Accountability and Defenestration: The Dalli Saga

 

Dr Marios Costa, Lecturer in Law, City University

The en bloc resignation of the Santer Commission in 1999, against a background of allegations of fraud, maladministration and chronic mismanagement, is still topical, almost two decades afterwards. The European Commission has long been criticised for its administrative inadequacies and for the structural deficiencies in the Union’s system of accountability. There have been a number of reports depicting the Commission as an institution suffering from structural and political irregularities. 

On 11 May 2015 the General Court gave a significant judgment on a legal challenge brought by the former EU health Commissioner, Mr John Dalli, against the Commission. Dalli argued that he was forced to resign, by the then President of the Commission, Jose Manuel Barroso, without given enough time to consider his legal rights. Rather paradoxically, the General Court ruled that Mr Dalli resigned voluntarily and dismissed the action as inadmissible.  

This judgment raises broader constitutional implications. With all due respect, the ruling comes as a surprise and fails to clarify issues in relation to the powers that can be lawfully exercised by the President of the Commission when he loses confidence in any of the members of his Commission. This commentary examines the appropriateness of the recent ruling and concludes that the General Court lost a rather rare opportunity to rule on significant aspects of the Treaty powers granted upon the President of the Commission to sack the individual Commissioners and as a result also fails to remedy the accountability deficits of the Commission.

Facts of the Case

Dalli, the former Maltese Commissioner, was accused of soliciting bribery for the amount of 60 million euro in exchange of seeking to influence future legislative proposals in favour of the tobacco maker Swedish Match. Following a complaint to the Commission from the latter, the EU’s Anti-Fraud Office (OLAF) initiated investigations into the serious bribery allegations. On 15 October 2012, OLAF sent its final report to the Commission highlighting that there was no conclusive evidence that the Commissioner was involved in requesting money from the tobacco manufacturer. Yet, there was some evidence confirming that Mr Dalli was at least aware of the fact that a Maltese entrepreneur was using his name for the purposes of getting financial benefits from the tobacco maker.

On 16 October 2012, Mr Dalli had a meeting with the President of the Commission where he was presented with two already drafted press releases by the Commission: one stating that Mr Dalli decided to resign ‘voluntarily’, whilst the other stated that Barroso requested him to resign by exercising his prerogative powers under Article 17(6) TEU. During their meeting, the President showed the covering letter of the OLAF’s report to Mr Dalli. Nevertheless, access to the full report was refused on the grounds that it was confidential. Towards the end of their meeting, the President made it clear that he was going to force the applicant to resign if he was not going to do so voluntarily. The applicant asked for at least 24 hours to consult a lawyer and to find out what his legal rights were. Barroso said that he could give him no more than 30 minutes. Mr Dalli chose to resign.  

Mr Dalli challenged the legality of the oral decision taken by Barroso to terminate his term of office as the EU Health Commissioner. The Court declared the action as inadmissible since there was no clarity in relation to the act whose annulment was sought. The Court could not distinguish whether Mr Dalli was seeking the annulment of the decision of the President to remove him from office pursuant to Articles 245 and 247 TFEU or the allegedly oral decision taken by Barroso to request Mr Dalli’s resignation under Article 17(6) TEU. In consequence, the action was dismissed as inadmissible.

Legal Framework on the Commissioners’ Accountability

The Treaty is not silent on the issue of Commission accountability.. Article 245(1) TFEU provides that ‘[t]he Members of the Commission shall refrain from any action incompatible with their duties’. Additionally, Article 245(2) TFEU covers the case of compulsory retirement of an individual Commissioner. It reads as follows:

The Members of the Commission may not, during their term of office, engage in any other occupation, whether gainful or not. […] they shall give a solemn undertaking that, both during and after their term of office, they will respect the[ir] obligations […] in particular their duty to behave with integrity and discretion as regards the acceptance […] of certain appointments or benefits.  In the event of any breach of these obligations, the Court of Justice may, […], rule that the Member concerned be, according to the circumstances, either compulsory retired in accordance with Article 247 or deprived of his right to a pension or other benefits in its stead.

Moreover, Article 247 TFEU, which contains the only reference to the personal liability of Commissioners, reads as follows:

If any Member of the Commission no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct, the Court of Justice may, on application by the Council acting by a simple majority or the Commission, compulsorily retire him.

Furthermore, Article 234 TFEU provides for another kind of responsibility which the Commission owes to the European Parliament (EP), the ‘censure’ motion, as follows:

If a motion of censure on the activities of the Commission is tabled before it, the EP [and] … is carried by a two-thirds majority of votes cast, representing a majority of the component Members of the EP, the Members of the Commission shall resign as a body.

