Author: Guest Writer

The Corporate Sustainability Due Diligence Directive at risk

In December 2023, following a lengthy Trilogue, a political agreement was reached regarding the Corporate Sustainability Due Diligence Directive (CSDDD); the first EU economy-wide mandatory due diligence legislative measure. The Directive aims to promote sustainable corporate conduct across global value chains, which include the full range of activities involved in the creation of a product or service. While the CSDDD is not a panacea, it is expected to foster a level playing field and improve corporate sustainability. However, a last-minute announcement from the internally divided German government to abstain from voting in the European Council has put the Directive’s future at risk.

Despite earlier endorsement, on the 1^st of February 2024, Germany suddenly withdrew its support for the CSDDD due to the opposition of the FDP, the liberal government coalition party. Lukas Köhler, FDP deputy head in German Parliament, stated that the FDP cannot support the Directive as its obligations would overburden companies. Subsequently, other EU Member States, such as Italy, followed Germany’s example and decided to abstain from voting, or to vote against approval. The Council vote which was initially planned on 9 February had to be postponed since the required qualified majority would not be reached. On 28 February, once again, due to lack of support, it was decided to postpone the vote on the approval of the Directive. In the meantime, the Belgian Presidency of the Council, reportedly, proposed a new comprise text of the Directive hoping to convince Member States to vote in favour. The revised version would have included a downsized personal scope of application and softened provisions on civil liability. However, on 8 March, the Council vote has again been postponed. While time is running out ahead of the European elections, the Directive has been set on the agenda of the Coreper I meeting on 13 March.

This blog post argues that the failure to approve the CSDDD by the Council under the guise of protecting companies is counterproductive and represents a missed opportunity in mitigating climate change. First, the post looks at the CSDDD from the perspective of European businesses. Then, it connects the urgent societal challenge of climate change to the EU Directive awaiting approval by the Council.

European companies embrace harmonisation

Abstaining from voting, and, thus, de facto making approval impossible, is not in the interest of European companies. Indeed, the CSDDD would serve the companies’ interests by seeking to harmonise due diligence legislation within the EU internal market. Pursuant to its dual legal basis (Art. 50 and 114 TFEU), the Directive aims to harmonise legislation to ensure a level playing field within the EU internal market and avoid distortions of competition. It is for this reason that European businesses urge the EU Member States to formally adopt the CSDDD. In a joint statement, large German companies argue that putting the CSDDD at risk will create legal uncertainty. In their view, the Directive is the ‘only chance’ for an EU-wide level playing field with fair competitive conditions that will create legal certainty. Not only big companies embrace the CSDDD; the Italian Confederation of Craft Trades (CNA) representing small and medium-sized enterprises has, for example, expressed its support to the CSDDD as it will ensure a level playing field and avoid unfair competition with non-EU companies.

The fears of these companies regarding an unlevel playing field and legal uncertainty appear to be well-founded. Disparities between national due diligence legislation result in legal fragmentation which can lead to distortions of competition. Most notably, Germany and France have enacted legislation containing due diligence requirements. The legislative measures significantly differ in personal scope, material scope and regulatory approach. For instance, the German act applies to companies employing more than 1000 employees, whereas the French actonly applies to companies employing more than 5000 employees. Moreover, under the French act climate change should be addressed in carrying out due diligence, while the German act does not cover climate change issues at all. Considering just these two examples of legislation, it becomes apparent that the risk of legal fragmentation should be taken seriously.

The Commission convincingly argues in the proposal for the CSDDD that these disparities between national legislation are likely to lead to distortions of competition within the internal market. Companies that are active in certain EU-jurisdictions with no or less stringent due diligence legislation will have a competitive advantage. Furthermore, legal fragmentation creates a significant burden to companies as compliance with different national legislation requires diverging measures and policy per jurisdiction. Against this background, it should be noted that rejection of the CSDDD could even lead to further legal fragmentation. National legislative proposals, such as a Dutch proposal, that were put on hold, awaiting the CSDDD, could be rehabilitated. Indeed, one could argue that not the CSDDD’s requirements, but the lack of harmonisation will overburden European companies.

Alongside the harmonising effects of the CSDDD within the EU, the Directive’s requirements align with international standards on due diligence. Since their adoption in 2011, the UN Guiding Principles on Business and Human Rights(UNGPs) and OECD Guidelines for Multinational Enterprises are internationally broadly recognised soft law documents that pursue corporate sustainability through encouraging due diligence regarding human rights and the environment. The approval of the CSDDD would strengthen these influential international standards, which have been endorsed by the EU since 2011. According to the UN High Commissioner for Human Rights, the EU would show historic global leadership. Additionally, companies that already pursue to comply with these international due diligence standards will be rewarded for their efforts in carrying out business activities responsibly. Unsurprisingly, a large and wide-ranged group of European businesses called for an ambitious CSDDD aligning with the UNGPs and OECD Guidelines for Multinational Enterprises.

Corporate sustainability legislation for a green EU economy

Building upon the existing international due diligence standards, the CSDDD, inter alia, seeks to advance the greening of the EU economy. Arising from the EU sustainable corporate governance initiative, the CSDDD is a proposal for corporate sustainability legislation, crucial in steering towards a green and climate-neutral EU economy by 2050 as required by the European Climate Law. Additional mitigating efforts are indeed necessary to address the urgent challenges posed by climate change. Last year, the International Panel on Climate Change (IPCC) established that human activities had already caused a global temperature rise of 1.1°C by 2020 in comparison to pre-industrial levels. Moreover, it revealed that current global mitigation efforts are insufficient to limit global warming to 1.5°C as envisioned by the Paris Agreement. Similarly, the European Environmental Agency has concluded that current EU-efforts will not suffice to achieve the climate change mitigation goals codified by the European Climate Law. According to the IPCC, resilient climate policy will require ‘large and sometimes disruptive changes in economic structures’.

Since the CSDDD is based on existing soft law, it does not seem to be that disruptive, yet it will target the right actors with substantive obligations. Addressing the private sector is necessary as large companies are currently and historically have been the main contributors to climate change. The 2017 Carbon Majors Report showed that just 100 companies are responsible to 71 per cent of all global greenhouse gas emissions since 1988. Regulation of sustainable corporate conduct has come a long way. Prior to the European Green Deal, the EU predominantly aimed to enhance corporate sustainability through supporting and promoting voluntary corporate social responsibility (CSR). However, open-ended CSR initiatives and non-legally binding international due diligence standards leave a regulatory gap and do not suffice in effectively pursuing sustainable corporate conduct (see, e.g. the study for the Commission on supply chain due diligence).

The CSDDD partly seizes the opportunity to bridge this regulatory gap. The cautiously drafted Directive, as negotiated in the political agreement, contributes to the EU’s climate change mitigation objectives rather half-heartedly and does not seem to fulfil the Directive’s potential. In truth, the CSDDD’s text has been watered down significantly. Both the Commission’s proposal and the European Parliament’s draft report were less cautiously drafted and would have been more effective in mitigating climate change. In this context, the political agreement’s personal scope of application is fairly narrow. According to the political agreement, the Directive applies to EU companies with over 500 employees and a net worldwide turnover of at least EUR 150 million, and to non-EU companies with a net EU turnover of at least EUR 300 million. As a result, the revenue threshold for non-EU companies has, for example, been doubled compared to the Commission proposal. Additionally, the political agreement fails to designate any high-risk business sectors with lower employee base and revenue thresholds. Although the current text does not fulfil the Directive’s potential, adoption would still be a crucial step into the right direction. The companies concerned are required to comply with two main substantive obligations.

Firstly, the due diligence obligation of Article 4 of the Directive requires companies to address adverse impacts of their business activities to specific human rights and environmental norms. Rather surprisingly, the political agreement fails to refer to any directly climate-related rights and norms. Noteworthy, the European Parliament was keen on directly addressing climate change through the due diligence obligation. Although not specified, the reason for not directly including adverse climate impacts could be that this due diligence obligation would, by some, be regarded as too far-reaching. However, as it is increasingly accepted that climate change harms the realisation of human rights and environmental norms (see, e.g. UN General Assembly Resolution 76/300 and the Dutch Supreme Court’s decision in the Urgenda case), adverse climate impacts can (possibly) be considered as adverse human rights or environmental impacts. This would mean that companies must either way address the adverse impacts of business activities to the climate.

Secondly, the other main obligation does directly refer to climate change. Article 15 lays down the obligation to draw up a climate transition plan. Reinforcing the reporting obligation of the Corporate Sustainability Reporting Directive (CSRD), the CSDDD would require large companies to adopt and put into effect a plan that is in line with the European Climate Law. Companies falling within the personal scope of the Directive would be obliged to reconsider their business strategy and implement measures, through a best-efforts approach, to play their part in reaching climate-neutrality by 2050.

The way forward

It is to be hoped that the Council will eventually formally approve the proposed Directive. The CSDDD is not only about holding companies accountable, but also about fostering a level playing field and ensuring fair competition within the EU internal market. The support for the CSDDD from European businesses underscores its importance in creating legal certainty and eliminating distortions of competition that arise from disparities in national legislation. Furthermore, in light of the urgent need to address climate change and the transition to a sustainable economy, the Directive represents a crucial step forward. Efforts of the Belgian Presidency in the Council must be efficacious to regain earlier-existing support which was present at the time of reaching the political agreement in December 2023. By voting in favour of the CSDDD, EU Member States would, at last, prioritise the long-term interests of European companies, society and the planet.

In February, the German Federal Constitutional Court (Bundesverfassungsgericht) rejected a motion regarding electoral thresholds in EU electoral law, finally allowing for the necessary national approval of Council Decision 2018/994. This Decision intends to amend the European Electoral act and, according to Article 223 (1) TFEU, must be approved by all Member States. Up until now, the court had held that thresholds in European elections were not compatible with German constitutional law. However, a draft legislative act proposes that some Member States would be obliged to establish electoral thresholds for European elections. With this new judgement, the Bundesverfassungsgericht joins other European courts in finding thresholds to be compatible with national constitutional law.

This blog post aims to provide context for a decision that might very well change the composition of the European Parliament.

Previously on… electoral thresholds

In elections, citizens cast their votes in order to have their opinions represented in a parliament. In theory, representing every political view leads to a better democracy in which minority voices can gain much influence. However, fragmentation of a parliament can interfere with finding a consensus and thus hinder governability. By requiring a minimum percentage of votes a party must gain to be allocated a seat in a parliament, electoral thresholds seek to balance representation and governability. Approximately half of all Member States currently employ electoral thresholds in European parliamentary elections. The threshold is 5 percent in nine states (Czechia, France, Croatia, Latvia, Lithuania, Hungary, Poland, Romania and Slovakia), 4 percent in Austria and Sweden, 3 percent in Greece and 1,8 percent in Cyprus. Fourteen Member States do not currently have minimum requirements for allocation of European Parliament seats.

Thresholds are common in German electoral law. On the federal level, a party must gain at least five percent of votes to be allocated a seat in the German Parliament, the Bundestag (§ 4 (2) no. 2 Bundeswahlgesetz). Similarly, in the first European elections, German parties had to pass a threshold of five percent and, later, of three percent (§ 2 (6) resp. (7) Europawahlgesetz [old version]). In 2011 and 2014, the Bundesverfassungsgericht ended this practice. While it has always held that the federal threshold is not only legal, but constitutionally mandated, the Court saw clear differences between the German Parliament and the European Parliament. Governability is extremely important for the Bundestag, which is responsible for electing the Bundeskanzler (chancellor) and where the governing parties hold much power. However, on a European level, the European Parliament is not as involved in the governing and does not require a stable majority. Although the Commission President is elected by the Parliament (Article 17 (7) of the Treaty on European Union [TEU]), and the College of Commissioners can be removed by a parliamentary motion of censure (Article 17 (8) TEU), the Commission does not need continuous support from the Parliament in order to govern. For example, in the second reading during the ordinary legislative procedure, an act can pass without a parliamentary procedure when the Parliament either does not vote on a Council position or does not disapprove of the position with a majority vote (Article 294 (7) lit. a, b TFEU). Groups in the European Parliament differ from their national counterparts as well: the strongest groups do not form a ‘government’, Commissioners usually come from different political groups. Since the Parliament is so diverse in nationalities, languages, cultures, and political opinions, large groups provide a form of integration: internal debates often happen so that groups can speak with one united voice when it comes to plenary debates. Fragmentation is therefore, according to the Bundesverfassungsgericht, not as daunting on the European level as it is in the German Bundestag.

Other Member States’ Courts have also ruled on their respective electoral thresholds. The Czech Constitutional Court also argued that national parliaments and the European Parliament are different by nature and can not be held to the same standards (para. 70). However, a stable majority in the European Parliament is elemental to the functioning of the European Union (paras. 71, 72). It concluded that the European electoral threshold required by Czech law was in line with the Czech constitution. The Italian Constitutional Court also held that thresholds were compatible with the Italian Constitution as they are ‘typical manifestations of the discretion of a legislator that wishes to avoid fragmented political representation, and to promote governability’. The French Conseil Constitutionnel also ruled the electoral threshold to be in line with the French Constitution. It based its judgement on two pursued objectives: the favouring of ‘main currents of ideas and opinions expressed in France being represented in the European Parliament’ and the avoiding of fragmentation.

Why did the Court have to decide again?

European elections are governed by national electoral laws. A framework for these national laws is the European Electoral Act from 1976, which is drawn up by the European Parliament and adopted by the Council (Article 223 (1) of the Treaty on the Functioning of the European Union [TFEU]). In 2018, the Council voted to amend the Electoral Act and introduce electoral thresholds. According to the second paragraph of Article 3 of the Council Decision 2018/994, Member States may set thresholds of up to five percent. Constituencies comprising more than 35 seats are obliged to set a threshold of at least two percent. Only three Member States are currently allocated more than 60 seats: France, Italy and Germany. Since French and Italian electoral law already employ thresholds, this new rule would only affect Germany. In order for this Decision to come into effect though, the procedure of Article 223 (1) TFEU must be followed: Member States have to approve of the amendment ‘in accordance with their respective constitutional requirements’.

