A Way Out for the ECJ in Taricco II: Constitutional Identity or a More Careful Proportionality Analysis?

By Michal Krajewski

The final countdown to the announcement of the long awaited judgment in case C-42/17, M.A.S. & M.B. (Taricco II) on 5 December 2017 has begun. The preliminary reference (for an overview see Bassini and Pollicino), by which the Italian Constitutional Court (the ‘ICC’) challenged the judgment of the European Court of Justice (the ‘ECJ’) in C-105/14, Taricco I, has already generated a heated debate online (see for instance here and here). The most fascinating question is whether for the first time the ECJ will authorise a national court to disapply an EU legal provision to protect its national constitutional identity or higher national standards of fundamental rights’ protection. My aim in this post is to question the compatibility of Taricco I judgment with the EU law itself. I will first argue that the ECJ’s judgment in Taricco I is problematic under EU law because the ECJ left out from its reasoning the general principle of legal certainty and ensuing limits to the direct applicability of EU provisions.  Second, I will explore whether the ECJ can still withdraw from its stance taken in Taricco I without opening the Pandora’s box of exceptions to the EU law primacy: either due to national constitutional identity (Article 4(2) TEU) or higher national standards of fundamental rights’ protection (Article 53 of the Charter of Fundamental Rights). 

Taricco I: the effective enforcement of sanctions for VAT frauds

The previous preliminary reference in Taricco I had been made in the context of chronic problems with lengthy proceedings faced by the Italian criminal justice systems. Italian criminal courts were not able to judge the accused for VAT frauds before statutes of limitations periods for pending proceedings elapse. Thus, many potential criminals might avoid sanctions for VAT frauds. In its Taricco I judgment (analysed previously by M. Lassalle on this blog), the ECJ decided that national courts must disapply the rules of statutes of limitations periods for the duration of criminal proceedings pending before a court, if such rules were liable to have an adverse effect on fulfilling by the Member States their obligations under Article 325 TFEU. Pursuant to this provision, ‘Member States shall counter fraud and any other illegal activities affecting the financial interests of the Union’ through ‘deterrent measures’.  In view of the ECJ, what follows from this provision is an obligation to disapply the rules of statutes of limitations periods if they prevent ‘the imposition of effective and dissuasive penalties in a significant number of cases of serious fraud affecting the financial interests of the European Union’. The ECJ emphasised that ‘the national court must give full effect to Article 325(1) and (2) TFEU, if need be by disapplying the provisions of national law’ (emphasis added, see the operative part of the judgment, para. 1).

Another point worth highlighting is that, according to the ECJ, by disapplying the statutes of limitations periods, the referring court would not breach the principle of legality (nullum crimen, nulla poena sine lege), as enshrined in Article 49 of the EU Charter of Fundamental Rights (‘Charter’). This is because the latter covers only substantive criminal provisions: those determining the types of crimes and sanctions, whereas the nature of statutes of limitations periods is procedural in the ECJ’s view. Their disapplication would only allow for the effective prosecution of crimes which have already been committed. It would not result in retroactive criminalisation: the accused would be held criminally responsible only for the acts that have constituted crimes at the time whey they have been committed (Taricco I, paras 54-56).

Resistance from the ICC: principles of legality, legal certainty and the separation of powers

The ECJ’s ruling in Taricco I encountered resistance from the ICC that decided to give the ECJ’s a chance to reconsider its stance before declaring it unconstitutional. In its preliminary reference in Taricco II, the ICC appealed to the principles of legality, legal certainty and the separation of powers. The ICC held that under Italian constitutional law the principle of legality covers not only the definition of criminal offences and the applicable penalties but also statutes of limitations periods. Consequently, this principle prohibits their extension to the detriment of persons accused.

The ICC cited also the arguably more general principle of legal certainty that applies to criminal law with particular stringency. It expressed serious doubts ‘whether the rule inferred from the judgment given in the Taricco case fulfils the requirement of certainty, which is a constitutional requirement for the provisions of substantive criminal law. Such provisions must be formulated in terms that are clear, precise and stringent, both in order to enable people to understand the consequences of their actions under criminal law and also in order to prevent arbitrariness when applied by the courts.’ (p. 4) To the ICC, the main question in Taricco II is therefore whether the individual could reasonably foresee that Article 325 TFEU would have required the courts to disregard the statutes of limitations periods.

Furthermore, the ICC associated these considerations with the separation of powers. It held that the power to change statutes of limitations periods rests in the hands of legislature and not judiciary. The rulings of the latter in this matter would necessarily be discretionary. If not bound by any precise legislative directives, they would vary from one court to another. ‘Within this perspective – held the ICC – it is necessary to assess whether the rule laid down by the judgment given in the Taricco I case is capable of delineating the discretion of the courts’ (p. 5).

A misleading and obscure dichotomy “substantive or procedural”: what about legal certainty?

