the other hand, the Court recalled its Francovich doctrine, according to which a party which has been harmed as a result of national law not being in conformity with EU law is entitled to obtain, if appropriate, compensation for the loss or damage sustained (CJEU 15 January 2014, Association de médiation sociale, C‑176/12, EU:C:2014:2, para 50). In this respect, it is for the Member States “to ensure that individuals obtain reparation for loss and damage caused to them by non-compliance with EU law, whichever public authority is responsible for the breach and whichever public authority is in principle, under the law of the Member State concerned, responsible for making reparation” (CJEU 4 October 2018, Kantarev, C‑571/16, EU:C:2018:807, para 93) at the condition that the three Francovich conditions (EU law must confer an individual right; the infringement must be sufficiently serious; there must be a causal link between the infringement and the damage suffered) are respected.

Remarkably the CJEU did not follow AG Szpunar’s opinion where he suggested to go one step further and directly ask the national judge to disapply domestic legislation. AG Szpunar’s arguments were based on the fact that by adopting directive 2006/123, the EU legislator intended to give “specific expression” to the freedom of establishment enshrined in Article 49 TFEU, which may bring an individual to horizontally rely on the direct effect of a directive provision whenever such interplay between primary and secondary sources is at stake. Moreover, suggested the AG, Article 16 CFREU on the freedom of contract may suggest interpreting the directive’s provisions as an expression of that fundamental right, which may lead to a constitutionally oriented interpretation.

This time, the two established doctrines of directives’ lack of horizontal effect and State’s liability did not allow the CJEU to adopt a progressive interpretation of directive 2006/123. Given the persistent abstention of the German legislator in repealing its HOAI tariffs system, such an interpretation may have allowed to overcome individuals’ difficulties to obtain concrete satisfaction of their rights vis-à-vis their clients, instead of prosecuting the State for its failure to comply with EU law.