German constitutional law mandates that the national legislative bodies (Bundestag and Bundesrat) approve of the law with a two-thirds majority (Art. 23 (1) 3, Article 79 (2) of the Grundgesetz). Both decisions were reached in 2023. However, the Bundespräsident (head of state) has to sign the decision for them to come into full effect. Until this happens, the Council Decision has not been approved and the Electoral Act cannot be amended. 

The Court’s decision

German satire party Die Partei currently holds two seats in the European Parliament, having won a share of 2.4 percent of German votes in the last European elections. Their two Members of Parliament, one of which joined the Greens/EFA group, tried to stop the Electoral Act from coming into effect by calling upon the Bundesverfassungsgericht. They argued that, as previously decided by the Court, thresholds on the European level were unconstitutional. Substantively, they stated that thresholds infringe on the right to equal opportunities for minority parties and weaken democracy (para. 29).

However, the German Constitutional Court has longstanding jurisprudence on their competence ruling on national measures in the scope of EU law and has developed three tests. The Court only tests whether an EU act is ultra vires or whether the German constitution is affected at its core (Identitätskontrolle). It does not test Union law in light of national fundamental rights as long as EU fundamental rights provide a comparable level of protection (Solange II). The petitioners argued that the Council Decision was ultra vires and that it violated the constitutional identity. The Court found that the petitioners had not substantiated this claim enough. German approval of the electoral law amendment does not confer new competences to the European level, since Article 223 TFEU already exists. Therefore, the amendment does not overstep competences and is not ultra vires (paras. 93 f.). It also did not follow the petitioners’ claim that German democracy, and therefore the German constitution, were infringed. The EU holds itself to democratic standards. Though the EU’s interpretation of democracy might differ from the German interpretation, democracy as a constitutional standard is not affected at its core when modifications are made (para. 101 f.). EU legislative bodies are awarded a prerogative to assess and shape electoral law (paras. 121 f.).

In a departure from past decisions, the Bundesverfassungsgericht now sees the danger of a deepening rift in political views, resulting in more fragmentation of the Parliament (para. 17). It now argues that a stable majority in the Parliament is essential to its important responsibilities as a legislative body equal to the Council, in the creation of a Commission and the budget power. Since the two biggest groups in the parliament no longer hold an absolute majority in the Parliament, finding this majority proves to be more challenging (para. 123). Additionally, the groups’ ability to integrate different views is limited. Preventing a more fragmented and heterogeneous Parliament is therefore a legitimate objective.

The Court therefore rejected Die Partei’s motion. As a result, the German approval of the European Electoral Act amendment can now come into force.

Outlook

Will electoral thresholds be applied in the upcoming 2024 elections? No. The European elections in June will still be governed by the national electoral laws that have been in effect for the past few months. Additionally, Germany was only one of two Member States still pending approval: Spain has yet to approve of the amendment. Mandatory thresholds could eventually be applied in the 2029 elections.

However, maybe future elections will be held in accordance with very different laws. For quite some time, forces inside the European Parliament have pushed for a European Electoral Regulation that would be applicable in every Member State without national legal implementation. These drafts have often included proposals for transnational lists or pan-European constituencies. So far, these proposals have always failed to win over the approval of national governments in the Council.

It seems more likely that national legislation will adapt and that we will see fewer minority parties in the European Parliament. Let us hope that stopping fragmentation in the European Parliament will be a mirror of a less divided, less extreme European society.

The Digital Markets Act (DMA) is a regulation enacted by the European Union as part of the European Strategy for Data. Its final text was published on 12 October 2022, and it officially entered into force on 1 November 2022. The main objective of the DMA is to regulate the digital market by imposing a series of by-design obligations (see Recital 65) on large digital platforms, designated as “gatekeepers”. Under to the DMA, the European Commission is responsible for designating the companies that are considered to be gatekeepers (e.g., Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft). After the Commission’s designation on 6 September 2023, as per DMA Article 3, a six-month period of compliance followed and ended on 6 March 2024. At the time of writing, gatekeepers are thus expected to have made the necessary adjustments to comply with the DMA.

Gatekeepers’ obligations are set forth in Articles 5, 6, and 7 of the DMA, stemming from a variety of data-sharing and data portability duties. The DMA is just one pillar of the European Strategy for Data, and as such shall complement the General Data Protection Regulation (see Article 8(1) DMA), although it is not necessarily clear, at least at first glance, how the DMA and the GDPR can be combined together. This is why the main objective of this blog post is to analyse Article 6 DMA, exploring its effects and thereby its interplay with the GDPR. Article 6 DMA is particularly interesting when exploring the interplay between the DMA and the GDPR, as it forces gatekeepers to bring the covered personal data outside the domain of the GDPR through anonymisation to enable its sharing with competitors. Yet, the EU standard for legal anonymisation is still hotly debated, as illustrated by the recent case of SRB v EDPS now under appeal before the Court of Justice.

This blog is structured as follows: First, we present Article 6(11) and its underlying rationale. Second, we raise a set of questions related to how Article 6(11) should be interpreted in the light of the GDPR.

Article 6(11) DMA provides that:

“The gatekeeper shall provide to any third-party undertaking providing online search engines, at its request, with access on fair, reasonable and non-discriminatory terms to ranking, query, click and view data in relation to free and paid search generated by end users on its online search engines. Any such query, click and view data that constitutes personal data shall be anonymised.”

It thus includes two obligations: an obligation to share data with third parties and an obligation to anonymise covered data, i.e. “ranking, query, click and view data,” for the purpose of sharing.

The rationale for such a provision is given in Recital 61: to make sure that third-party undertakings providing online search engines “can optimise their services and contest the relevant core platform services.” Recital 61 indeed observes that “Access by gatekeepers to such ranking, query, click and view data constitutes an important barrier to entry and expansion, which undermines the contestability of online search engines.”

Article 6(11) obligations thus aim to address the asymmetry of information that exist between search engines acting as gatekeepers and other search engines, with the intention to feed fairer competition. The intimate relationship between Article 6(11) and competition law concerns is also visible in the requirement that gatekeepers must give other search engines access to covered data “on fair, reasonable and non-discriminatory terms.”

Article 6(11) should be read together with Article 2 DMA, which includes a few definitions.

1. Ranking: “the relevance given to search results by online search engines, as presented, organised or communicated by the (…) online search engines, irrespective of the technological means used for such presentation, organisation or communication and irrespective of whether only one result is presented or communicated;”

2. Search results: “any information in any format, including textual, graphic, vocal or other outputs, returned in response to, and related to, a search query, irrespective of whether the information returned is a paid or an unpaid result, a direct answer or any product, service or information offered in connection with the organic results, or displayed along with or partly or entirely embedded in them;”

There is no definition of search queries, although they are usually understood as being strings of characters (usually key words or even full sentences) entered by search-engine users to obtain relevant information, i.e., search results.

As mentioned above, Article 6 (11) imposes upon gatekeepers an obligation to anonymise covered data for the purposes of sharing it with third parties. A (non-binding) definition of anonymisation can be found in Recital 61: “The relevant data is anonymised if personal data is irreversibly altered in such a way that information does not relate to an identified or identifiable natural person or where personal data is rendered anonymous in such a manner that the data subject is not or is no longer identifiable.” This definition echoes Recital 26 of the GDPR, although it innovates by introducing the concept of irreversibility. This introduction is not surprising as the concept of (ir)reversibility appeared in old and recent guidance on anonymisation (see e.g., Article 29 Working Party Opinion on Anonymisation Technique 2014, the EDPS and AEPD guidance on anonymisation). It may be problematic, however, as it seems to suggest that it is possible to achieve absolute irreversibility; in other words, that it is possible to guarantee an impossibility to link the information back to the individual. Unfortunately, irreversibility is always conditional upon a set of assumptions, which vary depending on the data environment: in other words, it is always relative. A better formulation of the anonymisation test can be found in section 23 of the Quebec Act respecting the protection of personal information in the private sector: the test for anonymisation is met when it is “at all times, reasonably foreseeable in the circumstances that [information concerning a natural person] irreversibly no longer allows the person to be identified directly or indirectly.“ [emphasis added].

Recital 61 of the DMA is also concerned about the utility third-party search engines would be able to derive from the shared data and therefore adds that gatekeepers “should ensure the protection of personal data of end users, including against possible re-identification risks, by appropriate means, such as anonymisation of such personal data, without substantially degrading the quality or usefulness of the data”. [emphasis added]. It is however challenging to reconcile a restrictive approach to anonymisation with the need to preserve utility for the data recipients.

One way to make sense of Recital 61 is to suggest that its drafters may have equated aggregated data with non-personal data (defined as “data other than personal data”). Recital 61 states that “Undertakings providing online search engines collect and store aggregated datasets containing information about what users searched for, and how they interacted with, the results with which they were provided.”  Bias in favour of aggregates is indeed persistent in the law and policymaker community, as illustrated by the formulation used in the adequacy decision for the EU-US Data Privacy Framework, in which the European Commission writes that “[s]tatistical reporting relying on aggregate employment data and containing no personal data or the use of anonymized data does not raise privacy concerns”. Yet, such a position makes it difficult to derive a coherent anonymisation standard.

Generating a means or a count does not necessarily imply that data subjects are no longer identifiable. Aggregation is not a synonym for anonymisation, which explains why differentially-private methods have been developed. This brings us back to  when AOL released 20 million web queries from 650,000 AOL users, relying on basic masking techniques applied to individual-level data to reduce re-identification risks. Aggregation alone will not be able to solve the AOL (or Netflix) challenge.

When read in the light of the GDPR and its interpretative guidance, Article 6(11) DMA raises several questions. We unpack a few sets of questions that relate to anonymisation and briefly mention others.

The first set of questions relates to the anonymisation techniques gatekeepers could implement to comply with Article 6(11). At least three anonymisation techniques are potentially in scope for complying with Article 6(11):

• global differential privacy (GDP): “GDP is a technique employing randomisation in the computation of aggregate statistics. GDP offers a mathematical guarantee against identity, attribute, participation, and relational inferences and is achieved for any desired ‘privacy loss’.” (See here)

• local differential privacy (LDS): “LDP is a data randomisation method that randomises sensitive values [within individual records]. LDP offers a mathematical guarantee against attribute inference and is achieved for any desired ‘privacy loss’.” (see here)

• k-anonymisation: is a generalisation technique, which organises individuals records into groups so that records within the same cohort made of k records share the same quasi-identifiers (see here).

These techniques perform differently depending upon the re-identification risk at stake. For a comparison of these techniques see here. Note that synthetic data, which is often included within the list of privacy-enhancing technologies (PETs),  is simply the product of a model that is trained to reproduce the characteristics and structure of the original data with no guarantee that the generative model cannot memorise the training data. Synthetisation could be combined with differentially-private methods however.

• Could it be that only global differential privacy meets Article 6(11)’s test as it offers, at least in theory, a formal guarantee that aggregates are safe? But what would such a solution imply in terms of utility?

• Or could gatekeepers meet Article 6 (11)’s test by applying both local differential privacy and k-anonymisation techniques to protect sensitive attributes and make sure individuals are not singled out? But again, what would such a solution mean in terms of utility?

• Or could it be that k-anonymisation following the redaction of manifestly identifying data will be enough to meet Article 6(11)’s test? What does it really mean to apply k-anonymisation on ranking, query, click and view data? Should we draw a distinction between queries made by signed-in users and queries made by incognito users?

Interestingly, the 2014 WP29 opinion makes it clear that k-anonymisation is not able to mitigate on its own the three re-identification risks listed as relevant in the opinion, i.e., singling out, linkability and inference: k-anonymisation is not able to address inference and (not fully) linkability risks. Assuming k-anonymisation is endorsed by the EU regulator, could it be the confirmation that a risk-based approach to anonymisation could ignore inference and linkability risks?  As a side note, the UK Information Commissioner’s Office (ICO) in 2012 was of the opinion that pseudonymisation could lead to anonymisation, which implied that mitigating for singling out was not conceived as a necessary condition for anonymisation. The more recent guidance, however, doesn’t directly address this point.

The second set of questions Article 6(11) poses is related to the overall legal anonymisation standard. To effectively reduce re-identification risks to an acceptable level, all anonymisation techniques need to be coupled with context controls, which usually take the form of security techniques such as access control and/or organisational and legal measures, such as data sharing agreements.

• What types of context controls should gatekeepers put in place? Could they set eligibility conditions and require that third-party search engines evidence trustworthiness or commit to complying with certain data protection-related requirements?

• Wouldn’t this strengthen the gatekeeper’s status though?

It is important to emphasise in this regard that although legal anonymisation might be deemed to be achieved at some point in time in the hands of third-party search engines, the anonymisation process remains governed by data protection law. Moreover, anonymisation is only a data handling process: it is not a purpose, and it is not a legal basis, therefore purpose limitation and lawfulness should be achieved independently. What is more, it should be clear that even if Article 6(11) covered data can be considered legally anonymised in the hands of third-party search engines once controls have been placed on the data and its environment, these entities should be subject to an obligation not to undermine the anonymisation process.

Going further, the 2014 WP29 opinion states that “it is critical to understand that when a data controller does not delete the original (identifiable) data at event-level, and the data controller hands over part of this dataset (for example after removal or masking of identifiable data), the resulting dataset is still personal data.” This sentence, however, now seems outdated. While in 2014 Article 29 Working Party was of the view that the input data had to be destroyed to claim legal anonymisation of the output data, Article 6(11) nor Recital 61 suggest that the gatekeepers would need to delete the input search queries to be able to share the output queries with third parties.