The main problem of EU law in Taricco II has predominantly been framed as “substantive or procedural criminal law”. This distinction constituted the premise of AG Bot’s opinion in Taricco II. AG Bot focused on persuading the ICC that statutory limitation period should be seen as procedural in nature. He claimed that the principle of legality applies only to substantive criminal law (paras 38-39). For this reason, according to AG Bot, courts can decide in individual cases to disapply statutes of limitations periods (paras 40-41). Also, several commentators cited above (see also Fabbrini & Pollicino, p. 12) acknowledged that EU law and Italian law understand the nature of statutes of limitations periods differently. Admittedly, these were the terms in which the legal problem was presented to the ECJ by the ICC referring to Italian constitutional law.

I think, however, that such a conceptualisation of the legal problem under EU law is misleading, and the real issue does not lie in that the Italian constitutional law and EU law differ in whether the principle of legality covers statutes of limitations periods or not. In my view, even if statutes of limitations periods should be considered as forming part of procedural law, this would not mean that they are exempted from the EU general principle of legal certainty and that they can be modified on a case-by-case basis by courts, arbitrarily, without any clear and generally applicable legislative guidance. The real problem is whether or to what extent we can aggravate the legal situation of EU citizens by disapplying the legislative provisions on limitation periods for criminal proceedings, if we rely only on such vague and open-ended provisions of EU law like Article 325 TFEU. Under the principle of legal certainty, legal provisions must be clear and precise to enable people to predict the consequences of their actions and exclude the arbitrariness of public authorities. Whereas Article 325 TFEU talks only about the obligation to introduce ‘deterrent measures’ applicable to frauds affecting the financial interests of the EU. Could the accused before Italian courts predict that their situation will be adversely affected by Article 325 TFEU, neutralising the benefits arising from clearly worded Italian legislation? Some years ago, before C-617/10, Åkerberg Fransson, it was not even clear whether Article 325 TFEU was applicable to VAT frauds (see the remarks by M. Lasalle on this blog).

In contrast to AG Bot, AG Bobek highlighted the principle of legal certainty in a parallel and still pending case C-574/15, Scialdone. The case is very similar to Taricco II. Instead of statutory limitation periods, it concerns an introduction of more lenient criminal provisions for VAT fraud, perhaps too lenient considering Article 325 TFEU. AG Bobek noted that the fundamental principle of legal certainty applies to all legal norms, whether substantive or procedural (para. 151; see also the ECtHR case 10249/03, Scoppola v Italy, paras 110-113). At the same time, according to him, “it cannot be automatically assumed that Treaty provisions which impose on Member States a precise and unconditional obligation as to the result to be achieved, as is the case for Article 325(1) and (2) TFEU, automatically fulfil, in each and every situation, the requirement of foreseeability required by the principles of legality and legal certainty” (para. 176). This should be an important factor in Taricco II. It may happen that the principle of direct applicability of EU provisions by national courts – a more specific element of the principle of direct effect and primacy – reaches its limits. The more open-textured EU provisions with which national provisions are incompatible, the more limited the possibility to apply them directly to the detriment of individuals (para. 181; see also C‑387/02, C‑391/02 and C‑403/02, Berlusconi and C-105/03, Pupino, paras 44-45).

The principle of legal certainty requires that, on the one hand, rules of law must be clear and precise and, on the other, their application must be foreseeable by those subject to them (see for instance the ECJ’s case C-231/15, Polkomtel and the ECtHR’s case 42931/10, Camilleria v Malta, paras 34-38). As concerns the EU legal order, we should look for its source in Article 52 of the Charter (which is applicable to the prosecution of VAT fraud under C-617/10, Åkerberg Fransson). It orders that “any limitation on the exercise of the rights and freedoms recognised by this Charter (…) be provided for by law.” The obligation imposed on an individual to stand criminal trial regardless of previously established statutes of limitations periods interferes undoubtedly with the fundamental right to effective judicial protection, safeguarded by Article 47 of the Charter. As explained by the ECJ in its previous case-law (Case C‑419/14, WebMindLicenses), the requirement that any limitation on the exercise of that right must be provided for by law implies that the legal basis which permits any interference with personal rights and liberties must be sufficiently clear and precise, affording legal protection against any arbitrary interferences by public authorities.

In my view, the principle of legal certainty is also strictly connected to the rule of law, which in turn is one of the EU values specified in Article 2 TEU. Law is supposed to structure the power and exclude the arbitrariness of public authorities. The latter must act on the basis of law and within its boundaries. Legal certainty and the rule of law are two sides of the same coin. Legal certainty is the “subjective” side of the coin guaranteeing the legal protection of individuals: individuals must be able to foresee how legal norms will operate. The rule of law in turn is the “objective” side, guaranteeing that public authorities (including courts) will not act arbitrarily. The guarantees of legal certainty and non-arbitrariness are particularly important in the field of criminal law, given that criminal repression is the most intense way of interfering with individual freedom.

