Blog

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.

The history of EU institutions is marked by a long list of statements and political initiatives that endorse the legal claims of the LGBTIQA+ community (see, for instance, Kollman and Bell). Over the past decades, these have gradually been mainstreamed within different areas of EU law. Particularly, the current EU legislative term (2019-2024) has witnessed an increased commitment of EU institutions towards the LGBTIQA+ community. This is not only shown by the numerous and recurrent Resolutions of the European Parliament on this topic (see EPRS). It is also evident from several political and legislative initiatives that have been introduced over recent years, which (attempt to) intervene in diverse fields of EU law that are considered as relevant to individuals that identify as LGBTIQA+.

Meanwhile, most EU law scholars focus their research on narrow areas, such as non-discrimination (mainly, in the field of employment) and free movement (of same-sex couples and their children). In other words, LGBTIQA+ issues never appear as the starting point of the analysis but rather as an incidental reference in the context of other research topics (on this point, see Belavusau). This piece aims to provide a deeper overview of the EU’s direct commitment towards the LGBTIQA+ community during the EU legislative term that is now coming to an end. It will thus retrace the different political, legislative, and judicial developments occurred, which have been marked as relevant for, or targeted to, LGBTIQA+ persons. Some contextual challenges of EU law vis-à-vis LGBTIQA+ matters will also be highlighted.

An EU Strategy for LGBTIQA+ Equality

Looking back at the very beginning of this EU legislative term, on 12 December 2020, the European Commission adopted, by way of a Communication, the EU LGBTIQ Equality Strategy (hereinafter, ‘the Strategy’). Unsurprisingly, the adoption of the Strategy comes during the EU legislative term in which the first-ever Commissioner for Equalitywas appointed. Likewise, a specific unit working on ‘non-discrimination and LGBTIQ’ matters has been established in the European Commission. Prior to the publication of the Strategy, some had argued that the EU is equipped with adequate legal bases to intervene in the fields of non-discrimination and equality for LGBTIQA+ persons. These are, for instance, the non-discrimination clause in Article 19 TFEU, or Article 81(3) TFEU as regards aspects of family law with cross-border implications. Yet, the potential of these provisions had been restrained by the absence of an overarching and coherent approach. The Strategy seems to have, at least in principle, addressed this gap.

Despite its non-binding nature, the Strategy has been considered a significant development for LGBTIQA+ persons in the EU for the following three main reasons. First, the Strategy has a strong symbolic value. It represents the first instrument in the history of EU integration that targets specifically the LGBTIQA+ community. Second, the Strategy provides a comprehensive approach, as it addresses the topic from different angles. Indeed, it is built on four major axes: i) tackling discrimination against LGBTIQ people; ii) ensuring LGBTIQ people’s safety; iii) building LGBTIQ inclusive societies; iv) leading the call for LGBTIQ equality around the world. Last, the Strategy is very detailed. It precisely identifies legislative and non-legislative initiatives to be achieved within a fixed timeline, thus serving as a planning instrument for the Commission’s action.

More recently, a survey conducted by the EU Fundamental Rights Agency shows that while there are signs of slow and gradual progress, discrimination against LGBTIQA+ persons remain dramatically high. This is also evident in the ILGA-Europe’s annual rainbow map. As the end date of the Commission’s Strategy is approaching and EU elections are coming up, the question remains whether the next European Commission will develop a new instrument for LGBTIQA+ equality; or, as it will be argued below, try at least to fulfil the missed objectives of the current Strategy.

Recognition of same-sex parents and their children

On 7 December 2022, the European Commission proposed the Equality Package (hereinafter, ‘the Package’), a proposal for a Regulation to harmonise rules concerning parenthood in cross-border situations. One of the key aspects of the proposal is that once parental bonds are established in one Member State, these must be automatically recognised everywhere in the EU (for a deeper analysis of the Package, see Tryfonidou; see also Marcia).

The mutual recognition of same-sex parents and their children had also been addressed, just a year earlier, by the Court of Justice (CJEU) in the Pancharevo case (C-490/20). The dispute concerned a same-sex couple, a Bulgarian and a UK national. They gave birth to S.D.K.A. in Spain, where the couple had been married and was legally residing. Spain thus issued a birth certificate, as Spanish law recognises same-sex parenthood. Yet, Bulgarian authorities refused to issue a passport/ID for S.D.K.A since Bulgarian law does not recognise same-sex parenthood. This led to a preliminary question referred to the CJEU, namely whether such a refusal constituted a breach of EU free movement rights (notably, Articles 20 and 21 TFEU and Directive 2004/38). The Court ruled that the refusal to issue a passport or ID to S.D.K.A. would indeed alter the effectiveness of her right to move and reside freely within the Union. National authorities are thus required to recognise the parental bonds legally established in another Member State. This obligation, however, applies only for the purposes of the exercise of the right to free movement, while Member States remain free (not) to recognise same-sex parenthood within their internal legal orders (for a full overview of the judgment, see Tryfonidou; see also De Groot).

Despite the obligation stemming from this judgment, in practice, same-sex parents often experience long and expensive proceedings before national authorities. Indeed, the Commission stated that the key objective of the Equality Package is to reduce times, costs, and burdens of recognition proceedings for both families and national judicial systems. The proposed regulation would, in other words, ‘automatise’ the requirements introduced by the Court in Pancharevo (for the purposes of the exercise of the right to free movement). However, one of the biggest challenges to the adoption of the Package is its legal basis: Article 81(3) TFEU. This requires the Council to act unanimously under a special legislative procedure, after obtaining the consent of the European Parliament. If reaching unanimity among the 27 Member States is generally challenging, this becomes even more complex when the file concerns a topic on which Member States’ sensibilities and approaches differ dramatically. Indeed, some national governments, such as the Italian one, have already declared their unwillingness to support the Commission’s initiative (see, for instance, Marcia).