The third set of questions Article 6(11) poses relates to the modalities of the access:   What does Article 6(11) imply when it comes to access to data, should it be granted in real-time or after the facts, at regular intervals?

The fourth set of questions Article 6(11) poses relates to pricing. What do fair, reasonable and non-discriminatory terms mean in practice? What is gatekeepers’ leeway?

To conclude, the DMA could signal a shift in the EU approach to anonymisation or maybe just help pierce the veil that was covering anonymisation practices. The DMA is actually not the only piece of legislation that refers to anonymisation as a data-sharing safeguard. The Data Act and other EU proposals in the legislative pipeline seem to suggest that legal anonymisation can be achieved, even when the data at stake is potentially very sensitive, such as health data. A better approach would have been to start by developing a consistent approach to anonymisation relying by default upon both data and context controls and by making it clear that, as anonymisation is always a trade-off that inevitably prioritises utility over confidentiality; therefore, the legitimacy of the processing purpose that will be pursued once the data is anonymised should always be a necessary condition to an anonymisation claim. Interestingly, the Act respecting the protection of personal information in the private sector mentioned above makes purpose legitimacy a condition for anonymisation (see section 23 mentioned above). In addition, the level of data subject intervenability preserved by the anonymisation process should also be taken into account when assessing the anonymisation process, as suggested here. What is more, explicit justifications for prioritising certain re-identification risks (e.g., singling out) over others (e.g., inference, linkability) and assumptions related to relevant threat models should be made explicit to facilitate oversight, as suggested here as well.

To end this post, as anonymisation remains a process governed by data protection law, data subjects should be properly informed and, at least, be able to object. Yet, by multiplying legal obligations to share and anonymise, the right to object is likely to be undermined without the introduction of special requirements to this effect.

For six months, Israel has been waging a brutal offensive on Gaza, killing over 30.000 Palestinians, destroying more than 60% of the homes in Gaza, and making Gazans account for 80% of those facing famine or catastrophic hunger worldwide. High Representative Borrell described the situation as an ‘open-air graveyard’, both for Palestinians and for ‘many of the most important principles of humanitarian law’. Yet, the Union and its Member States seem unwilling to use their capacity to deter Israel from further atrocities. European leaders continue to express steadfast political support for Israel and to provide material support for the war by upholding pre-existing trade relations, including arms exports. This blogpost examines to what extent this continued support displayed by the Union and its Member States constitutes a violation of Union law. It does so in light of two recent rulings, both delivered by courts in The Hague, which suggest support for Israel in the current context might be problematic not just from a moral, but also from a legal standpoint. The central argument developed in this post is that Union law, when interpreted in a manner that respects – or at least does not undermine – the fundamental norms of international law, establishes sufficiently concrete obligations that the Union and its Member States currently do not meet given their continued support for Israel.

The ICJ Order in South Africa v Israel

On 26 January 2024, the ICJ delivered its landmark Order indicating provisional measures in South Africa v Israel. South Africa had initiated proceedings against Israel under Article IX of the Genocide Convention, accusing Israel of breaching multiple obligations under the Convention, the most serious one being the commission of genocide. In its request, South Africa asked the ICJ to take provisional measures to prevent extreme and irreparable harm pending the ICJ’s determination on the merits. The ICJ found it at least plausible that Israel violates the rights of Palestinians in Gaza protected by the Genocide Convention and thus required Israel to take all measures within its power to prevent genocide.

Several scholars and civil society organisations have stressed that this ruling also has consequences for third states (as for example argued by Salem, Al Tamimi and Hathaway). The Genocide Convention contains the duty to prevent genocide (Article I), and prohibits complicity in genocide (Article III(e)). As previously held by the ICJ, this means that States are obliged to use all reasonably means with a deterrent effect to prevent genocide, as soon as they learn of the existence of a serious risk of genocide. Since all EU Member States are party to the Genocide Convention, and the Convention has jus cogens status, these obligations are binding on the Union and its Member States. Notwithstanding the valid observation that the ICJ Order in and of itself might not meet the evidentiary threshold for establishing the required ‘serious risk’, the ICJ’s findings on genocidal intent, as well as the strong factual substantiation of the judgement provide enough reason to carefully (re)assess any support for Israel in light of the obligations under the Genocide Convention.

Relevant obligations under Union law

Such clearly defined obligations to attach consequences to behaviour of a third State indicating a serious risk of genocide are not expressly laid down in Union law. Despite the Treaties being littered with aspirational, high-sounding references to peace, security, fundamental rights, human dignity, and the observance of international law, Union law still leaves extremely wide discretion to the Union and the Member States in deciding how they deal with third states engaging in serious violations of international law. Certainly, the Treaties do allow for various policy responses, like adopting economic sanctions, suspending agreements with the concerned third state, or targeting disinformation, to name a few of the measures adopted to counter the Russian aggression in Ukraine. The issue, however, is that Union law does not clearly prescribe adopting such measures.

An exceptional legal limit within Union law to political discretion in this regard is laid down in Article 2(2)(c) of the Council’s Common Position 2008/944/CFSP. It obliges Member States to deny export licenses for arms in case of ‘a clear risk that [they] might be used in the commission of serious violations of international humanitarian law’. However, enforcement of this obligation on the Union level is effectively impossible. The CJEU cannot interpret or apply the instrument because of its limited jurisdiction in the Common and Foreign Security Policy area, stemming from Articles 24 TEU and 275 TFEU. Moreover, the Council on its part refuses to monitor compliance with the Common Position, leaving it entirely up to Member States to give effect to the instrument.

It would thus appear that there is a conflict between the Union’s foundational values expressed in Articles 2, 3, and 21 TEU, and the lack of effective legal limits set on the Union level to continued support for a third state that disregards humanitarian law to the extent of using starvation as a weapon of war. The main argument of this blogpost is that a part of the solution to this apparent conflict lies in interpreting Union law consistently with fundamental norms of international law. Specifically, obligations stemming from international law can play an important role in defining effective legal obligations that limit the discretion enjoyed by the Union and the Member States when interpreting and applying Union law in the face of a crisis such as the war in Gaza.

The interplay between public international law and the Union’s legal order is the subject of complex case law and academic debate (for an overview, see Wessel and Larik). The general picture emerging from these debates is the following. On the one hand, the ECJ expressed on multiple occasions that the EU legal order is ‘autonomous’, which shields the internal allocation of powers within the EU from being affected by international agreements (for instance in Opinion 2/13, paras 179f, or Kadi I, para 282). On the other hand, binding international agreements to which the Union is a party, as well as binding rules of customary international law, are both considered to form an ‘integral part’ of Union law and are binding upon the institutions of the Union when they adopt acts (see for instance ATAA, paras 101-102). Within the hierarchy of norms, this places international law in between primary Union law and secondary Union law. Furthermore, the ECJ specified that secondary Union law needs to be interpreted ‘as far as possible in the light of the wording and purpose of’ international obligations of the Union, including those stemming from customary international law (for example in Hermès, para 28, and Poulsen, para 9). As Ziegler notes, the duty to interpret Union law consistently with international law can even extend to obligations under international law that do not rest on the Union particularly, but only on the Member States, given that under the principle of sincere cooperation, the Union ought to avoid creating conflicting obligations for Member States.

Given the status of the Genocide Convention as jus cogens, and the fact that all Member States are party to the Convention, secondary Union law must be read in accordance with the obligations to prevent genocide and avoid complicity in genocide. While this may sound rather abstract at first, around two weeks after the ICJ Order a ruling by a Dutch national court in The Hague showed how the exercise of concretising Union law through consistent interpretation with international law could look like.

The ruling of the Hague Court of Appeal 

On 12 February 2024, The Hague Court of Appeal ruled in favour of the applicants (Oxfam Novib, Pax, and The Rights Forum), and decided that the Dutch State was obliged to halt any transfer of F-35 plane parts to Israel. The case was previously discussed in contributions on other blogs, such as those by Yanev and Castellanos-Jankiewicz. For the purposes of this blogpost, it remains particularly relevant to analyse in detail the legal reasoning adopted by the Hague court of appeal (hereinafter: ‘the court of appeal’).

The court of appeal established first that there exists a ‘clear risk’ that Israel commits serious violations of international humanitarian law, and that it uses F-35 planes in those acts. Then, it went on to unpack the legal consequences of this finding. The Dutch State had granted a permit in 2016 that allowed for transfers of goods as part of the ‘F-35 Lightning II-programme’, also to Israel. An important feature of this permit is its unlimited duration, not requiring a reassessment under any circumstance.

The Hague court went on to assess the legality of this lack of any mandatory reassessment. To understand the court’s reasoning, it is necessary to briefly introduce the three legal instruments that the court used for this assessment. The first instrument used was the Dutch Decision on strategic goods, on which the general permit was based. This instrument outlaws the granting of permits that violate international obligations. In the explanatory note to the Decision, the legislator referred in this regard to the earlier mentioned Council Common Position, the second relevant legal instrument. Article 1bis of the Common Position ‘encourages’ Member States to reassess permits if new information becomes available. On first reading, the provision does not seem to require a reassessment, as the Dutch State argued. To determine whether a reassessment was however indeed mandatory, the court took recourse to a third instrument, namely the Geneva Conventions, which lay down the core principles of international humanitarian law. Hereby, Common Article 1 of the Conventions holds that States must ‘undertake to respect and ensure respect for the present Convention in all circumstances’, while the Conventions lays down the core principles of international humanitarian law.

The most relevant feature of the ruling is the Hague court’s combined usage of the teleological and consistent interpretation methods. The court’s reasoning can be reconstructed into four steps. First, the court interpreted the Geneva Conventions as forbidding States to ‘shut their eyes’ to serious violations of humanitarian law, which would be the case if no actual consequences would be attached to such violations. Secondly, it stated that the Common Position should be interpreted as far as possible in a way that does not conflict with the Geneva Conventions. Thirdly, the court found that it was indeed possible to interpret the Common Position consistently with the Geneva Conventions. By reading the Common Position as requiring a reassessment of permits in cases of serious violations of humanitarian law, Member States consequentially are not allowed to ‘shut their eyes’ to those violations, which satisfies the Geneva Conventions’ obligations. Moreover, such an interpretation makes sense in light of the object and purpose of the Common Position. If the Common Position would allow Member States to grant permits of unlimited duration, without requiring their reassessment, they would be able to completely undermine the instrument. Thus, interpreting the Common Position in light of the obligations under the Geneva Conventions, and in light of its object and purpose, led the Hague court to find a duty to reassess in this case. Finally, the court interpreted the Dutch Decision on strategic goods in a way that is consistent with the Common Position, by reading into the Decision an obligation to reassess the granting of a permit under certain circumstances, like those of the present case. This last step reflects the Dutch constitutional duty to interpret national law as far as possible consistently with international law.

Consequently, the court drew a red line and explicitly limited the typically wide political discretion of the Dutch State in foreign and security policy. The court observed that if the Dutch State had undertaken the mandatory reassessment (properly), it should have applied the refusal ground of Article 2(2)(c) of the Common Position and halt the transfers. In the face of such a clearly defined legal obligation, the court simply dismissed arguments of the Dutch State that halting the transfer of F-35 parts would harm its relations with the United States and Israel or would endanger Israel’s existence.

Looking ahead

The ICJ’s observations in the proceedings started recently by Nicaragua against Germany for allegedly failing to do everything possible to prevent genocide, or even facilitating genocide, can further specify these legal limits. However, the serious risk that the Union and its Member States are breaching fundamental norms of international law by refusing to attach considerable political or economic consequences to Israel’s conduct in Gaza already requires taking a new look at the obligations stemming from Union law. Complying with the duties of the Genocide Convention and Geneva Conventions should be done as much as possible by interpreting any rule of secondary Union law in a way that respects, or at least does not undermine, these international obligations. As the ruling of the Hague court demonstrates, interpreting Union law consistently with international law can also help to give full effect to the purpose of the Union instrument itself, especially when that instrument at first glance does not contain clear obligations.

In line with the ruling of the Hague court, an interpretation of the Common Position could integrate the obligations under the Geneva Conventions by prohibiting further arms exports to Israel. Given the lack of enforcement on the Union level, it is up to other Member State courts to adopt and apply such an interpretation. For example, an argument before German courts to read Article 6(3) of the German War Weapons Control Act in line with the Common Position could be made, as was already suggested by Stoll and Salem.

Other instruments of Union law that could be interpreted in a similar way are the legal bases for trade relations with Israel and Israel’s status as an associated country receiving funding under Horizon Europe, including for the development of drone technology and spyware, which has drawn criticism from MEPs. Both Article 2 of the EU-Israel Association Agreementand Article 16(3) of the Regulation establishing Horizon Europe condition association with Israel explicitly on ‘respect for human rights’. It would be difficult to determine any legal value of this condition if Israel’s current behaviour would not be considered sufficient disrespect for human rights to trigger the suspension of these instruments.

The importance of concretising the abstract values that undergird Union law into concrete rules of law, thereby setting legal limits to political discretion, cannot be overstated. As this post demonstrates, integrating obligations from international law can develop interpretations of secondary Union law that allow the Union to follow through on its values, something particularly crucial in light of the current immense suffering of Palestinians in Gaza.

The coming of spring promises many changes, including a newly elected European Parliament and a new college of Commissioners leading the European Commission. The re-opening of the Spitzenkandidaten system has also stirred the debate on the democratic legitimacy of the EU institutions. Focusing on the European Commission, one question that needs answering is about its members: are the European Commissioners creatures of the world of politics or instead independent experts of a technocratic ‘government’?

