C-418/11 Texdata: All quiet on the Åkerberg Fransson Front

We have covered on this blog the remarkable Åkerberg Fransson decision (see here and here), in which the Court essentially held that the scope of application of EU fundamental rights was identical to that of the scope of application of EU law itself. The Texdata case – apart from some internal market law aspects we will subsequently cover as well – can mostly be seen as a confirmation of that case law. This is remarkable because the setting in the case is less contentious than in Åkerberg Fransson, but the Court seems to be willing to use already this early opportunity to confirm and emphasize that Åkerberg Fransson is the law and here to stay. The case concerns a requirement in Austrian company law which creates – based on Article 12 of Eleventh Council Directive 89/666/EEC – a system of automatic penalty payments for the failure of a capital company in another Member State with a branch in Austria to submit certain accounting documents within a nine-month period. The Court was called to examine the compatibility of this system with the Directive, with the freedom of establishment and with the principle of effective judicial protection and the rights of defence as enshrined in Articles 47 of the Charter of Fundamental Rights and 6 (2) of the European Convention on Human Rights.

While I cannot go into every detail of the case for the present post, I will first cover the scrutiny by the Court under the requirements of the Directive, which helps to understand the details of the Austrian regime of sanctions; I will then briefly address aspects of the freedom of establishment; and last but not least I will focus on the scope of fundamental rights review exercised by the Court.

The Directive

Article 12 of the so-called Eleventh Directive requires each Member State to provide for appropriate penalties where branches established on his territory, but belonging to a company governed by the law of another Member State fail to disclose accounting documents. The provision, however, does not lay down more precise requirements on such penalties or on how to ensure their proportionality (para 48). Based on its own case law, the Court thus stated that Member States had discretion in choosing penalties, but had to ensure that the penalties were effective, proportionate and dissuasive (para 50).

The Austrian law provided that in the event of failure to disclose accounting documents at the latest within nine months of the balance sheet date, the court responsible for maintaining the commercial register had to impose a minimum periodic penalty of 700 Euros on the company concerned, without prior notice or allowing the company an opportunity to make its views known. However, the company then could submit a reasoned objection to the order containing the penalty within 14 days, which would render the order inoperative and trigger the ordinary procedure. In the ordinary procedure, the responsible court then had more leeway to judge the case on its merits. The fine was also be imposed on each of the bodies authorised to represent the company, and in the event of continuing failure for a two-month period further fines in the minimum amount of 700 Euros were applied.

Examining these rules in more detail against the benchmarks of effectiveness, proportionality and dissuasiveness, the Court held that the automatic minimum amount of 700 Euros as a penalty for non-disclosure ought to be weighed against the interests of commercial partners and interested persons and the financial risks to which they might be exposed, but that it was up to the national court to examine the proportionality of that amount (para 57). It found that the impossibility of taking into account individual circumstances of every case in the first phase of the procedure was remedied by the possibility for companies to trigger the ordinary procedure with a reasoned objection (para 58). The period of nine months to submit accounting documents was considered sufficiently long so as to not give reason to doubt the proportionality of the penalty system; a longer period could jeopardise the protection of third parties (para 59). Furthermore, the previous system which had been less restrictive had proven inefficient, with less than half of the companies concerned having submitted their accounting documents in the past (para 60). Consequently, the Court found that Article 12 did in principle not preclude a system such as the Austrian one.

The freedom of establishment

Examining the automatic penalty system under the freedom of establishment, the Court made a remarkable assessment which brings grist to the mills of those who see the Court applying the internal market law principles in a more prudent way in recent years. After having noted the non-discriminatory application of the Austrian penalty system (para 67), the Court underlined in para 68 that no penalty was imposed if a company fulfilled its legal obligations; as a consequence,

the penalties that may arise are not capable of prohibiting, impeding or discouraging a company governed by the law of a Member State from establishing itself, through the creation of a branch, in another Member State.

The Court thus held that the system of penalties could not be regarded as constituting a restriction of the freedom of establishment (para 69). Not only is this quite convincing in substance, but I also find the Court’s statement of rather rare unambiguity.

The scope of applicability of EU fundamental rights

For reviewing the penalty system in light of EU fundamental rights, the Court first had to address the issue as to whether the national rules fell within the scope of EU law. The Advocate General – whose opinion was handed down before the decision in Åkerberg Fransson – had noted in his opinion the extensive debate in the literature and among the Advocates General on the concept of Article 51 (1) of the Charter which prescribed that EU fundamental rights only applied to Member States’ actions when they were ‘implementing Union law’ (para 68). He had then emphasized that the penalties were laid down by national law in ‘specific’ provisions governing the procedure for imposing penalties ‘explicitly’ provided for under EU law (para 69), and that despite the procedural autonomy of Member States in the present case the national rules were based ‘directly’ on EU law, which meant that EU fundamental rights had to apply (para 70). The Advocate General had drawn also a distinction with the then yet to be decided Åkerberg Fransson case, which he referred to as ‘certainly more problematic’ (footnote 39 to para 70).

Leaving aside such restraint, the Court based itself fully on its previous decision in Åkerberg Fransson to reach the same conclusion. It started with some remarks on the settled case law before then powerfully confirming the state of the law after Åkerberg Fransson (emphasis added):

72.  In that regard, the Court’s settled case-law states, in essence, that the fundamental rights guaranteed in the legal order of the European Union are applicable in all situations governed by EU law, but not outside such situations. It is consonant with those limits that the Court has already stated that it has no jurisdiction to appraise, in the light of the Charter, national legislation which falls outside the framework of EU law. On the other hand, if national legislation falls within the scope of EU law, the Court, when requested to give a preliminary ruling, must provide all the guidance as to interpretation needed in order for the national court to determine whether that legislation is compatible with the fundamental rights the observance of which the Court ensures (see, inter alia, Case C‑617/10 Åkerberg Fransson [2013] ECR I‑0000, paragraph 19 and the case-law cited).

73. The Court has also had occasion to explain that, construed in the light of that case-law and of the explanations relating to Article 51 of the Charter, the fundamental rights guaranteed by the Charter must be respected where national legislation falls within the scope of EU law. In other words, the applicability of EU law entails the applicability of the fundamental rights guaranteed by the Charter (see, to that effect, Åkerberg Fransson, paragraphs 20 and 21).

It then held that the EU legislature left the choice of effective, proportionate and dissuasive penalties under Article 12 of the Eleventh Directive to the Member States to ensure compliance with the disclosure obligation (para 74); as a consequence, the Austrian law could be considered to be an implementation of EU law (para 75).

In the following paragraphs, the Court then examined the penalty system in the light of EU fundamental rights, but found it – essentially based on its features as already set out previously under Article 12 of the Directive – to be compatible with the principles of effective judicial protection and respect for the rights of the defence.

As a brief conclusion, the most remarkable feature of the case seems to be the willingness of the Court to establish its holdings in Åkerberg Fransson as the new benchmark to be followed. The Advocate General has shown that the case was less contentious than the situation at issue in Åkerberg Fransson. Effectively, it would have been perfectly possible to decide the case with a reference to the older, though somewhat controversial Steffensen case, where the Court had already held that Member States have to respect fundamental rights also as benchmarks when acting within the limits of their national procedural autonomy. Arguably, the emphasis on the decision in Åkerberg Fransson shows its importance as the new foundation for the Court’s future case law on Article 51 (1) of the Charter and the scope of application of EU fundamental rights as regards Member States’ actions.