PUBLIC COU CIL OF THE EUROPEA U IO. Brussels, 30 June 2005 (05.07) (OR. fr) 10748/05 LIMITE JUR 291 JUSTCIV 130 CODEC 579

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1 Conseil UE COU CIL OF THE EUROPEA U IO Brussels, 30 June 2005 (05.07) (OR. fr) PUBLIC 10748/05 LIMITE 291 JUSTCIV 130 CODEC 579 OPI IO OF THE LEGAL SERVICE Subject : Proposal for a Regulation of the European Parliament and of the Council establishing a European Small Claims Procedure 1 Legal basis I TRODUCTIO 1. At its meeting on 20 April 2005 the Committee on Civil Law Matters asked the Council Legal Service for its opinion on the legal basis for the above proposal, which was based on Article 61(c) of the EC Treaty. This opinion is a response to that request. PURPOSE A D CO TT OF THE PROPOSAL 2. According to the case law of the Court of Justice, the choice of the legal basis of an act must be based on objective factors, susceptible of legal checking. Among those factors are, inter alia, the purpose and content of the act /1/05 JUSTCIV 54 CODEC 177 of 21 March According to the Legal Service the wording is not clear. In fact, it is a matter of dealing with disputes involving small amounts. See the recent ruling (29 April 2005) in case C-338/01, Commission v. Council, paragraph 54 (not yet published in the European Court Reports) /05 art/am/mmk 1

2 3. The purpose of the proposal for a Regulation is to provide for a procedure for ruling on civil and commercial cases involving amounts of less than EUR and abolish the exequatur of those rulings. The justification of the proposal indicates that the measures are intended to facilitate judicial cooperation in civil matters in the wider context of the creation of an area of freedom, security and justice. 3 In particular, the recitals state that the cost of a case before a court is an obstacle for a claimant whose claim is small, and that the obstacles to obtaining a fast and inexpensive judgment "are intensified in cross-border cases" and that "the distortion of competition within the internal market due to the disequilibrium with regard to the functioning of the procedural means afforded to creditors in different Member States entails the need for Community legislation which guarantees a level playing field as regards access to justice for creditors and debtors" As regards its content, the Regulation sets out to establish a uniform procedure for judgment in civil and commercial matters, except in certain areas explicitly excluded from its scope (Article 2(2) of the proposal). That procedure would not replace or harmonise national rules for civil cases, since it would be "available to litigants as an alternative to the procedures existing under the laws of the Member States" (Article 1). 5. The proposal is intended to establish the following principal rules: the assistance of a lawyer is optional, the parties must submit their arguments in writing, use of the forms annexed to the Regulation is mandatory, the court of first instance is bound by deadlines regarding the preparation of the case and the judgment, it can rule without holding a hearing and there is no cassation against an appeal judgment. Finally, a judgment delivered in accordance with this procedure is enforceable in all the Member States without its being necessary to follow the procedure for the service of a declaration of enforceability. 3 4 See Recital 1. See Recital /05 art/am/mmk 2

3 6. Articles 3 to 17 of the proposal define the principal procedural rules. The claimant petitions the court by means of a standardised application, for which use of the form reproduced in Annex I is mandatory. The court notifies the defendant of that application, and the defendant has one month in which to complete and return, as his defence, the form reproduced in Annex II. If the defendant enters a counter-application, the claimant has a further month in which to reply. The case may be judged without a hearing (Articles 5 and 9). Article 8 provides that "the parties shall not be required to be represented by a lawyer or another legal professional". Article 15 provides that "in an appeal procedure parties shall not be required to be represented by a lawyer" and that "there shall be no further ordinary appeal or cassation against an appeal judgment". 7. Article 18 provides that a judgment delivered in a Member State shall be recognised and enforceable in another Member State without the need for a declaration of enforceability and without any possibility of opposing its recognition if it has been certified by the court or tribunal in the Member State of origin using the form set out in Annex III. In the view of the Legal Service, such an abolition of the exequatur amounts to a derogation from the procedure laid down in Section 2 of Chapter III of Regulation (EC) No 44/2001 5, which means that the wording of Article 19 ("This Regulation shall not affect the application ( ) of Regulation (EC) No 44/2001") must be clarified. 8. The result of the foregoing is that the purpose and content of the proposed Regulation are to establish a uniform and simplified procedure for the judgment of civil and commercial matters involving amounts less than EUR 2000 and to apply to such judgments the principle of mutual recognition and enforcement without any exequatur procedure. 5 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJEC L 12, , p /05 art/am/mmk 3