Looking at it from a constitutional perspective, the Commission is a unicum, with no one-to-one equivalent in nation states. The only substantive provision in the Treaties regarding the work of Commissioners is included in Article 17(3) TEU, which specifies that Commissioners shall be appointed ‘on the ground of their general competence and European commitment from persons whose independence is beyond doubt.’ However, that does not mean that Commissioners must be completely apolitical:  indeed, the Guidelines of the Commission provide for the possibility of Commissioners taking part in the campaigns and elections of the European Parliament (see Article 10).  While political standing helps to set the wheels in motion, there should also be a sense of democracy and direct responsibility to the electorate of Commissioners, if the Commission is to resemble a ‘European Government’. If priority is to be given to Commission duties over party commitment (Article 10(1) Commission Guidelines), then Commissioner candidates are hardly going to act in their neutral and professional capacity, if that would simultaneously mean kicking away the ladder that puts them in their current position. In other words, if Commissioners belong to political parties, this inherently puts them into a precarious conflict between party affiliation and their work as independent public officials (Gehring and Schneider p. 1). 

The legal framework to appoint Commissioners

Since the transformation from the High Authority and the merger in 1967, the Commission has seen a gradual increase in the number of Commissioners (from the original nine to the current 27). The Delors administration is still cited today as the ‘golden standard’ for Commission administrations. The direction and dynamism of this administration helped to solidify the position of the European Commission as the principal advocate for further integration. Among its greater achievements are the completion of the Single Market and the introduction of a single currency. The main reason for setting the Delors administration as the measuring stick is a specific attribute the administration possessed – an ability to identify the political objective, weigh up competing interests, and set out a road map to achieve it. In a sense, one could say the Delors administration was political on the EU level.

Since then, the power of the Commission has steadily increased, with Romano Prodi being dubbed ‘virtually the prime minister of the European Union’, mainly because the President of the Commission could co-decide with Heads of Government/State of the Member States on who should sit in the new administration – a change introduced with the Treaty of Amsterdam (Article 4(4)). At the time, both the German Chancellor Schröder and Mr. Prodi expressed the desire to form the new Commission as a body of independent experts and not of retired or retiring politicians. How does this reflect on the appointment of the Commission as the ‘European Government’?

Article 17(7) TEU stipulates that the candidate for President of the Commission is to be proposed by the European Council, taking into account the results of the European Elections, and then to be elected by a simple majority in the European Parliament.

For the rest of the Commissioners, neither the Treaties nor any inter-governmental agreement specifies how candidates for the Commission are to be chosen in individual Member States. In other words, no source of EU law regulates national procedures of selecting a candidate for the European Commission. The singular provision on this is Article 17(3) TEU that states that ‘the members of the Commission shall be chosen on the ground of their general competence’ and not based on their electability as politicians. This paucity of procedural guidelines itself leaves Member States free to implement their own procedures. For example, Austria regulated it partially in Article 23c of its Federal Constitutional Law, while Slovenia included it into its Cooperation in EU Affairs Act. Similarly, both examples give discretionary power to the national government to propose a candidate, who has to be approved by the national legislature – either the pertinent committee or the plenum.

The Commissioner’s role – is it political or technocratic?

The technocratic side

While it is customary for national governments to use the political apparatus to get elected, some scenarios require an appointed technocratic government of experts to lead the country, in the capacity of interim or caretaker governments (Lachmayer and Konrad). Such technocratic governments are considered to be above party politics, which enables them to bridge the political gaps between political parties.

Since the job of Commissioner requires a certain amount of independence and impartiality towards individual Member States, a technocratic candidate, with no political background, yet with expert knowledge in the department’s work, would seem to meet this ideal. If Article 17(3) TEU is to be analysed word by word, then candidates are to be ‘chosen on the ground of their general competence and European commitment from persons whose independence is beyond doubt’. While the administrations before the Juncker administration have not been viewed as ‘political’, they always included experienced public officials, who have been well acquainted with the functioning of the European Union (Peterson p. 9-21). In fact, if the principal role of the Commission is to combine all 27 different national perspectives and unite them into one voice, while reaching the optimal consensus, that ‘speaks for Europe’, technocratic – and not political – qualities seem a better choice.

While the role of Commission President has certain functions resembling a Head of Government (Craig and de Búrca, p. 32), which require a more political profile, the role of an individual Commissioner itself does not necessarily require large political capital. This makes the Commission wear ‘two hats’ (as the 19^th-century expression goes) – being involved in politics, on the one side, and remaining above the political ground, on the other. The potential problem that could emerge from a politically-disengaged administration may be the political implementation of the Commission’s work: if the Commission’s work is detached from the political reality, both sides of the spectrum – the political and the administrative – are doing Sisyphean tasks.

In the past, it would seem that almost every administration had a mixture of both. This might be attributed to the selection procedure, where Member States should (ideally) propose three candidates for the (future) President of the Commission to choose from. The last two European elections have shown us that this formal requirement is mostly ignored, even when the Member States were asked to adhere to a female-male balance of the Commission. As mentioned previously, every administration had a combination of both the administrative and the political component, but there has never been a formal requirement to balance both sides in the entire College of Commissioners. A possible reform of this is discussed below.

The political side

Some authors consider the Commission to be an inherently political institution, which sometimes tries to tone down its own political importance, to give itself a sense of impartiality. The practice of appointing party members as the candidates to become Commissioners is evidently more widespread, with 24 Commissioners being national party members or affiliated to a party. As far as political appointments are concerned, the past has also shown us that playing party politics in the Commission does not end well: as seen by the example of Sylvie Goulard in 2019 as the French candidate being replaced by Mr. Breton.

The administration under Jean-Claude Juncker was judged as one of the more politically motivated Commissions in the history of the EU. With Mr. Juncker being elected following the Spitzenkandidaten procedure, the very birth of this administration was political. When forming his Commission, he ‘promised to put together a political Commission’ (Juncker, 2014). While this might have been desired to ‘revamp’ European integration, it has proven to be a significantly damaging factor for the impartiality of the Commission on rule of law issues (noticeably in Poland and Hungary). A ‘deliberate governmental strategy of systematically undermining all checks and balances in Poland’ (Pech) and ‘saying goodbye […] to liberal democracy’ (Hungarian Prime Minister Orbán in 2018) were not developments that took place over a short period of time. The Commission certainly tired to remedy the situation (Michelot, 2019), yet showed internal splits and hesitancy in launching Article 7 TEU proceedings. Perhaps the most important setback is that a political Commission cannot ‘pretend that all of the EU’s policy goals are reconcilable and mutually supportive’ (Dawson, 2018): in the crucial politically disputed areas, a political Commission pursues the prevailing political majority and not ‘the wider EU interest’.

Taking these findings into account and applying them to the current electoral campaign, having Member of the European Parliament (MEP) candidates who already had a post in the Commission could improve a party’s credibility in European affairs as well as signal that the candidate is prepared to face public scrutiny, at least at the level of his/her local constituency. So far, at least five of the current Commissioners are also running for a seat in the European Parliament including Ursula von der Leyen and Nicolas Schmit as Spitzenkandidaten. This, of course, does not translate to immediate electoral success for their party but could be an important factor in the final vote. Standing for the European Elections could increase a candidate’s democratic legitimacy as an individually chosen representative to hold the post of Commissioner and contribute to further democratise the Commission as an institution.

Since elections are difficult to predict, national governments rarely announce their choice for the future Commissioner, nor take a stance on the Spitzenkandidaten before the results. If a governing party does announce a candidate, it is usually either someone from their own ranks or someone with close ties to them. In doing so, the party brands them with their political colours. By avoiding naming a candidate in the campaign stage of the European elections, they partly avoid the possible embarrassment if their party were to lose the election and at the same time keep their options open, in case a broader consensus would be required.

In this regard, the current campaign in Slovenia is quite intriguing. The biggest government party announced their candidate for the future Commissioner, without even having a full list of Slovenian candidates for the European Parliament. It is confirmed that their candidate Tomaž Vesel will not lead the party into the election, nor will he even stand as a candidate. Nationally, this decision has caused a governmental crisis, allowing the Government to ignore the results of the European elections already before they have even come out as well as the opinion of other coalition parties due to the opaque rules on naming a candidate for the Commission. It is difficult to comprehend how a nominee for the Commission, who neither participates in the campaign, nor even stands as a candidate for the European Parliament can help solve the democrat deficit problem in the EU.

Possible reforms – fostering more democracy in the selection procedure

As is often the case, a blend of both systems i.e. the technocratic and the political system would be the optimal solution. As the apex of the European bureaucratic machine, the Commission requires a political charge to create wider policy. However, the bigger picture requires of the Commissioners’ expert knowledge of their own department and a large amount of independence, if they intend to do a successful job. If we accept that the Commission is simultaneously a political and a technocratic institution, might it not be sensible also to try and strike a balance between Commissioners being both political actors and impartial experts, to maximise the Commission’s efficiency?

So far, no additional requirements for Commissioner candidates have been voiced, yet it would seem that several of the incumbent Commissioners have decided to actively participate in the coming European elections, standing for election as MEPs. In this light, it would perhaps be prudent to consider the long-standing British constitutional practice that ministers – the executive – are simultaneously members of the legislature. This makes the British Cabinet effectively ‘a committee of the legislative body selected to be the executive body’ (p. 48 Bagehot 1867).

This holds significant advantages in terms of democratic accountability, since all members of the executive have been directly chosen by the people to represent them in the highest democratic institution – the parliament. In other words, this enables the public to narrow the pool of possible candidates that can hold public office. It also significantly prevents the occurrence of nepotistic appointments in the executive and legislative institutions. At the same time, ministers enjoy a certain degree of independence and a high political profile, regardless of their position in government, which contributes to their independence in cases of executive autocracy. An example of this is the unprecedented revolt in the final days of Mrs. Thatcher’s government.

Many of the above-mentioned strengths would improve the current constitutional predicament of the Commission: if fostering more democracy is the goal, then requiring future Commissioners to be a part of the biggest international democratic legislative body would give the peoples of Europe far more power in choosing their own representatives as well as the country’s representative in the Commission (although the Commissioners are expressly forbidden from following instructions of national governments or other entities). Giving the electorate the power to decide who enters Parliament and consequently the Commission would also impede the search for the ‘ideal candidate’ to lead a department. Additionally, if only members of the legislature could also occupy positions on the MEP’s staff, then the unfortunate spat on President von der Leyen’s staff and the accusations of nepotismmight have been completely avoided.

The incorporation of these potential changes would, however, likely only be possible by re-opening and amending the Treaty on the European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU).

The epilogue after June

It should be noted that there is an important difference between participating in the European elections and being appointed as Commissioner. How one is elected (or appointed) has consequences on one’s job performance. Does participating in the elections hinder a candidate’s ability to act independently and apolitically in the future? Though the question is meant to be rhetorical, no politician would like to return to the electorate without having fulfilled at least a part of the promises and policies on which he or she was elected.

After the 9^th of June, the future administration of the Commission will start taking shape. Since the biggest political groupings have returned to the election campaign with their own candidate to lead the Commission, we can justifiably claim that the Spitzenkandidaten are back. This would effectively solidify the claim of the biggest ‘winners’ in June to demand their own candidate is nominated as the President of the Commission. Given the lukewarm reception of Mr. Juncker and the rejection of Manfred Weber in 2019, the selection of the candidate for Commission President or election of the Commission President could go either way. The selection of the President of the Commission could just as well affect the proposals of Commissioners from the Member States. It would be important however, to consider the political and the technocratic arguments and ultimately usher in more democracy to the European Commission, by creating a balance of both interests – either in terms of quality or quantity.

On 18 April 2024 the European Commission issued a recommendation for a Council Decision authorising the opening of negotiations for an agreement between the EU and the UK on youth mobility. This is the first time since the signing of the Trade and Cooperation Agreement (TCA) in 2021 that the EU has proposed the conclusion of a legal framework for mobility of persons between the EU and UK. Free movement of persons ceased between the two as from 1 January 2021. Since then there has been a continuing exodus of EU nationals from the UK: 87,000 more EU nationals left the UK than came to it in 2023 (COM(2024)169 p 2). EU national students coming to the UK has dropped by 50%.

In response to this changing landscape of mobility, in 2023 the UK government has been approaching some (but not all) Member States regarding the possible negotiation of youth mobility arrangements based on existing UK national law. This unilateral action has sparked the Commission to seek a negotiating mandate from the Council to block possible bilateral arrangements between the UK and some Member States to the exclusion of others. This is consistent with the Council position adopted on 23 March 2018 that any future partnership between the EU and the UK on mobility of persons should be based on full reciprocity and non-discrimination among Member States.

As a result of the upheaval which the decision to leave the EU caused to the UK political class, including among other things a change of prime minister, while the UK had been interested in youth mobility in 2018, by 2019 the government was no longer willing to include this in the TCA. This has meant that youth mobility between the two has been regulated by national law in the UK and by a mix of EU and national law in the Member States. The UK has a long standing youth mobility programme limited to young people, nationals of countries specified in the immigration rules, between the ages of 18 to 30 or 18 to 35, depending on what country the person is a national of, and limited to two years. No EU country is included in this category (though Andorra, Iceland, Monaco and San Marino are).

The Commission proposes that a new youth mobility agreement be part of the TCA framework and remains neutral on whether it would be a Union-only or mixed agreement, something to be determined at the end of the negotiations. Similarly, it considers that the legal basis for the agreement would have to be determined only at the end of the negotiations. Neither of these issues is likely to meet with enthusiasm by the Council which may wish a clearer remit to the Commission regarding what can be negotiated. The Commission considers that only a formal agreement between the UK and the EU will achieve the objective in providing legal certainty and addressing the issue of non-discrimination. It states that only a “binding mutual understanding in the form of a formal international agreement” can guarantee legal certainty. Nonetheless, the Commission envisages that the agreement would be supplemental to the TCA and would be part of its single and uniform institutional framework, including rules on dispute settlement.

For young people in the EU and the UK this would be a rather unsatisfactory framework on account of Article 5 TCA. This states that (with a sole exception for social security) “nothing in this Agreement or any supplementing agreement shall be construed as conferring rights or imposing obligations on persons other than those created between the Parties under public international law, nor as permitting this Agreement or any supplementing agreement to be directly invoked in the domestic legal systems of the Parties.” So young people seeking to exercise mobility rights under any new agreement would not be able to rely on such an agreement if it is adopted within this framework. This could only be resolved if Article 5 were also amended to exclude from its scope not only social security but also youth mobility.