Finally, pursuant to Article 17(6) TEU, ‘[a] member of the Commission shall resign if the President so requests’.    

Comment and Analysis 

The Dalli judgment is a lost opportunity by the Court to clarify the abovementioned provisions as regards accountability of the EU Commissioners. Surely, any failure by an individual Commissioner to meet the standards described in in Article 245 TFEU, as set out above, can lead to a significant damage of the public image of the Commission.  This is not a hypothetical observation if one looks at the events leading to the collective resignation of the Santer Commission and to the closely related Cresson judgment (Case C-432/04, Commission v Cresson, ECLI identifier: EU:C:2006:455). Consequently, one can understand the concerns of President Barroso to avoid repetition of the discredited Santer Commission in 1999. Barroso’s commitment to high standards of administration is perfectly legitimate. What is not legitimate, however, is the process that led to the resignation of Mr Dalli. Notably, the Commission can only succeed if individual Commissioners operate impartially and independently, without influence from external sources, whether national governments or private individuals and without engaging privately with stakeholders to achieve financial benefits. This is the only way for the Commission to gain confidence from other institutions as well as Member States and citizens.

The Commissioners must meet the highest standards not just on external matters, but on their conduct inside the Commission.  They should perform their duties without division or external influence due to their high ranking and experience in the political arena.  In particular, as already explained above, Article 245(1) TFEU requires Commissioners to be free from any external influence. This point is vital if the Commission is to stay independent of Member States or individuals. But let’s assume for a while that there was enough evidence that Mr Dalli obtained pecuniary advantages from the Swedish tobacco maker. Assume further that the OLAF report concluded that the Commissioner needs to be held accountable for infringing his duty to behave with integrity pursuant to Article 245 TFEU. Is the procedure that forced him to resign acceptable and does it respect the rule of law? Or does it confirm an exercise of abusive behaviour by the President? Forcing an individual Commissioner to resign without allowing him to consult a lawyer and without given the opportunity to see the OLAF report constitutes a manifest violation of his basic right to respond to the evidence against him. Any employment lawyer will agree that this behaviour is a classic case of constructive dismissal. Surely this is not something that can be justified, particularly if this comes from the President of the Commission, an institution supposedly entrusted with the duty to guard and ensure that the rule of law is duly respected.  

Conclusion

Unfortunately, the General Court did not clarify the system of accountability for the Commissioners’ actions. The Court rather simply decided to dismiss the action as inadmissible. Taking into account the OLAF report and also the factual background of the previously decided Cresson case one can realise that a lot of irregularities can take place within the Commission and there is a deficit of any meaningful notion of accountability of the Commission. The General Court has made a wrong decision in refraining to clarify what obligations are mandatory for EU Commissioners as set within the Treaty framework. Additionally, and most importantly, the judgment fails to set the boundaries of the prerogative powers of the Commission’s President to sack the members of his cabinet. Whether or not Commissioners can be held accountable for their decisions has been completely ignored in Dalli.

 

Barnard & Peers: chapter 3

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The financial services industry and the European Central Bank: the UK has won a battle, but can it win the war?

 

Steve Peers

Until yesterday, two trends seemed consistent in the jurisprudence of the EU courts. First of all, the UK kept losing cases relating to the interests of its financial services industry: on short-selling (discussed here), the financial transactions tax (discussed here) and bankers’ bonuses (discussed here). Secondly, the UK kept losing cases concerning its opt-outs from EU law (for instance, on social security and the immigration opt out, see here).

However, yesterday’s judgmentof the EU’s General Court on the UK’s challenge to the European Central Bank (ECB) policy on securities clearing systems bucks both trends. What are its implications for the UK's financial services industry, and for the UK's relationship with the EU?

The judgment

The UK challenged a ‘Policy Framework’ published by the ECB, which set out the role of the ‘Eurosystem’ (the ECB and the national central banks of Eurozone states) as regards payment, clearing and settlement systems. Sweden supported the UK, while Spain and France supported the ECB; the Commission stayed neutral. The UK objected to the Policy Framework provisions which stated that any central counterparties (CCPs) that held more than 5% of the credit exposure for one of the main euro-denominated product categories had to be legally incorporated and fully controlled from within the euro area. This would inevitably mean that a portion of the financial services industry which was traditionally located in the City of London would have to move to one or more Eurozone financial markets instead.