4 Examination of the legal basis proposed 9. Article 61(c) of the EC Treaty refers to Article 65 of the EC Treaty. It provides, in fact, that "in order to establish progressively an area of freedom, security and justice, the Council shall adopt measures in the field of judicial cooperation in civil matters as provided for in Article 65". 10. Article 65 of the EC Treaty provides that "measures in the field of judicial cooperation in civil matters having cross-border implications, to be taken in accordance with Article 67 and insofar as necessary for the proper functioning of the internal market, shall include: ( ) (c) eliminating obstacles to the good functioning of civil proceedings, if necessary by promoting the compatibility of the rules on civil procedure applicable in the Member States". 11. This opinion examines the three requirements laid down by the Treaty: first, that of "judicial cooperation", then that of "cross-border implications", and finally that of the "proper functioning of the internal market". First requirement: the measure must come within the scope of "judicial cooperation", which in this case must be appreciated with regard to the limit laid down in Article 65(c) of the EC Treaty 12. It must first be considered whether the provisions of the proposed Regulation come within the scope of judicial cooperation. To that end it must be determined whether or not the provisions under consideration exceed the limit laid down in Article 65(c) of the EC Treaty. 13. In the past, the Legal Service has recommended an interpretation of Article 65(c) of the EC Treaty to the effect that "the specific measures referred to in Article 65(a) to (c) are not exhaustive" 6. That position was adopted in connection with proposals for the adoption of instruments that "communitarised" existing instruments adopted in the form of conventions between Member States. It would have been difficult to maintain that the authors of the Treaty had not envisaged giving the Community the power to adopt rules of judicial cooperation in civil and commercial matters that had already been adopted between Community Member States. 6 Legal Service opinion of 2 March 2004, 77015/ JUSTCIV 37, points 9 and /05 art/am/mmk 4

5 14. In the case in point, the situation is different because of the nature of the measure proposed. The Commission is proposing a Regulation the purpose of which is to create a complete set of new rules of civil procedure which would be imposed directly on the Member States' courts and would have the effect of creating a true European civil procedure applicable to a special type of case The question arises whether the concept of "judicial cooperation" is appropriate to justify the creation of a European civil procedure. 16. In the view of the Legal Service, Article 65(c) of the EC Treaty does not permit an interpretation of the concept of "judicial cooperation" that has no limits at all. "Cooperation" must not, of course, be restricted to its usual meaning (exchanges of information, the acquisition of evidence, the recognition and enforcement of judgments) but may extend to questions of the competence of courts or facilitating access to justice. The Community legislator cannot, however, do everything under cover of "cooperation". In particular, the Treaty indicates that a legislator who wants to "eliminate obstacles to the good functioning of civil proceedings" - which is an example of civil judicial cooperation - can do so "if necessary by promoting the compatibility of the rules on civil procedure applicable in the Member States". In the view of the Legal Service, Article 65(c) of the EC Treaty allows the Community legislator to oblige Member States to make their existing civil procedures compatible with each other 8, but it does not authorise the Community legislator to create, by Regulation, new autonomous rules of civil procedure that would be applicable in the context of an adversarial procedure. In any case, the wording of Article 65 of the EC Treaty shows that its authors did not intend to transfer to the Community the power to make rules governing the function of judging, as in the case in point. 7 8 On this basis, because no attempt is being made to "approximate laws", the measure cannot be based on Article 95 of the EC Treaty (see in that connection the opinion of 4 July 2002, 10673/02 252, point 16, and the references in that opinion to previous opinions). See in that connection the Legal Service's opinion of 17 April 2002, 7862/ JUSTCIV 48, on the proposal for a Directive ( ) establishing minimum rules relating to legal aid /05 art/am/mmk 5

6 17. Finally, it should be noted that the Legal Service's most recent opinions in the same field, namely on proposals concerning the creation of a European order for payment procedure 9 and certain aspects of mediation in civil and commercial matters 10, made no mention of the limit laid down in Article 65(c) because they did not concern proposals for measures of the same nature. The aforementioned proposals did not concern the operation of the civil procedure, i.e. the set of stages and rules that are imposed both on the opposing parties and on the court called upon to deliver a judgment to settle a case after adversarial argument, but did concern the processes that precede the civil case or are outwith the function of judgment strictly speaking, such as mediation and orders for payment. 18. From the foregoing it follows that Articles 61(c) and 67 of the EC Treaty do not give the Community legislator the power to adopt those provisions of the proposal that create a European civil procedure. 19. The situation is different regarding the provisions that abolish the exequatur provided for in the Brussels I Regulation, which by their nature form part of the usual framework of "judicial cooperation". In the view of the Legal Service, the Community legislator can decide to abolish the procedure for the service of a declaration of enforceability provided for in Articles 38 to 52 of the Brussels I Regulation for certain types of court decisions in civil and commercial matters. To do so, even if the legislator feels that the abolition of the exequatur can be considered only for decisions settling cases in which the claims are for less than EUR 2 000, he is not bound to create, by means of a Regulation, the rules of a European civil procedure for such cases. The legislator can abolish the exequatur for this particular type of decision in two ways. He can refer to national legislation for the determination of this type of decision, provided that, by means of a Directive, he harmonises certain aspects of procedure if such harmonisation turns out to be necessary. He can also amend Regulation (EC) No 44/2001, which would be even simpler, by creating enacting terms which provide that Articles 38 to 52 of the Regulation shall not apply to decisions settling civil and commercial cases in which the claims are for less than EUR 2 000, on the one hand, and which meet certain criteria, on the other hand, such decisions being enforceable on the basis of certification intended to guarantee that the criteria have been met Legal Service opinion of 4 June 2004, 10107/ JUSTCIV 80 CODEC 800. Legal Service opinion of 29 November 2004, 15413/ JUSTCIV 183 CODEC /05 art/am/mmk 6