The Commission proposes that the scope of the agreement would cover twelve issues. First, the personal scope would be limited to EU and UK citizens between 18 and 30 years. The period of stay would be four years maximum. There would be no purpose limitation on mobility, young people could study, work or just visit if they want to. There would be no quota on this category. The conditions applicable to the category should apply throughout the individual’s stay. Rejection grounds would be specified. The category would be subject to a prior authorisation procedure (ie specific visa to be obtained before arrival). For UK citizens, their mobility would be limited to the one Member State where they had received authorisation (leaving open the question whether the periods for be cumulative or consecutive in different Member States). Equal treatment in wages and working conditions as well as health and safety rules must be respected on the basis of non-discrimination with own nationals. This may also include some aspects of education and training, tax benefits etc. In particular, equal treatment as regards tuition fees for higher education is planned. This would mean that EU students seeking to study in UK universities under the youth mobility scheme would only pay home student fees which are dramatically cheaper than overseas student fees which are currently applicable. Interestingly, the Commission proposed that this home student fee provision should apply to all EU students in the UK including those who arrive on student visas rather than youth mobility ones. The UK’s ‘healthcare surcharge’ would also be waived for this category. Finally, the conditions for the exercise of family reunification would need to be specified.

The Commission plans that any youth mobility scheme should be without prejudice to other legal pathways for migration and EU rules on permanent or long-term resident status.

For the EU, such a youth mobility scheme between the UK and the EU would add to an already rather complex field of EU competences. The Students and Researchers’ Directive covers conditions of entry and stay for the purposes of research, studies, training, voluntary service, pupil exchange schemes or educational projects and au pairing. This would certainly cover quite a lot of what is planned for youth mobility. However, the Commission appear not to be keen on using Article 79 (2) (a) and (b) TFEU, the basis of that directive for the purposes of this initiative. One of the reasons is that all the categories of persons covered in that directive need a sponsor (which could be a university, an employer or a training institution) within a Member State who is saddled with a variety of obligations regarding the third country national to ensure that they comply with general immigration conditions. Such a sponsorship approach is not intended by the Commission for UK-EU youth mobility. Further the Commission’s objective is to achieve reciprocity between the parties and non-discrimination among the Member States and their nationals. This is not an element of the directive. Thus, a new agreement seems to be the preferred approach – the Commission appears to prefer the ‘free movement’ approach rather than the sponsored one. Yet, as mentioned above, if the objective is to provide legal certainty to Europe’s young people regarding moving between the EU and the UK, the TCA does not seem to be an appropriate tool either as it specifically rejects that legal certainty by denying the right to individuals to rely on its provisions before the authorities or courts of the parties.

At the time of writing, it is unclear how the Council will approach this proposal. There are indications that some Member States may not be enthusiastic (Hungary is one) worrying that their skilled young people may be enticed to go to the UK rather than staying at home. But the majority appears to be very positive towards any move to normalise mobility between the two parties.

1. Introduction

Air carriers often use clauses which prohibit the assignment of passenger claims. Such clauses have a generic scope but were mainly introduced to deter the assignment of claims under Regulation 261/2004 on air passenger rights (Air Passenger Rights Regulation – APRR) to commercial companies. The fairness of such clauses under the Directive 93/13/EEC on Unfair Terms in Consumer Contracts (UCTD) has been disputed. In its judgment in C-173/23 Eventmedia Soluciones SL v Air Europa Líneas Aéreas SAU ECLI:EU:C:2024:295 (Judgment), the European Court of Justice (ECJ) ruled on some aspects of the duty of national courts to assess of their own motion the unfairness of contractual terms in the context of air carriage under the 1999 Montreal Convention on the liability of the international air carrier (MC99).

The MC99 establishes uniform rules on certain aspects of the liability of air carriers for international carriage by air. It is one of the most widespread international conventions and is also open for signature by Regional Economic Integration Organizations, such as the EU (Article 53(2)). The MC99 was signed by the (then) European Community on 9 December 1999 and entered into force on 28 June 2004. Ever since, the MC99 provisions have been an integral part of the EU legal order (C-344/04 IATA and ELFAA, para. 36), save for the provisions on cargo, for which competence rests with the EU Member States. Hence, the ECJ is competent for the interpretation of the MC99 provisions on passengers and luggage.

This post presents the judgment of the ECJ, including its legal background. Subsequently, comments are provided regarding (1) the ex officio assessment of unfairness of contractual terms under the UCTD and (2) the validity of clauses prohibiting assignment of passenger claims under the APRR, according to the case law of the ECJ and national courts. The conclusion of the post evaluates the importance of the judgment for the analysed topics.

2. Facts and legal background

2.1 Facts

An air passenger suffered a delay in the transport of his baggage on a flight from Madrid (Spain) to Cancún (Mexico). He assigned his claim for damages against Air Europa, an air carrier, to Eventmedia, a commercial company. Eventmedia brought an action against the air carrier before the referring court, i.e., Commercial Court No 1, Palma de Mallorca, Spain.

Air Europa disputed Eventmedia’s standing to bring proceedings, since a clause in the contract of air carriage provided that ‘the rights to which the passenger is entitled shall be strictly personal and the assignment of those rights shall not be permitted’.

The referring court specified that the liability of the air carrier is governed by Article 19 MC99 and deemed the dispute as contractual. Consequently, according to the referring court, the assignment of the claim for damages relating to such a delay fell within the prohibition of assignment established by the clause at issue. The national court, referring to the ECJ case law under the UCTD, was uncertain whether it could examine of its own motion the unfairness of the clause for two reasons. First, the applicant in the proceedings, Eventmedia, was neither a party to the contract of carriage nor did it have the status of a consumer under Article 2(b) UCTD as only natural persons may be ‘consumers’. Second, since the consumer was not a party to the proceedings, the court could not consider the consumer’s intention to rely, after having been informed by that court, on the unfair and non-binding nature of the clause at issue.

2.2 Legal background

According to the settled case law of the ECJ (e.g. C-567/13 Baczó and Vizsnyiczai, paras 40-42;  C-377/14Radlinger and Radlingerová, para. 48), in the absence of EU rules governing the matter, it is for the domestic legal system of each Member State, in accordance with the principle of procedural autonomy, to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from EU law. On that basis, the detailed procedural rules governing actions for safeguarding an individual’s rights under EU law must be no less favourable than those governing similar domestic actions (principle of equivalence) and must not render practically impossible or excessively difficult the exercise of rights conferred by EU law (principle of effectiveness).

Regarding the principle of effectiveness, the ECJ has combined it with the effective application of Art. 6(1) UCTD. Thus, the Court has repeatedly held that national courts are required to assess of their own motion whether a contractual term falling within the scope of the UCTD is unfair, to compensate for the imbalance which exists between the consumer and the seller/supplier, where the courts have available to them the legal and factual elements necessary to that end (C-243/08 Pannon GSM, paras 22-24, 32; C-377/14 Radlinger and Radlingerová, para. 52).

Nonetheless, the ECJ has also clarified that national courts, in carrying out that obligation, should inform the consumer of the consequences of the potential unfairness of the term, namely that the term is invalid and that such invalidity may affect the validity of the whole contract under Article 6(1) UCTD (C-269/19 Banca B., para. 29). In this regard, national courts should account for the possibility that the consumer may decide to not assert the unfair status of the term (C-243/08 Pannon GSM, para. 33).

3. Issues

Two questions were referred to the ECJ by the national court.

First, whether the national court was required to examine of its own motion the unfairness, under Articles 6(1) and 7(1) UCTD, of a clause that prohibits the assignment of passenger claims against the air carrier, where a claim has been brought against the latter by a commercial company as an assignee of that passenger’s claim.

Second, if the answer to the first question is affirmative, could the court disregard its duty to inform the passenger of the consequences of the unfairness, given that in the case at hand there was no ‘consumer’ litigating?

4. Judgment

4.1 Preliminary issue

As a preliminary issue, the ECJ clarified that the applicability of the UCTD to a dispute depends on the capacity of contractual parties, not on the capacity of the litigants. Hence, the fact that the litigation in question was between two commercial entities did not exclude the dispute from the scope of the UCTD, since the contract of carriage had been concluded between the air carrier and a natural person who was (seemingly) acting outside his professional capacity (paras 17-26).

4.2 On the first question

Proceeding to answer the first question referred to it, the ECJ observed that the UCTD aims at protecting consumers vis-à-vis sellers/suppliers on the premise the consumers are in an inferior position regarding their knowledge and bargaining power (para. 27). The UCTD aims at restoring such imbalance by rendering unfair contractual terms not binding on consumers (para. 28).

The Court then referred to its established case law on the duty of national courts to examine of their own motion the unfairness of contractual terms in consumer contracts. Such a duty is based on the effective application of Art. 6(1) UCTD(paras 28-29). Moreover, it is based on the principle of effectiveness in the context of the procedural autonomy of the EU Member States under Art. 7(1) UCTD, notwithstanding the principle of equivalence (paras 30-32).

Regarding the principle of equivalence, the ECJ reiterated that Article 6(1) UCTD ranks equally with domestic rules of public policy. Whether a national court has a duty to assess ex officio the unfairness of a term under the UCTD depends on whether that court, under national procedural rules, has discretion or an obligation to examine ex officiothe violation of national rules of public policy (paras 33-35). This is for the national court to ascertain (para. 36).

As to the principle of effectiveness, the ECJ observed that, in the case at hand, there was a dispute between two commercial entities. Thus, there was no imbalance of power and knowledge between them. As a result, there was no duty of the national court to examine of its own motion the potential unfairness of the clause in question (paras 38-39). In addition, the principle of effectiveness does not require an ex officio assessment of the unfairness of the term, if the legal entity as an assignee has or had, under the national procedural rules, a genuine opportunity to rely on the unfairness of the contractual clause (para. 40).

4.3 On the second question

The ECJ observed that the second question regarded the right of each litigant to a fair hearing. This entitles each party to the litigation to be informed of the issues that the court has raised of its own motion and provide its views thereon (paras 44-45). Thus, if the national court ex officio finds a contractual term to be unfair, it must notify the litigation parties thereof, and provide them with the opportunity to present their views and refute the views of the other party (para. 46). In this way, the national court also fulfils its duty to consider the potential consent of the assignee to the use of the term in question despite its unfairness (para. 47) – although this was obviously not the case in the present proceedings (para. 48). On the contrary, the national court did not have to inquire the consumer’s opinion since the consumer was not a party to the dispute (para. 49).

5. Comments

This judgment provides helpful guidance on the duty of the national court to assess ex officio the unfairness of a contractual term. Moreover, it is interesting to compare this judgment with the ECJ judgment in C-11/23 Eventmedia Soluciones regarding the validity of such clauses under the APRR.

5.1 Ex officio assessment of unfairness

The judgment reveals two aspects of the assessment of unfairness under the UCTD: a substantial and a procedural one. Both aspects are influenced by the imbalance between the consumer and the seller/supplier, which lies at the core of the UCTD and which national courts are required to restore by positive action (C-240/98 to C-244/98 Oceano Grupo and others, para. 25). At the substantial level, national courts must declare an unfair term non-binding to the consumer and, at the procedural level, they must assess of their own motion the unfairness of the terms relevant to the dispute. Hence, the substantial and procedural aspects are distinct, albeit interconnected (see Judgment, para. 24).

The substantial aspect relates to the scope of the UCTD and the criteria of unfairness. As a result, it is immaterial for the applicability of the UCTD whether the parties to the litigation are legal entities, as long as: (1) the contract has been concluded between a seller/supplier and a ‘consumer’ (Judgment, paras 17, 24-25); and (2) one party to the litigation is an assignee of a consumer or an organisation having a legitimate interest under national law in protecting consumers (UCTD, Article 7(2)).

The duty to an ex officio assessment is a procedural issue. It accounts for the fact that  consumers may be unaware of the potential unfairness of contractual terms or incapable of invoking them, because they deem their participation to the trial unworthy in view of the high litigation cost compared to the value of the dispute (C-240/98 to C-244/98 Oceano Grupo and Salvat Editores, para. 26). In principle, this duty of the national court arises only if the consumer participates in the litigation as a plaintiff or a defendant, because in such cases the substantial imbalance of the contractual parties is transferred to the litigation level. However, there are cases in which a legal entity is a litigant in the place of the consumer, by means of assignment from the consumer or because it has legitimate interests in protecting consumers. In such cases, the ECJ considers that there is no imbalance between the litigants as a procedural issue (C-413/12 Asociación de Consumidores Independientes de Castilla y León, paras 48-50;  Judgment, para. 38). The ECJ bases such view on purely formal criteria: ‘consumers’ are natural persons acting outside their trade or profession and are irrefutably deemed to have limited knowledge and experience (see C-110/14 Costea, paras 16-18, 20-21, 26-27); whereas a legal entity is irrefutably considered to be more sophisticated and does not need such a high level of protection.

Concerning the capacity of ‘consumer’, the ECJ seems to apply a kind of presumption in favour of such capacity, when a natural person contracts a commercial entity. In the absence of evidence to the contrary, natural persons are deemed to have acted outside their professional capacity (C-519/19 Delay Fix, para. 56; Judgment, para. 19). However, such evidence needs to be strong and not based on isolated factors (see C-774/19 Personal Exchange International, paras 49-50).