Combatting hate crime and hate speech

Current EU law criminalises hate crime and hate speech only if related to the grounds of race and ethnic origin. Yet, national laws differ significantly when it comes to such conduct in relation to sex, sexual orientation, age, and disability (see EPRS). To implement the Strategy’s objective of ‘ensuring LGBTIQ people’s safety’, on 9 December 2021, the Commission proposed to include hate crime and hate speech against LGBTIQA+ persons within EU crimes. This initiative requires a two-step procedure. First, Article 83(1) TFEU contains a list of areas of ‘particularly serious crime’ with a ‘cross-border dimension’ that justify a common action at EU level. This list can only be updated by a Council decision, taken by unanimity, after receiving the consent of the European Parliament. Second, once hate crime and hate speech have been included in this list, the Commission can follow up with a proposal for a directive to be adopted through the ordinary legislative procedure. This would establish minimum rules concerning the definition of criminal offences and sanctions (for a full analysis of the proposal, see Peršak).

The European Parliament addressed the problem of hate crime and hate speech against LGBTIQA+ persons on different occasions. Accordingly, in a Resolution of 18 January 2024, the Parliament positively welcomed the Commission’s initiative and urged the Member States to make progress on it. The Justice and Home Affairs Council of 3-4 March 2022had previously discussed the proposal, concluding that ‘a very broad majority was in favour of this initiative’. Yet, the file has never been scheduled for further discussion or vote since then. Significantly, not even the Belgian Presidency of the Council managed to make any progress, despite the declared intention to make of LGBTIQA+ equality a priority during the country’s six-month lead of the institution. The Commission’s proposal is therefore far from being accomplished, with unanimity being – once again – the greatest challenge to overcome.

The return to EU values

In December 2022, the European Commission referred Hungary to the Court of Justice in the context of an infringement procedure (C-769/22). The contested legislation, approved by the Hungarian Parliament in June 2021, was depicted as a tool to combat paedophilia. As highlighted by the Commission and several NGOs, however, the law directly targets the LGBTIQA+ community. Indeed, it limits minors’ access to content that ‘promote(s) divergence from self-identity corresponding to sex at birth, sex change or homosexuality’ and bans or limits media content that concerns homosexuality or gender identity. It also introduces a set of penalties for organisations that breach these rules (see Bonelli and Claes).

During the past decade, Viktor Orbán made Hungary very (un)popular for the multiple violations of the rule of law and fundamental rights, including attacks to the LGBTIQA+ community. Thus, the introduction of – another – infringement procedure against Hungary seems business as usual. However, EU law scholars have immediately pointed out how this could be a landmark case. For the first time, the Commission has directly relied on Article 2 TEU, proposing a direct link between LGBTIQA+ equality and the ‘founding values’ of the EU. If there is no doubt that this is of high symbolical and political importance, questions have been raised as regards the ‘added legal value’ of article 2 TEU. In other words, the judicial mobilisation of Article 2 TEU does not seem to bring more legal benefits than an infringement procedure based only on the Charter of Fundamental Rights and other provisions of EU law.

It must be noted that the Commission’s reliance on EU values has encouraged a significant political and judicial mobilisation. In an unprecedented move, the European Parliament and fifteen Member States have asked to intervene before the CJEU. This is the first time in the history of EU integration that so many Member States have asked to intervene in support of the Commission’s action against another Member State. For some of them, including France and Germany, this is the first-ever intervention in a case related to fundamental rights’ protection (see Chopin and Leclerc). However, it should also be underlined that the group of countries that participate in the lawsuit has a markedly Western component. This clearly shows the existence (and the persistence) of an East-West divide when it comes to the controversial topic of LGBTIQA+ rights’ protection. Therefore, considering the unanimity requirements mentioned above, even the high participation the Member States to the infringement procedure seems insufficient to advance coherent action at EU level.

Conclusions

EU institutions, in particular the Commission and the Parliament, seem increasingly committed to offer more robust protection to LGBTIQA+ persons. This is shown by the first-ever EU comprehensive Strategy and the related legislative proposals, as well as the numerous calls of the European Parliament. Whereas this is clearly positive for the visibility and legal claims of the LGBTIQA+ community, the legal outcome appears however limited. All legislative proposals are blocked by the failure to reach unanimity in the Council. Indeed, the only changes occurred in terms of legal obligations seem to stem from the CJEU ruling in case Pancharevo (and other minor developments related to anti-discrimination case-law). If it is true that, in principle, the EU is equipped with good legal bases to legislate in the fields of non-discrimination and equality for LGBTIQA+ persons, the feasibility of EU intervention seems challenged by the type of legislative procedure provided and the unanimity requirement. Therefore, further research is needed to identify the actual potential of EU competences to deal with the legal claims advanced by the LGBTIQA+ community.

The pending ‘EU values case’ (C-769/22 Commission v Hungary) shows the existence of highly divergent cultural and political views between the Member States, especially when it comes to issues such as LGBTIQA+ equality which seemingly continues to be controversial. At the end of this week (6-9 June 2024), EU citizens will be called to elect the new Members of the European Parliament (MEPs). As current polls show, far-right parties are likely to gain an increased number of seats. Accordingly, this could lead to a more conservative composition of the next European Commission. These dynamics may constitute a significant shift in the commitment of these institutions to enhance LGBTIQA+ rights’ protection. Indeed, the European Parliament and the European Commission are considered two early [LGBTIQA+] movement allies, as they have been supporting the claims of this community on numerous occasions before and during this term. Therefore, the question is whether these potential political changes will result in a softening of their commitment. If so, the CJEU may remain the only and last resort for LGBTIQA+ individuals at EU level.