7 Second requirement: the measure must have cross-border implications 20. It is then necessary to determine whether the measure has cross-border implications within the meaning of Article 65 of the EC Treaty 11. Certain rules aiming at the harmonisation of the Member States' rules on civil procedure, including the rules applicable to internal situations, can be based on Articles 61(c) and 67 of the EC Treaty if these rules are ancillary in the sense that they are necessary to achieve the principal aim of a measure which consists in regulating a cross-border situation. However, the fact that an internal dispute could, in theory, develop cross-border consequences later on is not sufficient in this respect. The cross-border element must be a real and present one. The Regulation must therefore govern the case of disputes "involving some external element" Such is certainly the case for the part of the Regulation dealing with mutual recognition and enforcement of judgments in all Member States without exequatur procedure. By contrast, for the part dealing with the setting up of a uniform judgment procedure in civil and commercial matters, the proposed Regulation would be applicable both to cross-border situations and to purely internal situations and it is obvious that the proposed measure will relate to situations which will be, in the vast majority, purely internal to a Member State. 22. If the main aim of the proposal is to create special procedures relating to the "cross-border" recognition and enforcement of judgments in relation to litigation involving small sums of money and if the elements dealing with the approximation of the procedures leading to such decisions are clearly incidental to the main aim, those elements can be adopted on the basis of Articles 61 and 67 of the EC Treaty. If, on the other hand, the creation of a European civil procedure is the main aim of the measure, as the text of Article 1 seems to imply 13, and if the "cross-border" recognition and enforcement of judgments are only incidental thereto, the measure should be restricted to situations which have cross-border implications in order for it to be validly based on Articles 61 and 67 of the EC Treaty See the paragraphs 8 ff. of the Legal Service opinion of 17 April 2002 (7862/ JUSTCIV 48). Judgment of 1 March 2005, Case C-281/02, Owusu, paragraph 34, not yet published. In Article 1, the first paragraph states that this Regulation "establishes a European procedure" and the second paragraph states that "this Regulation also eliminates the intermediate measures" /05 man/am/mmk 7

8 23. Lastly, the fact that the measure can be regarded as necessary for the proper functioning of the internal market is not sufficient in itself in this regard. The cross-border implications requirement is a distinct condition for the use of Articles 61(c) and 67 as the legal basis. 24. The Legal Service is therefore of the opinion that if the Commission proposal is not amended to comply with the first requirement above, it cannot in any case be based on Articles 61(c) and 67 of the EC Treaty unless the scope of the measure is limited to cases which have cross-border implications. Third requirement: the measure adopted must be "necessary for the proper functioning of the internal market" 25. The Legal Service is of the opinion that the Council has a margin of appreciation in determining whether a measure is necessary for the proper functioning of the internal market within the meaning of Article 65 of the EC Treaty; within this margin, the Council may reasonably conclude that a measure is "necessary", within the meaning of Article 65, if it facilitates the proper functioning of the internal market The proper functioning of the internal market would be facilitated if the approximation of the civil procedures of the Member States applicable to litigation concerning small claims contributed to eliminating obstacles to the free movement of goods, persons, services or capital. 14 See in particular point 15 of the opinion of 11 November 1999 (11907/ JUSTCIV 145), point 16 of the opinion of 2 March 2004 (7015/ JUSTCIV 37), point 9 of the opinion of 4 June 2004 (10107/ JUSTCIV 80 CODEC 800) and point 9 of the opinion of 29 November 2004 (15413/ JUSTCIV 183) /05 man/am/mmk 8