Nonetheless, in exceptional cases, the national court may be under a duty to assess ex officio the unfairness of a contractual clause, although no ‘consumer’ is party to the litigation. As the Court notes in para. 40 of its Judgment, such a duty exists also when the assignee, despite being a commercial entity, had no ‘genuine opportunity’ to raise the issue of unfairness. This refers to the rights of the assignee under national law. That might be the case, if e.g. under national law the assignment did not include the whole contract of air carriage, but only a part of it, and the clause prohibiting the assignment had not been part of the assignment (see C-519/19 Delay Fix, paras 47, 63). The reason for this exception likely lies in the close connection between the substantive and procedural aspects of the consumer rights under the UCTD.

5.2 Validity of clauses prohibiting assignment of passenger claims under the Air Passengers Rights Regulation

Many air carriers have introduced clauses prohibiting the assignment of passenger claims to third parties. Although such clauses usually have a generic scope, air carriers had in mind mainly claims based on the APRR when they introduced them. This Regulation, among others, provides for compensation to passengers in cases of cancellations of flights and denied boarding of passengers (Articles 4(3) and 5(1)(c) APRR). The ECJ has interpreted the Regulation as providing such a right also in cases of delays in arrival to the final destination exceeding three hours. The amount of compensation is standardised and depends on the distance of the flight to its final destination (Article 7 APRR). The standardised compensation amounts, combined with the very limited possibilities of exclusion of the carrier liability (Article 5(3) APRR), has led to the creation of commercial entities, to which passengers may assign their claims and which undertake to enforce passenger claims before national courts against a percentage from the compensation received (contingency fee, see here for an overview). This has resulted in a significant increase of passenger claims against air carriers, which has increased the cost of carriers regarding the amounts paid not only for compensation but also for judicial costs. Air carriers have reacted by introducing non-assignment clauses in their contracts with passengers.

Regarding passenger claims based on the APRR, national courts have assessed under the UCTD, on a number of occasions, the unfairness of clauses prohibiting assignment. The results have been mixed. The main issue in the proceedings has been whether the prohibition of assignment obstructs the passenger’s (or consumer’s) route to compensation, including access to courts. In England, the Court of Appeals affirmed the judgment of the trial judge, who found such clause to be fair (Bott and Co Solicitors Lyd v Ryanair DAC [2019] EWCA Civ 143, at [71]-[73], reviewed on other grounds [2022] UKSC 8). On the contrary, in Germany, such clauses have been found unfair in a long line of case law (e.g. LG Nürnberg-Fürth, 30.7.2018; LG Frankfurt am Main, 25.11.2021), including the Federal Court of Justice (BGH 1.8.2023, paras 8, 10, 14, affirming LG Memmingen, 28.9.2022, para. 14).

Earlier this year, the ECJ already clarified, in C-11/23 Eventmedia Soluciones (paras 39-46),  that clauses prohibiting assignment of claims based on the APRR are invalid under Article 15 of the Regulation, which prohibits any limitation of passenger rights. Hence, the discussion on the unfairness of such clauses under the UCTD has no practical importance to the APRR. The UCTD has practical importance, however, for claims under the MC99. Articles 29 and 33(4) MC99clarify that issues of legal standing are governed by the domestic law of the contracting States, which, in the context of EU law, entails the applicability of the UCTD.

6. Conclusion

In conclusion, the present judgment is noteworthy, because it clarifies important aspects of the duty of national courts to assess of their own motion the unfairness of contractual clauses under the UCTD. Moreover, combined with case law of the ECJ and the national courts on the APRR, it sheds some light on the application of the UCTD to passenger claims under the MC99.

Transparency and environmental policy are two key issues in the upcoming European Parliament elections. In this regard, the General Court’s (‘the Court’) ruling on 13 March 2024 in the case of ClientEarth and Leino-Sandberg v Council provides some highly relevant insights. The Court annulled two Council decisions refusing to disclose the Council Legal Service’s opinion on the 2021 proposal to amend the Aarhus Regulation. While the Court’s critical approach to the Council’s justifications for secrecy is to be applauded, and the outcome of the case is certainly to be welcomed, this post suggests that an alternative route to reach the same conclusion would have been more desirable. The Court now seems to deliberately gloss over the document’s potential legal and political significance, turning a blind eye to the heated and ongoing debate on the Union’s (non-)compliance with the Aarhus Convention. Instead of downplaying the relevance of the document’s content, we argue that a more principled emphasis on demanding openness in the realm of environmental policy would have led the Court to the same outcome but would have also made the Union’s transparency framework more robust, in line with the objectives of the Aarhus Convention.

The EU and the Aarhus Convention

The requested document was produced by the Council’s Legal Service in the process of amending the Aarhus Regulation, which presents one aspect of the Union’s implementation of the Aarhus Convention. The Aarhus Convention is an international agreement, which the Union approved in 2005, aiming to improve public access to information, public participation in decision-making, and access to justice in environmental matters. The Aarhus Regulation, adopted in 2006, applies the various provisions of the Convention to the Union institutions. At the time, the internal review mechanism of Article 10 of the Regulation was considered the most promising creation, which allows non-governmental organisations and other natural and legal persons to request reconsideration of certain administrative acts or omissions by the adopting institution. Through this administrative review mechanism, the Union aimed to provide a legal avenue for applicants who do not qualify for standing under Article 263(4) TFEU due to the restrictive criteria of direct and individual concern. The Union thereby aimed to meet the requirements of Article 9(3) and (4) of the Aarhus Convention, which obliges to allow members of the public broad access to effective review mechanisms to challenge acts and omissions that contravene environmental law.

In 2011, the Aarhus Convention’s Compliance Committee (ACCC) already indicated that the restrictive scope of challengeable acts via the internal review mechanism of the Aarhus Regulation might not be sufficient to ensure the Union’s compliance with the Convention’s access to justice obligations. Due to the refusal of the Union courts to depart from their restrictive case law on the standing of natural persons under Article 263(4) TFEU established in Plaumann (and clarified later for example in Greenpeace, Danielsson, UPA, Jègo-Quéré, or Carvalho), as well as their narrow interpretation of relevant provisions of the Aarhus Regulation (for example in Stichting Milieu, LZ or Trianel), the ACCC eventually adopted a decision in 2017, confirming the Union’s non-compliance with Article 9(3) and (4) of the Convention.

The main aspects of the Union’s non-compliance were that only acts of individual scope, adopted under environmental law, and having legally binding and external effects could be challenged via the internal review mechanism (see the ACCC’s 2017 Decision, particularly paras 94-104) and that members of the public other than NGOs could not request such review (paras 92-93). This led to most internal review requests being declared inadmissible.

Following this established non-compliance, the Commission proposed amendments to the Regulation, which would now allow for the challenge, within the internal review mechanism, of acts and omissions regardless of their personal scope that more generally contravene environmental law, and that have legal and external effects (for more detailed considerations of these amendments, see for example Brown, Leonelli, or Pagano). In February and again in July 2021, the ACCC assessed these particular proposed changes positively. An agreement on the amendments was reached in the trilogue negotiations in July 2021, and in October 2021, the amendments were officially adopted in Regulation (EU) 2021/1767.

The Document Request and the Judgment 

It is within this revision and negotiation process that the legal opinion at the core of the dispute in ClientEarth and Leino-Sandberg v Council comes into play. The currently only partially available version of the requested document contains a (legal) analysis of the findings of non-compliance of the ACCC, as well as a proposal for next steps to be taken, also in light of the (at the time) upcoming Meeting of the Parties to the Aarhus Convention (MoP). The crucial question then is why the Council, after providing only very restricted access to the requested legal opinion, still refuses to grant full access to this document. This question is all the more pertinent as the relevant negotiations have been closed and the changes to the Regulation have already long been adopted, leading the Court to quickly dismiss the argument that disclosure could undermine an ongoing decision-making process (Judgment, para 100).

The Council feared that full disclosure of the document would have two negative consequences for the Union. In its view, disclosure would threaten its ability to receive high-quality advice from its Legal Service because disclosing the full analysis invites external pressure and litigation due to its broad scope. Furthermore, disclosure would in the eyes of the Council hurt the Union’s ability to act effectively on the international stage. Both of these concerns relate to grounds protected by the Access to Documents Regulation, which contains exceptions to the general rule that Union institutions need to disclose documents.

The Legal Advice Exception

With regard to the Council’s first concern, the main dispute centred on the question of whether the document contained information sensitive enough to argue that disclosing it would endanger the Council’s ability to receive frank, objective, and comprehensive advice. Ever since the ECJ’s Turco ruling, institutions withholding access under this ground need to do more than describe an abstract worry. Instead, they need to “give a detailed statement of reasons” why they believe the legal advice in question is “of a particularly sensitive nature or [has] a particularly wide scope” (para 69).

To that effect, the Council in this case cited ‘external pressure’ and the large number of cases brought before the Union courts as evidence of the contentious nature of the subject matter (Judgment, paras 63 and 71). In such a controversial area, disclosing a broad legal discussion of the Union’s compliance with the Aarhus Convention in light of the proposed amendments could add fuel to the fire, and in turn, make members of the Council Legal Service hesitant to present their honest opinions in the future.

The Court deemed the argument based on the existence of ‘external pressure’ completely unsubstantiated (Judgment, para 65). This observation is to be applauded, given that the ‘external pressure’ in question amounted to nothing more than quite measured comments by NGOs and academics, including on this blog (Council Replypara 37). Especially in legislative procedures, it is striking that the Council views critical engagement with the Union’s policies as ‘external interference’ rather than healthy signs of public engagement in the democratic process.

The second concern, regarding the broad nature of the legal analysis, and the related risk of litigation, was taken more seriously by the Court, as it acknowledged the many legal challenges against the Union’s compliance with the Aarhus Convention. However, the Council did not explain specifically how disclosing the document at hand would negatively influence such procedures. Indeed, how could legal advice that was not negative about the Commission’s proposal make it more difficult to defend the eventually adopted Regulation in court (Judgment, para 75)? Finally, the Court stressed that the amendment of the Aarhus Regulation could not and did not entail consequences for the standing criteria laid down by Article 263 TFEU. Thus, disclosing legal advice on the relation between the internal review mechanism and the remedies provided by the Treaties was considered unproblematic (Judgment, paras 84-85).

The International Relations Exception

The second ground for refusal by the Council related to the Union’s international relations. In the case law on this exception, institutions have generally presented two main rationales for secrecy (see Peters and Ankersmit for an overview). The first concerns information that reveals strategic objectives and tactical considerations, because external actors could in turn use that information to the detriment of the Union. The second main reason stems from the fact that certain documents are shared with the Union on a confidential basis and disclosing them could hurt the climate of confidence.

The Council in this case employed the first rationale, stressing that revealing the legal analysis would ‘compromise the Union’s position vis-à-vis the other parties to the Aarhus Convention’ (Judgment, para 107). In line with previous case law such as In ‘t Veld v Council, the Court required more than a mere fear, but rather an argument showing ‘how disclosure could specifically and actually undermine’ the Union’s interest in international relations (Judgment,para 108). Given that the ACCC itself had in fact recommended the adoption of the amendment to the Aarhus Regulation, and the Council’s Legal Service opinion in question was not negative to or critical of the amendment (paras 115-116), the Court failed to see how disclosure could weaken the Union’s position in negotiations with the Convention parties.  

Simply a Piece of Uncontroversial Legal Advice? 

In general, the Court’s critical approach to the Council’s fears signifies a positive development in the case law concerning access to documents. As has been argued before by Leino-Sandberg, Union institutions generally showcase an attitude of ‘exasperation and foot-dragging’ when it comes to publishing legal advice. Moreover, in previous cases, the Court itself has been dangerously deferential to any justification presented under the ‘international relations’-exception. The fact that the Court carefully scrutinised the Council’s arguments and did not take the presented worries for granted is a laudable approach that brings the Union more in line with its own commitment to transparency (Article 1(2) TEU).

Still, the judgment relies on an assumption that can be viewed critically. The Court seems to infer that the concerned legal analysis cannot invite external pressure, litigation, or tough negotiations with Aarhus Convention parties, mainly because it does not take a negative stance towards the legislative proposal. However, based on the available information (and lacking knowledge of the full document), this assumption seems far from self-evident.

While the judgment only contains the positive comments of the ACCC on the 2021 amendments to the Aarhus Regulation (Judgment, paras 10, 18, and 92), the actual negotiations surrounding the Union’s compliance with the Convention are far from settled. Indeed, the ACCC in 2021 determined that while the amended Regulation constituted a ‘significant positive development’, certain remaining hurdles to the Union’s compliance with Articles 9(3) and (4) of the Convention would now depend predominantly on whether the relevant provisions are interpreted consistently with the objectives and obligations of the Convention (see the ACCC’s 2017 Report, paras 117-119).

Moreover, another concrete issue of the Aarhus Regulation’s review mechanism, concerning the impossibility of challenging state aid decisions, was raised in a different complaint and ACCC report, and has not been addressed by the 2021 amendment to the Regulation. In the last MoP in 2021, a new decision on the Union’s compliance on this matter was postponed, as the Union extraordinarily requested more time to “analyse the implications and assess the options available” (see paras 54-55, 57).

It thus appears that the dilemma at the core of the negotiations to which the legal advice of the Council related, seems anything but resolved. While we await the Council to provide the requested document in full in order to know for sure what the content of the advice really is, the various communications from the Council allow some theorising.

What we know for sure is what the secret document does not address, as the Council explained in the hearing in the case that the document (1) does not cover political or strategic aspects of the Commission’s proposal and the Union’s position in the Aarhus Compliance negotiations, (2) does not cover the aspect of the state aid exception, and (3) does not relate to any other future international agreement (Report for the Hearing in Case T-683/21).