In sum, I believe that labelling statutes of limitations periods as “procedural” under EU law should not excuse their arbitrary extension on a case-by-case basis by courts, having no backing in any clear legislative provisions. Such an extension could aggravate profoundly the legal situation of the accused. Hence, even though the ECJ could have found the Italian rules on statutes of limitations period deficient in view of Article 325 TFEU, it should not have ordered national courts to give full effect to Article 325 TFEU by disapplying these rules. An appropriate modification of the rules should have been introduced by the legislature. Otherwise, the Commission could launch infringement proceedings against Italy (as also noted in the analogous case by AG Bobek, para. 181).

A modest proposal for a more careful fundamental rights and proportionality analysis

Is there still a way out for the ECJ? If it confirms its previous stance in Taricco II, it will most likely provoke the application of the so-called counter limits doctrine by the ICC, meaning that the latter will order Italian national courts to uphold Italian constitutional law and apply the statutory limitation periods regardless of the ECJ’s judgment. I also think that it is not a good idea to open the Pandora’s box of exceptions to the principle of EU law primacy, by applying either the constitutional identity clause of Article 4(2) TEU or the exception of higher national standards of fundamental rights under Article 53 of the Charter (see the Melloni judgment, discussed previously on this blog by V. Franssen).

I believe that the ECJ should look for a way out in para. 53 of its judgment in Taricco I. In this paragraph, it stated that: ‘if the national court decides to disapply the national provisions at issue, it must also ensure that the fundamental rights of the persons concerned are respected.’ The judgment in Taricco I is predominantly about the national courts’ obligation to give full effect to Article 325 TFEU, if needs be by disapplying the rules of statutes of limitations periods. The ECJ merely hinted that, “by the way”, national courts must ensure the respect to fundamental rights of persons concerned. The way out could be to further elaborate on this second obligation, sidestepped in Taricco I.

The main fundamental right at issue in Taricco II is the fundamental right to ‘a fair and public hearing within a reasonable time’, of the persons accused of VAT frauds before Italian courts. This right is one of the aspects of the right to effective judicial protection enshrined in Article 47 of the Charter. By disapplying the statutes of limitations periods for pending criminal proceedings, a court interferes with the legal guarantee for individuals that criminal charges will be confirmed or dismissed within a specified period. Hence, national courts must balance between the obligation to protect the financial interests of the EU and the fundamental right to effective judicial protection. A similar solution has been suggested by AG Bobek in his opinion in Scialdone case (para 142).

The ECJ could provide some instructions regarding such balancing. Firstly, the ECJ could suggest that balancing the obligation stemming from Article 325 TFEU and the right to effective judicial protection read in light of the general principle of legal certainty, in accordance with the proportionality principle, requires a counter-limitation of the period in which we can still extend the statutes of limitations periods. If criminal charges have been brought to a criminal court shortly before the statutes of limitations period elapsed, its significant extension, not backed by any clear legal basis, would constitute a sudden and unpredictable change. As a result, we would have a serious interference with the right to a judgment within a reasonable time and legal certainty of the accused. On the contrary, the surprise effect would be smaller, if a criminal court decided immediately on the extension of statutory limitation period in connection to charges had been brought long before this period was supposed to elapse. Secondly, the ECJ could indicate that the proportionality principles requires considering the circumstances of each individual case. What seems to matter in particular is the quality of evidence brought against the accused. A national court deciding on whether to extend the statutes of limitations period should carry out a preliminary assessment of the evidence. If, in light of such a preliminary assessment, it is not highly probable that the accused committed the crime, there is no reason to extend the statutes of limitations period.

Evidently, leaving the balancing to national courts would not solve the problem of divergent judgments in individual cases, which would again adversely affect legal certainty and equal treatment. I believe that to solve the problem completely, the ECJ needs further assistance from the ICC. By pointing to the balancing and proportionality principle, the ECJ would leave to the ICC and national courts significant leeway to consider also the requirements stemming from Italian constitutional law. The point would be to milden the firm obligation to enforce Article 325 TFEU and disapply the statutes of limitations periods, imposed upon national courts in Taricco I, to the extent that the ICC could decide that the considerations of effective judicial protection and legal certainty preclude in general the disapplication of statutes of limitations periods. In other words, by leaving the question open under EU law, the ECJ would allow the ICC to settle it. Importantly, the ICC would not have to rely on one of the exceptions to EU law primacy. Instead, it would apply the EU fundamental rights and the general principle of legal certainty as interpreted by the ECJ. The Pandora’s box would remain closed.

We will see what the ECJ will decide already on 5 December. Hopefully, in the future the ECJ will not forget that its mandate is not exhausted by the enforcement upon the member states of substantive EU obligations but covers also the protection of EU citizens’ fundamental rights.