First of all, the judgment examined the admissibility of the action. The General Court rejected the ECB’s argument that its Policy Framework was not a reviewable act, ruling that despite its apparent soft law form it would perceived as a de facto binding policy and would be applied by Eurozone regulatory authorities in practice. Also, the Court ruled that the UK had standing to bring a legal action against acts of the ECB, despite its opt-out from the single currency.

Secondly, the Court ruled on the substance of the case. It was only necessary to rule on one of the UK’s five arguments against the validity of the Policy Framework: that the ECB lacked competence to adopt a measure on the location of CCPs. (The other arguments concerned Treaty free movement rules, competition law, non-discrimination on grounds of nationality and proportionality).

The ECB had claimed a power to regulate on the basis of Article 22 of its Statute, which takes the form of a Protocol attached to the Treaties, and states that the Bank ‘may make regulations, to ensure efficient and sound clearing and payment systems within the Union and with other countries’. Also, the Bank referred to Article 127(2) TFEU, which gave it the task ‘to promote the smooth operation of payment systems’, and the ECB’s general objective of maintaining price stability and supporting general economic policies, as set out in Article 127(1) TFEU.    

In the Court’s view, however, these powers only extended to the ability to regulate ‘payments’ in the narrow sense, ie the ‘cash leg’ of clearing operations, not the ‘securities leg’, since securities do not in themselves constitute payments. Article 22 of the ECB Statute could only apply to payment systems with a clearing stage, rather than all clearing systems, in the absence of any explicit reference to the clearing of securities. The Court also rejected the ECB’s argument that it had an implied power to regulate such issues, since such implied powers only existed ‘exceptionally’.

Finally, the Court concluded by sketching out (in effect) a ‘roadmap’ to change the current situation. Acknowledging that there are ‘very close links’ between payment systems and securities clearance systems, and that disturbances affecting securities clearance can affect payment systems, it stated that Article 129 TFEU could be used to amend the relevant provisions of the ECB Statute to extend the Bank’s powers in this field. So it suggested that the ECB could trigger that amendment process by requesting the EU legislature to amend the Statute.

Comments

The essential elements of the Court’s judgment (which could still be appealed to the Court of Justice) are convincing. From the perspective of accountability, the ECB should not be able to adopt ‘policy frameworks’ with quasi-mandatory language that will likely be applied in practice, as a means of evading the judicial review that would certainly apply if it adopted those rules (as its Statute specifies) in the form of regulations. Nor is it acceptable that the ECB could adopt measures with an impact on non-eurozone Member States and deny those countries standing to sue it, especially when the Treaties (as the Court pointed out) contain no limits on such standing.

As for the substance of the case, the Court is surely right, in the interests of accountability, to say that EU institutions’ implied powers have to be interpreted narrowly. There have been five major Treaty amendments in thirty years, and so there have been plenty of opportunities for Member States to decide what powers ought to be conferred upon EU institutions, and what powers should not. In the absence of an express conferral of power, the cases where the institutions have implied powers should be very exceptional indeed.

However, the Court takes an unusually narrow approach to the interpretation of an express power, namely the possibility for the ECB to regulate ‘clearing and payment systems’ as set out in its Statute. It is not self-evident that this provision can only apply to the ‘cash leg’ of clearing systems, especially in light of the links between payment and securities systems, and the impact of disturbances affecting securities clearance, which the Court expressly acknowledges.

This key aspect of the ruling can only be understood in light of the broader political context of this case. If the ECB had won, that result would have been widely regarded in the UK as a carte blanche for the ECB to split up the single market in financial services, as part of a broader ‘ganging up’ of Eurozone Member States against non-Eurozone Member States, in particular the UK. This would have been a rather hyperbolic reaction, since an ECB victory would not necessarily have had an impact beyond the specific issue of securities clearance, and the Eurozone Member States do not gang up as easily as is sometimes imagined: witness the current relationship between Greece and Germany, for starters. Nevertheless, it’s no wonder that the judges believed it would be wiser to hand this hot potato back to the politicians.

It’s striking, though, that the judges’ roadmap to give the ECB more powers is particularly easy to follow. The use of Article 129 TFEU to amend the ECB Statute only requires a proposal from the Commission or a recommendation of the ECB, followed by the ordinary legislative procedure, entailing joint power for the European Parliament and a qualified majority vote in Council. Although all Member States would have a vote, Eurozone States (if they do gang up together on this point) can now outvote non-Eurozone States.  The UK would have to seek alliances, rather than threaten vetoes, to block such a move. The referendum requirement in the UK’s European Union Act 2011 wouldn’t apply (see s. 10(1)(b) of the Act; the requirement for parliamentary approval there is meaningless, since the UK could be outvoted). Indeed, the UK would need the backing of some Eurozone States, as well as all non-Eurozone States, to block such a Treaty amendment. This would entail, for instance, securing the support of countries like Poland, at the same time as the UK (whichever of the two largest parties forms the biggest part of government after the next election) seeks to cut back the rights of Polish workers.