Furthermore, reading between the lines of the Council’s rather vague statements in the written reply to the document request and the hearing, one can hypothesise what the document does address. It seems to concern the Union’s compliance with the Aarhus Convention’s access to justice obligations of Article 9(3) and (4) in a much more general way and in relation to the limitations posed not only by the then-to-be-amended Aarhus Regulation but also by the Union’s overarching system of legal remedies under primary law. Indeed, according to the Council, the document “contain[s] an elaborate analysis, including questions relating to primary law”, concerning “the system of internal review as established under this regulation in relation to the system of legal remedies as provided for under Article 263 [TFEU]”, and the “legal feasibility of solutions that the European Union could implement to address the alleged non-compliance with the Aarhus Convention” (Council Reply, paras 50, 52, 69 and 70). As such, even more sensitive, the Council in the hearing explained that the advice seems to cast doubt on the Union’s compliance with Article 9(3) and (4) of the Convention, potentially by interpreting the Aarhus Regulation and Union primary law in a way contrary to what the ACCC was expecting in their 2017 and 2021 reports (Report for the Hearing in Case T-683/21).

Thus, while the Court rejected the Council’s worries in relation to the sensitivity of the requested document, it does not seem unlikely that the Council within this document reflected on intricate matters of Union law and the relationship with international obligations.

A More Principled Way to Reach the Same Conclusion

Although it is thus not implausible that the document contains politically and legally charged information, this does not mean that the Council withheld access to it rightly. While the Court, in line with case law such as ClientEarth (ISDS), coupled its review of the refusal to disclose with the sensitivity or strategic nature of the legal opinions, we argue that a more principled line of argumentation would have been more desirable.

As argued previously by Peters and Ankersmit, the Court could have distinguished policy areas characterised by a zero-sum logic and areas characterised by a positive-sum logic. In the former realm, secrecy is classically viewed as a necessary evil to avoid adversaries from gaining too much insight into the Union’s internal deliberations. As alluded to by the Ombudsman, disclosure of information could indeed be dangerous if certain ‘key strategic interests’ are at play, such as military strategies or critical infrastructure. In contrast, the development of collaborative policies in fields like environmental law is typically spurred on, rather than hurt, by transparency and openness. The typical mutual benefits from cooperation in these areas even hinge on the trust parties obtain by being able to check on each other. Likewise, MoPs are generally open and transparent, whereas the Aarhus Convention also contains a pledge to uphold a high degree of transparency for environmental information (Article 4).

The Court could have interpreted the Access to Documents Regulation in light of these considerations by making this distinction between areas where the need for secrecy differs widely. As a result, the Council’s fears would not justify secrecy. It cannot be said to be in the Union’s interest to hide legal advice as a strategic move to escape critical debates on the Union’s compliance with a crucial pillar of the system of international environmental law, the success of which relies on genuine cooperation and mutual trust amongst the parties. In our view, such a principled approach is to be preferred over implicitly increasing the level of scrutiny in the review, as it makes the Union’s transparency framework more robust, in line with the objectives of the Aarhus Convention.

To conclude, we suggest that the Council’s legal advice at the core of this judgment clearly contains information that the public should be able to access, even if this information continues to have strategic significance. How controversial the content of the previously hidden legal advice actually is, should be clarified soon, when the Council follows up on the judgment and discloses the full document.

The authors would like to thank Professor Päivi Leino-Sandberg for providing us with additional context on the case, as well as the Report for the Hearing in Case T-683/21. This document is not (yet) published online.

The European Parliament’s recent proposal to remove the unanimity requirement from Article 19 TFEU (non-discrimination legislation) echoes a centuries-old US debate on voting and minority rights. James Madison, the ‘father’ of the US Constitution defended majority voting as a necessary condition for impartial law-making and minority protection in multi-state unions. Conversely, John C. Calhoun, the then Vice US President and a key advocate of slavery, sought to maintain the racial status-quo through advocating for a unanimity-based structure.

The purpose of the blog is twofold. First,  it utilises US constitutional history to show how unanimity voting can function as a tool to perpetuate the unjust status quo to the detriment of minority rights. In this regard, partial similarities are drawn between the current Article 19 TFEU and Calhoun’s voting model. Secondly, it contrasts the pragmatic nature of the travaux préparatoires of Article 19 TFEU with the principled approach of the US debate. This juxtaposition underscores the importance of anchoring the proposed treaty changes in the foundational principles of Western constitutionalism. Specifically, it highlights  the nemo judex rule — ‘not being the judge in one’s own cause’ — a principle that shaped the US constitutional debate but was surprisingly absent in the drafting history of Article 19 TFEU. The blog shows why this particular principle should be considered in the debate on the European Parliament’s proposal to amend Article  19 TFEU.  Addressing the foundational role of this principle in Western constitutional theory provides additional support for removing the unanimity requirement from Article 19 TFEU. This change could help ensure better protection of minority rights in line with the values enshrined in Article 2 TEU. It is important to clarify that the term ‘minorities’ here refers to underprivileged segments of societies based on racial or ethnic origin, religion, or belief, among the main grounds protected under Article 19 TFEU – aligning with the EU Commission’s definition.

The Madison (majority) vs. Calhoun (unanimity) debate

In making the case for a union over unitary states, Madison argued that in unitary states, the majority’s control of legislative bodies enables them to effectively ‘be the judge of their own case’ and legislate in a manner that serves their interests, often to the detriment of minorities. The best means to counteract majoritarian biases is for states to integrate within a larger union, where diverse majorities can balance each other, compelling agreement on common principles that are more likely to lean towards egalitarianism. Madison’s argument from the nemo judex rule is complex and rests on certain assumptions, but the chart below visualizes the essence of his argument.

Assume there are five similarly populated states, each dominated by a racial majority with other dispersed racial minorities. The states then come together into an integrative union.  For simple arithmetical reasons, strong state majorities get diluted at the union level (for instance, group A in the chart shifts from 90% domestically to 18% at the union level).  With majority-based voting, no single group can dominate independently. Rather, groups must  compromise to address common interests. This mutual check on state majorities can provide some  protection for minorities by ensuring that no single domestic group unilaterally decides matters for the whole union.

This Madisonian argument has been tested in many cases, as shown by Halberstam, among others. Minority rights in America have improved significantly in the so-called ‘Civil Rights Era’ when these rights were decided at the federal level rather than left to the majorities of states. Other examples  in the US include various fiscal and economic legislation, where voting at the union level broke the abusive control of local majorities and provided more balanced outcomes.

The most (in)famous challenge to Madison’s argument came from Calhoun, the twice US Vice President and the American South’s ‘evil genius’. Calhoun was known for shifting the slavery debate from being a ‘necessary evil’ to being a ‘morally good’ practice and his theory on voting is closely related to his position on slavery. While accepting the advantages of multi-state union, he feared that majority voting would lead to the emancipation of slaves and disturb the ‘racial hierarchy’. He thus offered a competing voting mechanism rooted in unanimity or what he termed ‘concurring majorities’.  To challenge Madison’s reasoning, he employed two arguments which may resonate with EU lawyers: the indivisibly of sovereignty and its concomitant ‘no demos’ thesis. Calhoun noted that sovereignty is ‘an entire thing;—to divide, is,—to destroy it’. To him, this indivisible sovereignty lies with ‘the people of several states’ because there is ‘no other people’ at the union level. Therefore, his concurring majority model means that majority is only acceptable within states (because people there are sovereign) but not at the union level (where there is no demos nor sovereignty) and thus the union must function on the basis of unanimity.

Space precludes a full discussion of Madison’s reply to Calhoun (which is discussed elsewhere). It is worth noting here that unanimity voting undermines the ‘nemo judex’ rule by allowing one state majority to judge its own case and block legislation favourable to minorities across the entire union. In this sense, it amounts to the tyranny of the few. The Madison-Calhoun and their majority vs unanimity debate was ultimately resolved in Madison’s favour in two ways. First, the outcome of civil war relegated Calhoun to the history ‘dustbin odium’.

Second, many comparative case studies attest to the effectiveness Madison’s argument that majority voting in a multi-state union tends to, subject to some conditions, provide more egalitarian outcomes. Extensive literature covers this issue, citing examples such as the improvement of minority rights in the US when regulations shifted to the federal level compared to the state level, as previously discussed. In the EU, some highlight how the regulation of sex equality in the workplace became more egalitarian through joining the European Community compared to leaving the matter to domestic law. Other examples abound as discussed by Halberstam among others.

With this comparative and historical background in mind we can now explore how this debate influences Art 19 TFEU and the proposed treaty revision.

Calhoun vs Article 19 TFEU’s present

While the issue of slavery has receded into the annals of history, the rationale behind Calhoun’s unanimity theory has found echoes in the EU’s Article 19, albeit inadvertently. Article 19 mandates unanimity among Member States in the Council to ‘combat discrimination based on sex, racial or ethnic origin’ among other grounds. It must be noted that the similarity between the EU’s approach and Calhoun’s is only partial because of the divergent socio-political circumstances that he laboured under compared to today.

Nonetheless, this partiality does not exclude some similarity in essence and consequence. In essence, his mechanism aimed to ensure that the union would act only through consensus, this is comparable to Article 19 TFEU’s requirement for consensus to ‘combat discrimination’. In terms of consequence,  the similarity lies in perpetuating the status quo. At the heart of Calhoun’s theory is the desire to insulate the status quo from change as much as possible. Yet, the status quo, as Sunstein notes, is often ‘neither neutral nor just’. To insulate the status quo from change is to perpetuate the injustices befalling many of the underrepresented parts of the society. Article 19 TFEU insulates the status quo of EU minorities and its concomitant injustice. While Calhoun’s model was not applied, Article 19 TFEU has been applied.

Since its adoption, the legislative reliance on Article 19 TFEU has been exceedingly rare. The only two measures enacted using the article date back to 2000 and were induced by the Haider Affair as an ‘unusual twist of political fate’.  Nonetheless, after more than two decades, the consequence of Article 19 TFEU, as many have noted, has rendered the EU ‘minority agnostic’ and its contribution ‘limited’ to ‘all but the most anodyne of actions’, leaving minorities at the mercy of the ‘tyranny of veto’.

An example of the impact of unanimity in perpetuating inaction is highlighted in the recent report of the  EP’s Committee on Civil Liberties, Justice and Home Affairs. It laments the 16-year failure to pass the EU Horizontal Directive on equal treatment across different grounds in respect of goods and services which remains unadopted since the 2008 Commission proposal due to a ‘blockage’ at the Council level. The Council’s approach is in stark contrast to the Parliament, which, unshackled by unanimity, approved the proposal as early as 2009.

The impact of unanimity is also shown by comparing Art 19 TFEU to areas or institutions where unanimity is not required. Most obviously, sex equality, generally unshackled by unanimity remains the most protected ground where nine directives have been successfully enacted and transposed.

While space precludes a full analysis of the substance of EU non-discrimination law beyond gender, it suffices to say that unanimity has been criticised for slowing the development of this area of law to the detriment of racial, ethnic and religious minorities. For instance, the Commission blamed Article 19 TFEU’s unanimity requirement for leading to ‘an inconsistent legal framework and an incoherent impact of Union law on people’s lives’.  Moreover, de Búrca remarked the Race Equality Directive is a ‘more genuine framework in nature, in so far as it contains a general prescription … to which States must commit themselves, but without prescribing in detail how this is to be achieved’. Relatedly, the existing directives, as Bell argues, almost exclusively rely on the ‘passive’ protection through ‘complaints-based’ enforcement, which is particularly insufficient to rectify historical inequalities of racism. According to the Commission’s own reckoning, the existing legislative framework ‘is not enough to resolve the deep-rooted social exclusion’. Many has referred to the failure to prevent the ill-treatment of Roma minorities in many member states. Kornezov has showed that dangers of unanimity for minority rights extends even beyond inaction as it can make things worse for minorities domestically through disincentivizing states from providing any special advantages for its local minorities. He remarked that ‘virtually any right reserved for a special group of citizens of a particular Member State who belong to a minority must be opened up to any EU citizen from other Member States’. Thus, others have lamented the lack of EU legislative response to fix these hurdles as well matters such as affirmative actions and other proactive measures needed to combat non-discrimination.

Another example is related to how the inability to pass further legislative measure contributes to hindering jurisprudential development. Considering the failure to pass the horizontal 2008 directive, as EU law currently stands, it would be ‘lawful’ to deny services for someone manifesting a religious symbol, be it a Sikh turban, a Jewish yarmulke, or a Muslim headscarf.  The Court cannot simply extend the protection here to those minorities. As Advocate General Mazák noted, ‘Article 19 TFEU is simply an empowering provision’ and as such ‘it cannot have direct effect’. He cautioned that any judicial activism in this area ‘[n]ot only would … raise serious concerns in relation to legal certainty, it would also call into question the distribution of competence between the Community and the Member States, and the attribution of powers under the Treaty in general’.  Circularity and the ‘constitutional catch 22’ is obvious here.  Unanimity cannot be interpreted away,  and the Council with its current 27 Member States cannot easily agree to expand legislations beyond the existing measures.

Overall, the negative impact of unanimity of Art 19 TFEU is well-documented in the Commission’s  communications as well as scholarly work to warrant summary here.This dissatisfaction lies at the core of the proposed amendment of Art 19 to which we now turn.

Travaux préparatoires and Article 19 TFEU’s Future

Following the conference on the Future of Europe, which gathered input from European citizens and resulted in forty-nine proposals, the European Parliament tasked the Committee on Constitutional Affairs (AFCO) with finalising a report  on the draft proposed amendments. In November 2023, the Parliament voted in favour of a wide range of amendments and called for a convention to revise the treaty.

The vote included approving a draft proposal to amend Art 19 TFEU trough introducing majority voting instead of unanimity as well as expanding ‘non-discrimination protections to gender, social origin, language, political opinion and membership of a national minority’. While this a commendable step, the absence of reasoning from first principles in the accompanying Parliamentary reports raises an alarm from the travaux préparatoires of Art 19 TFEU (ex-Art 13 TEC).  The drafting history of the article channelled Calhoun (unanimity as a concomitant of indivisible sovereignty) but not Madison and his use of the European sources citing the nemo judex rule.

