The Hungarian State’s liability for damages caused by the improper implementation of a directive

 Monika Papp

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  • the Court has reiterated that, according to its judgments in the cases Rechberger and Dillenkofer, Council Directive 90/314/EEC on package travel imposes an obligation as to achieving a result, that result being to guarantee package travellers the refund of money paid over and their repatriation in the event of the travel organiser’s bankruptcy, and that such a guarantee is specifically aimed at arming consumers against the consequences of the bankruptcy;
  • the directive must be interpreted as precluding national legislation which does not achieve the result of ensuring that consumers are provided with an effective guarantee of the refund of all the money paid over and repatriation in the event of insolvency on the part of the travel organiser;
  • the Court stated that it is for the Fővárosi Ítélőtábla (the referring court) to establish whether that is the case as regards the national legislation at issue;
  • the Court confirmed that it is the task of the Fővárosi Ítélőtábla to determine whether or not the conditions for State liability arising from breach of EU law are fulfilled;
  • the Court left no doubt as to the interpretation of the term ’sufficiently serious infringment’ as the most important condition of State liability being a clear and precise obligation for the Member States;
  • the Court reiterated the obligation of Member States to compensate damages arising from a sufficiently serious infringement of EU law, subject to a finding of a direct causal link.

 

Ilona Baradics and 34 other appellants in the main proceedings concluded travel contracts with a travel organiser, under which they made payments on account or, in certain cases, paid the travel price in full. Their trips were cancelled because the organiser became insolvent. The operation of the travel organiser was insured by an insurance company, but the contract between the two established only a limited liability of the latter. The insurance company paid refunds, the amount of which covered only 22 % of the payments made by the prospective travellers. Thus, the appellants brought an action against the insurance company and the Hungarian State for compensation of the rest of the payments. They claimed that Government Decree No 213/1996 constituted an improper implementation of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ 1990 L 158, p. 59.). The court of first instance dismissed their action holding that the Hungarian State had properly transposed the directive into national law. The second instance court made a preliminary reference to the EU Court entertaining doubts regarding the proper implementation of the said directive by Government Decree 213/1996, which limited the amount of the financial security to correspond to a reference value based on the net turnover from sales and to set a minimum account.

The EU Court referred to its previous cases decided in 1996 in Case C-178/94, Dillenkofer ([1996] ECR I-4845.) and in 1999 in Case C-140/97, Rechberger ([1999] ECR I-3499), according to which the directive imposes an obligation as to result and consequently the application of national legislation is precluded where the detailed national rules do not achieve that end result.

By its second question, the referring court asked that ‘insofar as it may be found that there is an infringement on the part of the Hungarian State, is that infringement sufficiently serious as to entail liability affording a right to reparation?’ According to the case-law of the EU Court, an infringement is sufficiently serious where the rule infringed is clear and precise (C-329/93, British Telecommunications [1996] ECR I-1631.) The Court in Luxembourg had no difficulties to establish that the text of the directive, specified by case-law, does not leave any margin of discretion for the Member States. Nonetheless, the EU Court left it to the referring court to determine whether a direct causal link existed between the infringement and the damages caused.

The reader at this point could pose the question why is it worth reporting an order that does not reverse the case-law?

The first reason is to draw the reader’s attention to the ongoing re-codification of the directive, the second is to explain the legal nature of reasoned orders given by the Court.

First, the European Commission has made a proposal on a draft directive on package travel and assisted travel arrangements as part of the European Consumer Agenda (COM (2012) 225 final). The new directive is to repeal Directive 90/314/EEC. Article 15 of the draft directive, awaiting the Committee report at the European Parliament, clarifies the obligations of the Member States stating that

Member States shall ensure that organisers and retailers facilitating the procurement of assisted travel arrangements established in their territory obtain a security for the effective and prompt refund of all payments made by travellers and, insofar as carriage of passengers is included, for the travellers' effective and prompt repatriation in the event of insolvency.

Second, instead of closing the procedure by a judgment, many references from Hungarian courts have been closed by court orders in an increasing number. According to Article 53 of the Rules of Procedures of the Court of Justice, where it is clear that the Court has no jurisdiction to hear and determine a case or where a request or an application is manifestly inadmissible, the Court may, after hearing the Advocate General, at any time decide to give a decision by reasoned order without taking further steps in the proceedings. Under Article 99 of the Rules of Procedure where a question referred to the Court for a preliminary ruling is identical to a question on which the Court has already ruled (acte éclairé), where the reply to such a question may be clearly deduced from existing case-law or where the answer to the question referred for a preliminary ruling admits of no reasonable doubt (acte clair), the Court may at any time, on a proposal from the Judge-Rapporteur and after hearing the Advocate General, decide to rule by reasoned order. The EU Court has closed till now 63 preliminary references, out of which 46 by judgement and 17 by reasoned order. It means that around 27 % of the cases are closed by reasoned orders. Out of the 17 orders, 11 were closed because of lack of competence and 6 because of acte clair or acte éclairé. Deciding a preliminary ruling request by order also has positive effects for the referring court as the interpretation was given in this case in six months. Taking into consideration that last year the average length of a preliminary ruling procedure was 16 months last year, it means a speedy procedure for national courts.

In the present case, after the erroneous judgment of the first instance court, the second instance court rightly entertained doubts as to the meaning of the directive and posed the questions, which allegedly were needed for deciding the case and awarding the damages claims. Without having information about the procedure at the first instance court, we do not exactly know whether that court had a knowledge of the relevant EU case law. In the case that it was fully aware of the law, its approach could be explained by its unwillingness to take a stand on the damages claim against the Hungarian State. As regards the phrasing of its questions, we would like to point to the defects in their formulation which are based on the simple fact that the EU Court does not have competence to apply EU law to the facts of the case. (The questions posed by the national courts being ‘Has the national legislator properly complied with…? and …is that infringement sufficiently serious…?’)

The EU Court has clarified in its recommendations to national courts in relation to the initiation of preliminary ruling procedures that under the procedure the Court’s role is to give an interpretation of European Union law or to rule on its validity, not to apply that law to the factual situation underlying the main proceedings.

It will be interesting to follow the main proceedings before the national court, because this might be the first case in which a Hungarian court establishes liability of the Hungarian State for damages caused by legislation. Liability of the State as a legislator has not even been codified by the new Hungarian Civil Code which will enter into force in March 2014. 

 

 The views expressed above belong to the author and do not in any way represent the views of the HAS Centre for Social Sciences.