9 27. Currently, judgment procedures for small civil and commercial claims differ considerably from one Member State to another. 15 The question is whether the fact that economic operators have access to different judicial mechanisms in different Member States does or does not lead to distortion of competition within the internal market, in particular where those concerned are domiciled in different Member States. 16 In paragraph 4.4 of its Green Paper, the Commission states: "The total costs of pursuing a cross-border consumer claim with a value of EUR varies, depending on the combination of Member States, from EUR 980 to EUR and amounts to EUR for a proceeding at the defendant's residence on the average." It goes on to say that, because of lack of knowledge of the legal systems of other Member States and the resulting need to consult a lawyer, along with the more time-consuming service of documents on a party in another Member State and additional translation costs, "the expense of obtaining a judgment against a defendant in another Member State is often disproportionate to the amount of money involved". The Commission also relies on studies presented in 7388/05 ADD 1. It takes the view that if some operators have access to procedures to obtain a rapid settlement of their case, while others do not have that possibility, the conditions for fair competition between operators competing in the internal market are not met. On the basis of these elements, the Council can come to a judgment on whether the disparities which exist between the laws of the Member States are an obstacle to the proper functioning of the internal market and whether the current situation, which involves a marked imbalance in the efficiency of the procedural tools available to creditors under the different national legislations, does or does not amount to a distortion of competition within the internal market. 28. The Legal Service believes the Council could follow the Commission on this point without going against the judgment of the Court of 22 June 1999 handed down in Case C-412/ In this judgment, the Court ruled that Article 34 of the EC Treaty (now Article 29 of the EC Treaty) does not preclude national legislation which excludes recourse to the procedure for obtaining summary payment orders where service on the debtor is to be effected in another See the Commission Green Paper of 13 January 2003 on a European order for payment procedure and on measures to simplify and speed up small claims litigation, paragraph 4.3 (5247/03 JUSTCIV 3). See paragraph of the proposal's explanatory memorandum. ED Srl/Fenocchio, paragraphs 11 and 12, ECR 1999, p. I /05 man/am/mmk 9

10 Member State of the Community. According to the Court, the possibility that nationals would hesitate, because of these procedural limitations, to sell goods to purchasers established in other Member States was too uncertain and indirect for that national provision to be regarded as liable to hinder trade between Member States. 29. On the one hand, because of growing economic integration within the internal market, it is not certain that the Court would come to the same conclusions today. On the other hand and more importantly, the standard of review in cases relating to restrictive measures adopted by Member States is not necessarily the same as in cases relating to the appreciation of the fulfilment of the conditions for the Community legislator to act with a view to eliminating obstacles to the internal market. While it is true that the mere finding of disparities between national rules and of the abstract risk of obstacles to the exercise of fundamental freedoms or of distortion of competition liable to result therefrom is not sufficient to justify recourse to Article 95 of the EC Treaty as a legal basis, this legal basis can be used for measures having as their genuine object the improvement of conditions for the establishment and functioning of the internal market. 18 In this context, the Court recently stated that recourse to Article 95 does not presuppose the existence of an actual link with free movement between Member States in every situation referred to by the measure founded on that basis. 19 There is no obvious reason why the scope of the internal market requirement in Article 65 should be more stringent for Article The Legal Service therefore considers that the Council has a sufficient basis on which to judge whether a Community measure aimed at approximating the rules of civil procedure applicable to small claims with cross-border implications, on the one hand, and setting up a mechanism for the mutual recognition and enforcement without exequatur procedure of judgments handed down to settle such claims, on the other, would facilitate the proper functioning of the internal market and could be regarded as "necessary" within the meaning of Article 65 of the EC Treaty See Case C-376/98, Germany v Parliament and Council, paragraph 84, ECR 2000, p. I See judgment of 6 November 2003 in Case 101/01, Bodil Lindqvist, paragraph 40 (not yet published in ECR) /05 man/am/mmk 10

11 CO CLUSIO 31. The Legal Service is of the opinion that a distinction must be drawn, within the proposed measure, between provisions relating to the recognition and enforcement of judgments, which can validly be based on Article 61(c) of the EC Treaty, and provisions creating a true adversarial "European civil procedure" for any litigation concerning a sum of less than EUR 2 000, which go beyond "judicial cooperation" and, for this reason, cannot be adopted by the Community legislator, for lack of competence. 32. In the Legal Service's view, Article 65(c) of the EC Treaty does not authorise the Community legislator to create a full set of new rules of civil procedure to be imposed directly on the courts of the Member States relating to the function of judging, even if those rules are incidental to the main aim of doing away with the exequatur. Since the Treaty states that the legislator intent on "eliminating obstacles to the good functioning of civil proceedings" can go so far as to promote "the compatibility of the rules on civil procedure applicable in the Member States", the notion of "judicial cooperation" provided for in the Treaty is not without limit. In the opinion of the Legal Service, the creation of a European procedure goes beyond the limits of judicial cooperation. 33. If the main aim of the proposal is to harmonise rules of procedure in civil and commercial matters and if the proposal is amended to achieve this aim, the scope of the instrument must, in order to comply with Article 65 of the EC Treaty, be restricted solely to proceedings involving litigation with cross-border implications /05 man/am/mmk 11