Archives show that the original draft of Article 19 (ex 13 TEC) in the Amsterdam Treaty contained qualified majority voting but pressure from a few Member States led by the UK managed to weaken the Article by requiring unanimity for its use. The UK Parliament’s archives demonstrates that the British view, which concurring member states hid behind, saw much like Calhoun, that the ‘the defence of sovereignty is bound up with the concept of veto’.

While certain parallels can be drawn between Calhoun’s argument from sovereignty and the position of the UK-led faction, it is essential to underscore an important distinction between the position of Member States endorsing majority voting and that of Madison. Whilst Madison made a clear recourse to first constitutional principles, representatives of European states supporting majority voting relied only on pragmatic arguments which were described as lacking a clear ‘direction’. Commentators noted that the Irish Presidency ‘failed to push the negotiations along’ and to articulate compelling criteria to determine which matters should be subject to qualified majority voting.

What is surprising is that Madison directly engaged with sources of European constitutional theory using the nemo judex  rule. The very same principle has been overlooked in the allocation of decision-making procedure within the Article negotiation. This oversight is striking considering that the principle was leitmotiv many foundational text of European Constitutional theory (e.g in Locke and Hobbes). More recently the maxim has been invoked before the CJEU  and lays the foundation of the right to an impartial tribunal enshrined in Article 47 of the Charter. The absence of foundational principles allowed the unanimity side to prevail on pragmatic grounds, without fostering the constitutionally enriching debate witnessed in the US.

The nemo judex argument and its history shows unanimity’s particularly disproportionate cost for racial, religious and ethnic minorities. Opting for unanimity for non-discrimination legislation speaks volumes about the priority of this domain. This demonstrates either complete discard for foundational constitutional theory or intentional discard of minorities. Whilst Article 2 TFEU upgrades minority rights to an EU value, the unanimity choice relegates its protection to the lowest level.

Advocates of reform should not be discouraged by their opponents wielding the sovereignty argument to defend unanimity. This argument would have been convincing had Article 19 not been directly preceded by Articles 18 (discrimination on grounds of nationality) which requires majority voting, as does 157 TFEU (equal opportunities of men and women). Moreover, recourse to majority does not threaten states and there are safeguards to states which I detail here.  Even in sovereignty-guarding states like the UK, since the Factortame II judgment, courts have reconciled EU powers with sovereignty on the premise that Member States have voluntarily transferred some powers to the EU and sovereignty is preserved through retaining the ultimate power to exit. Additionally, as Triantafyllou noted, despite the EU’s claim to being a ‘new legal order’ it is lagging behind in many international organisations, which now use majority voting rather than unanimity to amend their own charter.

To be clear, while the nemo judex rule is crucial for minority rights, it does not necessitate the removal of unanimity in areas such as the Common Foreign and Security policy (CFSP). Such area, for instance, does not necessarily involve a direct conflict between racial majorities and minorities where the nemo judex in causa sua rule applies. Therefore, addressing which voting procedure is suitable for this area may require balancing various competing factors, extending beyond the scope of the current blog and as explained elsewhere.

To conclude, the blog uses insights from comparative constitutional history to show how unanimity can function as a tool to perpetuate the unjust status quo to the detriment of minority rights. This analysis aims to support the European Parliament’s proposal of moving Article 19 to majority voting akin to articles 18 and 157 TFEU. This would allow the EU to strengthen its much-needed role in this area and to avoid the pitfalls that befell Calhoun’s racially motivated model. This can also enable the EU to uphold the values outlined in Article 2 TFEU, which explicitly include minority rights, and to respect the centuries-long history of the nemo judex in causa sua principle in Western constitutional theory. Overall, understanding the interlinkages between the constitutional principle of nemo judex and the unanimity versus majority debate is of timely relevance to larger debates within the EU.

Admittedly, treaty amendment is complex and difficult to secure, but history may counsel against despair. The introduction of the EU’s competence to include non-discrimination beyond gender in the first place was only made possible after relentless activism, contributions from the Kahn Commission Report, and the political efforts of the European Parliament. Now, revising the treaty seems to be ‘gradually gaining ground’ — possibly in anticipation of the EU’s further enlargement. If the Parliament’s call for a convention is materialised, heeding lessons from comparative history and reasoning from first principles of western constitutionalism can provide intellectual ammunition to the reform endeavours against Calhoun-like thinking.

Regulation 2024/791 (“MiFIR Review”) was published in the Official Journal of the European Union on 8 March 2024. This newly adopted legislation requires single-name credit default swaps (CDSs) to be made subject to transparency rules, only however if they reference global systemically important banks (G-SIBS) or those referencing an index comprised of such banks.

In this blog post, I discuss the suitability of the revised transparency requirements for single-name CDSs of the MiFIR Review. On the one hand, it seems that the new requirements are limited in scope as any referencing entity that is not a G-SIB will not be majorly impacted (see, in more detail, my recent working paper). Indeed, CSDs referencing G-SIBS represent only a small fraction of the market: i.e., 8.36% based on the total notional amount traded and 5.68% based on the number of transactions (source: DTCC). It follows that a substantial percentage of the single-name CDS market will not be captured. On the other hand, this post cautions against creating even more far-reaching transparency requirements than those provided for in the MiFIR Review: more transparency could, in practice, be detrimental for financial markets as it could result in higher trade execution costs and volatility and could even discourage dealers from providing liquidity.

Single-name credit default swaps and why they are opaque.

CDSs are financial derivative contracts between two counterparties to ‘swap’ or transfer the risk of default of a borrowing reference entity (i.e., a corporation, bank, or sovereign entity). The buyer of the CDS – also called the ‘protection buyer’ – needs to make a series of payments to the protection seller until the maturity date of the financial instrument, while the seller of the CDS is contractually bound to pay the buyer a compensation in the event of, for example, a debt default of the reference entity. Single-name CDSs are mostly traded in the over-the-counter derivatives markets, typically on confidential, decentralized systems. A disadvantage, however, of over-the-counter derivative markets is that they are typically opaque, in contrast with, for example, listed financial instruments.

Over-the-counter derivative markets have very limited access to pre-trade information (i.e., information such as the bid-ask quotes and order book information before the buy or sell orders are executed) and post-trade information (i.e. data such as prices, volumes, and the notional amount after the trade took place),

In March 2023, three small-to-mid-size US banks (i.e. Silicon Valley Bank, Silvergate Bank, and Signature Bank) ran into financial difficulties with spillovers to Europe where Credit Suisse needed to be taken over by USB. During this financial turmoil, the CDSs of EU banks rose considerably in terms of price and volume. For Deutsche Bank, there were even more than 270 CDS transactions for a total of US 1.1 billion in the week following UBS’s takeover of Credit Suisse. This represented a more than four-fold increase in trade count and a doubling in notional value compared with average volumes of the first ten weeks of the year. The CDS market is namely illiquid with only a few transactions a day for a particular reference entity, so this increase in trading volumes was exceptional. On 28 March 2023, the press reported that regulators had identified that a single CDS transaction referencing Deutsche Bank’s debt of roughly 5 million EUR conducted on 23 March 2023 could have fuelled the dramatic sell-off of equity on 24 March 2023 causing Deutsche Bank’s share price to drop by more than 14 percent.

One of the conclusions drawn by regulators, such as the European Securities and Markets Authority (ESMA), on the 24 March event was that the single-name CDS market is opaque (i.e., very limited pre-trade and post-trade market information), and consequently, subject to a high degree of uncertainty and speculation as to the actual trading activity and its drivers.

The Depository Trust and Clearing Corporation (DTCC) indeed provides post-trade CDS information, but the level of transparency is not very high, given that only aggregated weekly volumes are provided rather than individual prices. Furthermore, only information for the top active instruments are disclosed rather than for all traded instruments. Regarding pre-trade information, trading is conducted mostly through bilateral communication between dealers, who might directly contact a broker to trade or use a trading platform to enter anonymously non-firm quotes. However, even when screen prices are available, they are only indicative, and most dealers will not stand behind their pre-trade indicated price because the actual price the dealer will transact with is entirely subject to bilateral negotiations conducted over the phone or via some electronic exchange. Dealers are free to change the price until the moment the trade is mutually closed. The end-users are thus dependent on their dealers and sometimes do not even have access to the pre-trade information because they have to rely on third-party vendors and services that aggregate data. End-users do not know before the trade which price offered by dealers is the best one and do not know which other parties are willing to pay or to sell at, nor do they have comparable real-time prices against which to compare the price of their particular trade.

New transparency requirements in the MiFIR Review

On 25 November 2021, the European Commission published a proposal to amend Regulation No 600/2014 on markets in financial instruments (MiFIR) as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimizing trading obligations, and prohibiting receiving payments for forwarding client orders. This initiative was one of a series of measures to implement the Capital Markets Union (CMU) in Europe to empower investors – in particular, smaller and retail investors – by enabling them to better access market data and by making EU market infrastructures more robust. To foster a true and efficient single market for trading, the Commission was of the view that the transparency and availability of market data had to be improved.

The proposal implemented the view of ESMA that the transparency regime that was in place earlier was too complicated and not always effective in ensuring transparency for market participants. For single-name CDSs, the large majority of CDSs are indeed traded over the counter where the level of pre-trade transparency is low. This is because pre-trade requirements only apply to market operators and investment firms operating trading venues. Even for CDSs traded on a trading venue, there is a possibility to obtain a waiver as they do not fall under the trading obligation and are considered illiquid financial instruments. Because of their illiquidity, the large majority of listed single-name CDSs can also benefit from post-trade deferrals where information could even be disclosed only after four weeks.

Regulation (EU) 2024/791 (“MiFIR Review”) was finally approved on 28 February 2024 and entered into force on 28 March 2024. Article 8(a) of the MiFIR Review now requires as pre-trade transparency requirement that when applying a central limit order book or a periodic auction trading system, market operators and investment firms operating a multilateral trading facility or organized trading facility have to make public the current bid and offer prices, and the depth of trading interest at those prices for single-name CDSs that reference a G-SIB and that are centrally cleared. A similar requirement is now there for CDSs that reference an index comprising global systemically important banks and that are centrally cleared. Hence, under the new MiFIR Review, CDSs referencing G-SIBS are subject to transparency requirements only when they are centrally cleared. Such CDSs are, however, not subject to any clearing obligation provided for in the European Market Infrastructure Regulation (Regulation No 648/2012 “EMIR”). This means that data on single-name CDSs referencing G-SIBS that are not cleared or CDSs referencing other entities do not need to be made transparent.

Regarding post-trade transparency, Article 10 of the MiFIR Review requires that market operators and investment firms operating a trading venue have to make public the price, volume, and time of the transactions executed in respect of bonds, structured finance products, and emission allowances traded on a trading venue. For the transactions executed in respect of exchange-traded derivatives and the over-the-counter derivatives referred to in the pre-trade transparency requirements (see above), the information has to be made available as close to real-time as technically possible. The EU co-legislators are further of the view that the duration of deferrals has to be determined utilizing regulatory technical standards, based on the size of the transaction and liquidity of the class of derivatives. Article 11 of the MiFIR Review states that the arrangements for deferred publication will have to be organized by five categories of transactions related to a class of exchange-traded derivatives or of over-the-counter derivatives referred to in the pre-trade transparency requirements. ESMA will thus need to determine which classes are considered liquid or illiquid, and above which size of transaction and for which duration it should be possible to defer the publication of details of the transaction.

Besides the pre- and post-trade transparency requirements for market operators and investment firms operating a trading venue, the MiFIR Review also focuses on the design and implementation of a consolidated tape. This consolidated tape is a centralized database meant to provide a comprehensive overview of market data, namely on prices and volumes of securities traded throughout the Union across a multitude of trading venues. According to Article 22a, trade repositories and Approved Publication Arrangements (APAs) will need to provide data to the consolidated tape provider (CTP). The MiFIR Review is then also more specific on the information that has to be made public by an APA concerning over-the-counter derivatives, which will flow into the consolidated tapes. Where Articles 8, 10 and 11 of MiFIR before referred to ‘derivatives traded on a trading venue’, the MiFIR Review no longer uses this wording with respect to derivatives and refers to ‘OTC derivatives as referred to in Article 8a’, being those subject to the pre-trade transparency requirements. This incorporates again those single-name CDSs that reference a G-SIB and that are centrally cleared, or CDSs that reference an index comprising G-SIBs and that are centrally cleared. Similarly as for the pre-trade and post-trade transparency, data on single-name CDSs referencing G-SIBS that are not cleared or CDSs referencing other reference entities do not need to be made transparent.

Do we want even more transparency?

The MiFIR Review’s revised transparency requirements for single-name CDSs are not very far-reaching, given that CDSs referencing to reference entities that are not a G-SIB are not majorly impacted. Given that CSDs referencing G-SIBS represent only a small fraction of the market (see introduction above), a substantial percentage of CDSs is not captured by the MiFIR Review. In addition, single-name CSDs referencing G-SIBS that are not centrally cleared are also not affected. As there is no clearing obligation on CDSs because they are not sufficiently liquid, a large fraction will not be impacted or can continue to benefit from pre-trade transparency waivers or post-trade deferrals. This entails that a large fraction of the entire CDS market will thus not be affected by the MiFIR Review.

Nevertheless, I argue that even more severe transparency requirements than those foreseen by the MiFIR Review might not necessarily be beneficial for financial markets. Too much transparency can be detrimental to financial markets as it might result in higher trade execution costs and volatility and could even discourage dealers from providing liquidity. In a market, in which there are few buyers and sellers ready and willing to trade continuously, asking for more transparency could lead to even less liquidity as the limited number of liquidity providers would be obliged to make their trading strategies available, giving incentives to trade even less. A total lack of transparency might thus be undesirable to avoid market manipulation or from an investor protection point of view, but full transparency on an illiquid CDS market might dissuade traders even more from trading. The EU’s newly adopted MiFIR Review thus seems to strike an appropriate balance between reducing the level of opaqueness while not harming liquidity.