Breaching the duty to make a preliminary reference to the ECJ: Silva e Brito v. Portugal and the civil liability of member states

A reference for a preliminary ruling from a Lisbon court gave the Court of Justice of the European Union (“Court of Justice”) the opportunity to clarify, in Silva e Brito v. Portugal¹, the extent of the duty of national higher courts to make a reference for a preliminary ruling to the ECJ on the interpretation of European Union (“EU”) law.

In a landmark judgment, the Court of Justice also analysed the compatibility of a national prevision requiring the prior annulment of a national court decision infringing EU law before a damages claim based on such breach can be brought by injured parties against the Member State.

The proceedings before the national court

At the origin of the case is a series of contradictory decisions by Portuguese courts on a dismissal of workers of the airline Air Atlantis in the context of the company’s winding up in 1993. A final appeal was decided by the Supremo Tribunal de Justiça (“STJ”), which rejected the workers’ claims and declared the lawfulness of the dismissal.

The main contentious issue was the interpretation of the concept of “transfer of business”, presently defined by EU Directive 2001/23/EC². Although this concept had already been the object of differing interpretations by the lower courts in the proceedings, the STJ considered that no “relevant doubt” arose in the interpretation of the directive, and rejected the appellant’s request to refer a question for preliminary ruling to the Court of Justice. (Under Article 267 of the Treaty on the Functioning of the European Union, national courts against whose decisions there is no judicial remedy under national law are under the duty to make a request for a preliminary ruling when faced with a question on the interpretation of EU law relevant for the outcome of the proceedings.)

The workers then brought an action for damages against the Portuguese State, based on the erroneous interpretation of a EU law concept, as well as on the violation by the STJ of the duty to refer the case to the Court of the Justice. The competent national court (Varas Cíveis de Lisboa) decided to stay the proceedings and to refer three questions for a preliminary ruling.

The STJ’s duty to make a reference for a preliminary ruling

On the first question, regarding the interpretation of Directive2001/23/EC, the Court of Justice disagreed with the STJ, concluding that the situation at stake indeed involved a “transfer of business”: TAP Air Portugal (Air Atlantis’ parent company, that had decided to wind up its subsidiary) was itself active in the aviation sector, had notably succeeded Air Atlantis in aircraft leasing agreements and charter agreements with travel agents, and had reinstated a number of employees seconded to Air Atlantis to perform identical functions.

Moving to the second question, the Court then recalled that when a national appeals court whose decisions cannot be subject to further review is faced with a question of interpretation of EU law, such court must comply with its obligation to refer the question to the Court of Justice, unless it has established that the question raised is irrelevant, the provision of EU law concerned has already been interpreted by the Court of Justice or the correct application of EU law is so obvious as to leave no scope for any reasonable doubt.

Although acknowledging that the mere existence of prior contradictory decisions is not, in principle, sufficient to impose on the national appeals court a duty to make a preliminary reference, the Court of Justice considered that the EU provision at hand involved not only difficulties of interpretation, but also the risk of divergences in judicial decisions within the European Union. For the Court, when a European law concept is characterised both by conflicting lines of case law at the national level and by recurring difficulties of interpretation in several Member States (as it was the case), the national court is bound to make a reference in order to avert the risk of an incorrect interpretation of EU law.

State liability for national court decisions in breach of EU law

Pursuant to Article 13 (2) of the Portuguese Regime on the Civil Liability of the State³, a claim for damages in respect of illegal judicial decisions is conditional upon the prior annulment of the court decision that caused the loss or damage. In the damages action brought by Air Atlantis’s employees, the Portuguese State claimed that, because the STJ’s decision had not been annulled, the applicants did not have the right to compensation.

Under settled case law, the reparation of damages suffered as a consequence of the violation of EU law is entrusted to the national courts, deciding on the basis of national procedural rules, provided that these are not less favourable than those relating to similar domestic claims (principle of equivalence), and do not make it, in practice, impossible or excessively difficult to obtain reparation (principle of effectiveness).

The issue with the legal provision at issue is that, as a rule, judgments of the STJ cannot be appealed, which means that, other than in exceptional circumstances (apparently not applicable in the proceedings at issue), these decisions cannot be set aside. For this reason, the Court of Justice had no doubt in declaring that the provision under analysis may make it excessively difficult to obtain reparation for the loss or damage caused by the infringement of EU law in question.

The Court of Justice also rejected Portugal’s claim that the mentioned national provision was necessary to ensure the principles of res judicata and legal certainty (arguing that if the STJ is meant to put a definite end to the proceedings under national law, its decisions cannot be appealable). In fact, a damages action against the State does not have the same purpose and does not necessarily involve the same parties as the proceedings in which the STJ decision acquired the status of res judicata. In any event, according with the Court of Justice, the principle of legal certainty cannot frustrate the principle that the State should be liable for infringements of EU law.

The judgment therefore concluded that the national provision at issue constitutes an important obstacle to the effective application of EU law, which cannot be justified by the principles invoked by the Portuguese State. Consequently its application to cases such as the one at hand is incompatible with EU law.

Comment

The Silva e Brito v. Portugal judgment is likely to have important implications that go beyond the present proceedings, not only for the practice of Portuguese appellate courts and their relation with the Court of Justice, but also as regards the interpretation (and future amendment) of the legal regime establishing the State’s liability for illegal court decisions.

Although Portugal has been a member of the European Union for more than three decades, the Portuguese courts (with some notable exceptions, such as the Supremo Tribunal Administrativo) have shown themselves to be reluctant in referring questions to the Court of Justice, frequently with the reasoning that the interpretation of the EU provision at issue is clear and does not raise doubts.

This reluctance is apparent in the case of the STJ, which, until the end of 2014, had referred questions to the Court of Justice in only four proceedings; as a means of comparison, the Spanish Tribunal Supremo made 53 requests in the same period, and the Austrian supreme court (Oberster Gerichtshof), in only twenty years, made 103 requests⁴.

As mentioned by Advocate-General Bot, in cases where European law provisions are characterised by a case-by-case approach (as it was the case with the concept of “transfer of business”), or where the jurisprudence of the Court of Justice is in permanent evolution, national higher courts – and in this case the STJ – should be especially prudent before deciding to not make a request, and should not be, in particular, over confident in the consolidated nature of the Courts’ case law.

It is therefore hoped that the Silva e Brito v. Portugal judgment may contribute to a closer (and beneficial) cooperation between the STJ and the Court of Justice and, in particular, to a more frequent use of the preliminary ruling mechanism (long recognised as an essential tool for the development and uniform application of EU law) in cases raising questions of interpretation of EU law relevant for settling the dispute. To this end the role of lawyers is also essential, in identifying and raising before the national judge EU law questions deserving a reference for a preliminary ruling, as in the present case.

For the moment, Silva e Brito v. Portugal should also lead to Portuguese courts’ setting aside, in damages proceedings against the State for judicial decisions in breach of European law, the national rule requiring the annulment of the court decision causing the damage or loss, when such decision cannot be subject to further appeal.

In time, it is expected that the national regime on the State’s civil liability (and in particular Article 13(2)) is once again amended. These provisions have in the past been declared incompatible with EU law by the Court of Justice, originating the first penalty payment against the Portuguese State for non-complying with a judgment of the Court of Justice (analysed in issue 1/2008 of this Newsletter, p. 5).

This article was co-authored by lawyer Miguel Cortes Martins.

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