Failing that, the UK could bring a legal challenge to the Treaty amendment, or the ECB measure implementing it, invoking again its arguments concerning the internal market, competition law, discrimination and proportionality, which were not addressed in the General Court’s judgment. There’s a strong case to be made that the valid objective of regulating securities clearance effectively could be ensured by collaboration between the ECB and the Bank of England, rather than forcing some part of the financial services industry to move from the UK to the Eurozone, but the UK could not count on the EU courts accepting it.  

What are the broader implications of this judgment for the UK’s role in the EU? First of all, it weakens the pro-Brexit argument that ‘we should leave the EU because the Eurozone Member States are ganging up on us’. For now, the UK has won this battle, and it’s only a hypothetical possibility that it will lose the war later on. Secondly, it weakens the argument that ‘the City of London would be perfectly fine after Brexit’. If that were true, then why were Eurosceptics poised to make an unholy fuss if the UK had lost this case? Indeed, if the UK were not in the EU, it would not have had the privileged standing to sue the ECB, and the government (or British securities firms) would have had to go through national courts in the Eurozone to challenge this policy instead. Moreover, it might be harder to invoke the other arguments which the UK made in this case (and would have to make in future), depending on what legal arrangements governed the EU/UK relationship after Brexit.

 

Barnard & Peers: chapter 19

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EU decision-making becomes a little more open: access to background documents drafted by consultants

Steve Peers

‘[The plans were] on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying, “Beware of the Leopard”!’

Arthur Dent, The Hitch-Hiker’s Guide to the Galaxy

Much of what the EU does is controversial. Think, for instance, of the free trade negotiations with the USA (TTIP), the regulation of many items from vacuum cleaners to genetically modified food, and the supervision (or sometimes control) of Member States’ tax and spending decisions. The substantive content of the decisions the EU makes on these issues will always disappoint someone, but in addition to that, there has long been a concern that the EU decision-making system is not sufficiently transparent. This has undoubtedly contributed to the broad feeling that the EU lacks legitimacy.

Back in 2001, the EU tried to address this by adopting a Regulation on access to documents drawn up by, or held by, the Commission, Council and the European Parliament. Attempts to amend this legislation have failed so far, so its application in practice depends on the extensive case law of the EU courts.

Some of this case law is excellent, and some is (with great respect) rather problematic. Fortunately, today’s important judgment of the EU’s General Court in the Mastercard case falls within the former category. The Court ruled in favour of access to background documents for EU decision-making drawn up by consultants, and so has significantly increased access to information on EU decision-making process.

Judgment

Mastercard applied to the Commission for some of the background documents drawn up by a consultant (EIM), which had been supplied to the Commission by EIM as part of the process of drafting a report on the impact of the costs and benefits for retailers of accepting different payment methods. The Commission refused access to the documents, on the grounds that it had not yet made a decision on the issues concerned (the ‘decision-making’ exception), and that the documents contained information on the commercial interests of the consultant.  

The General Court rejected both of the Commission’s arguments. On the first point, the documents in question did not relate directly to any specific Commission decision-making process as regards the application of EU competition law, but rather aimed to supply the Commission with more general information to inform it on the economic issues. Also, the Commission had not relied on this exception when initially refusing access to the documents. Furthermore, it didn’t matter for the purpose of the access to documents rules that the documents were interim, and the Commission had in any event shared most of the documents concerned with stakeholders.

On the second point (commercial interests of the consultant), the Court reiterated prior case law that the exception did not apply to any information about a business, but only to sensitive information concerning issues such as business strategy, sales figures et al. Applying that case law to the facts of this case, the Court did not accept the Commission’s argument that revealing the ‘trial and error’ in the draft documents produced by the consultant  would undermine its commercial reputation or reveal its secret methodology to its competitors.

So the Commission fully lost the case, and so the documents have to be released – although the Commission has two months to appeal to the Court of Justice if it wishes to.

Comments

While much of the case law on access to documents concerns the Commission, which has most of the administrative and executive power at EU level (except as regards aspects of external relations), this case highlights an important feature of the Commission’s work: its reliance upon third-party expertise. The facts of this case are the norm not the exception: many Commission impact assessments and reports rely upon one more reports drawn up by outside consultants. The European Parliament sometimes uses them too.

So anyone seeking to examine the Commission’s decision-making or the development of EU policies more broadly – whether they are journalists, researchers, NGOs or businesses like Mastercard – needs access to the consultant reports which the Commission relies upon to draw up its final proposals, reports and impact assessments. They usually contain very useful information and analysis which plays an important role in the analysis of the Commission’s final official documents which are based upon them.

Usually, the Commission publishes the consultants’ reports which it bases its documents upon. So what impact will today’s judgment have? First of all, it might result in public access to the consultants’ reports at an earlier date. Secondly, and more importantly, it will broaden access to the other background documents drawn up by consultants and made available to the Commission.

In fact, I have been involved in the impact assessment process myself several times, as an adviser to the main consultancy drawing up a report for the Commission.  I can’t discuss any of the details due to a confidentiality agreement, although I should clarify that I had no involvement with the report which was the subject of the Mastercard case.

However, suffice it to say that it is very common for consultancies to draw up interim reports and other background documents which might not be attached to the main impact assessment report. Of course, the consultancy, and advisers such as myself, also draw up drafts and working documents which are not disclosed to the Commission – and this judgment will not liberalise access to those. This is reasonable, for after all the Commission’s decision-making process will not have been influenced by documents which it hasn’t seen.  I’m a long-standing critic of the EU’s access to documents rules, and so I could only imagine the degree of Schadenfreude in the Commission and Council if it turned out that I am directly subject to the EU rules on access to documents. But that’s not going to happen.

What will the impact of this judgment be in practice? In principle, the judgment suggests that all background consultancy reports sent to the Commission ought to be released, unless there’s some other ground for refusal not relevant to the Mastercard case (see the discussion of the external relations exception below). The Court’s finding that the Commission’s decision-making wouldn’t be undermined by release is relevant to all other cases. So is the Court’s ruling that the commercial interest of the consultancy wasn’t damaged. It’s interesting to note that the consultancy didn’t intervene in the proceedings, which it surely would have done if it were worried about being damaged by the release of this document. With great respect to the expertise of EIM and other consultancies, their methodology for impact assessment is hardly the same sort of secret as Colonel Sanders' recipe for Kentucky Fried Chicken. 

The interim reports and other background documents drawn up by consultants may well contain information that could shed further light on the analysis in the final report. If there is a good reason not to rely upon the interim reports or background documents in some or all respect, the Commission and/or the consultant can simply explain this in its final document.

In principle, this judgment is relevant to background consultancy documents in any field of EU law. So businesses, NGOs, journalists and researchers could all rely upon it to gain access to documents which might be useful, whatever their field of interest may be. In particular, it is important that in this case the Court distinguished the line of case law (relevant to competition and state aid, for instance) allowing the Commission to refuse in principle access to all documents relating to individual decisions.

In the field of external relations, the impact of the judgment will be limited somewhat by the possibility to refuse access to any details of the EU’s negotiating mandates for treaties like the TTIP, on the basis of the ‘external relations’ exception in the Regulation. But it should be possible to redact the negotiating mandate from the reports and release the rest of the text (on this point, see further the discussion of another recent transparency judgment here).

This increased access to documents in turn raises two important questions of accessibility and access. First of all, will the Commission make available these background documents, and if so, when?  It’s clear from the facts of this case that the Commission did release some of these documents to ‘stakeholders’, but not to the general public. Surely it’s frequently the case that the Commission doesn’t consult every entity that might want access to the documents in question.

Secondly, how will anyone (besides the Commission, the consultancy, and any special group of consultees) know that these documents exist? Arthur Dent didn’t know about the documents that concerned the destruction of his house; and this was only the precursor to the destruction of the planet Earth without sufficient consultation. There’s an uncomfortable analogy there for climate change activists.

Unfortunately, the Commission seems to have been inspired by this fictional dystopia when designing its access to documents system. When the Eur-lex system of access to EU law was recently redesigned, the Commission removed the direct link to its access to documents register. The Eur-lex staff even denied that they’d done this.

You can still find the register if you Google it – or just click here. But its removal from the Eur-lex page might mean that some people don’t even find it. And if they do find it, they probably won’t find the background documents from consultants listed in it, since the scope of coverage of the register is very narrow. The Commission doesn’t seem to have grasped that Douglas Adams was engaging in humorous mockery – not suggesting a template for the Commission’s regime for access to documents.

Barnard & Peers: chapter 3, chapter 5, chapter 8

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