Complaint against Norway concerning several issues relating to the interpretation of EEA law in Supreme Court judgment HR-2010-02081

Brev til EFTA Surveillance Authority

1       Introduction
Reference is made to the letter from the EFTA Surveillance Authority dated 21 January 2013. The Norwegian Government is invited to comment upon three aspects of a complaint relating to the interpretation of EEA law in the Supreme Court judgment HR-2010-02081 (Rt-2010-1500), commonly referred to as the Edquist case. The Authority has, by a letter dated 20 February 2013, extended the time limit for comments to 22 March 2013.

This cannot be seen as an ordinary complaint. The complainants apparently seek to use the complaints procedure of the Authority to overrule the Supreme Court judgment in Edquist. This does not merely follow from the heading of the complaint, but also from the numerous arguments and allegations presented. Indeed, all the questions raised in the complaint were also pleaded before – and rejected by – the Supreme Court. The Supreme Court found, inter alia, that the complainants were not entitled to further compensation, under national law or under EEA law, for the previous tax legislation applicable to cross border dividend payments that was incompatible with Article 40 EEA. Moreover, the Supreme Court found that it was not necessary to ask the EFTA Court to give an advisory opinion in the case.

The complainants seem to overlook the fact that the Supreme Court judgment is final under Norwegian law. It is therefore legally binding for all parties to the case. A possible procedure before the Authority cannot alter this. The well-established principle of res judicata must be respected, a principle that is compatible with EEA law (Section 2 below). Hence, the Ministry questions the appropriateness of the present procedure.

The complaint is lengthy and detailed, and it contains numerous different arguments and allegations. The Ministry has a different view on these points. Based on the special circumstances of this complaint, it does not, however, seem appropriate to address the different submissions in great detail. The Supreme Court concluded the case after an oral procedure of six days, based on extensive written material. The Ministry will nevertheless present a few main arguments on the three issues formulated by the Authority, to demonstrate that the Supreme Court has acted fully in line with the EEA Agreement (Sections 3-5).

2       The supreme court judgment
The Edquist case concerned a former tax law provision which resulted in unfavourable tax treatment of cross border dividend payments. As a consequence of the dynamic developments of EU law and EEA law in this area, particularly resulting from decisions from the ECJ and the EFTA Court in 2004, the Norwegian Government changed its dividend taxation system as part of the Tax Reform of 2004-2006 in order to comply with its obligations under the EEA Agreement. The Ministry of Finance further instructed the Tax Administration to change tax assessments back in time within the limits of the law (three years).

The Supreme Court rejected claims for repayment of taxes and for compensation beyond this period of three years. The Supreme Court held that there was no national liability rule applicable to the conflict in the case at hand. Moreover, the conditions for state liability were not fulfilled since there was no sufficiently serious breach of EEA law obligations.

The complainants seem to be the same parties as those being parties to the national judicial procedures. According to Norwegian law, the Supreme Court judgment (and other court decisions in the same cluster of cases) is now final and legally binding on all parties to the case. The Ministry therefore fails to see how the complainants would be able to overturn the ruling. The principle of res judicata is well established in all EU and EEA States and is compatible with EEA law.

The Ministry is not aware of any cases from the EFTA Court ruling directly on this matter. However, the European Court of Justice (ECJ) has emphasised the fundamental importance of the principle of res judicata. It has also clarified that a national court is not required to set aside its internal procedural rules in order to reopen a final national judicial decision even if this decision should appear to be contrary to EU law.[1]

The principle of res judicata cannot have a wider scope under EEA law than under EU law.[2]

As already indicated, the Ministry therefore questions the appropriateness of using the complaints procedure in the present case. It appears unsuitable to enter into a full new procedure on the issues that have been finally settled by the Supreme Court.

3       The Allegations related to a national liability RULE
The complainants claim that they have been prevented from the right to compensation under the general Norwegian liability rule and argue that this is incompatible with the EEA principles of equivalence and effectiveness.  This refers to the first question raised by the Authority.

The arguments put forward by the complainants are the same as presented by the parties before the Supreme Court. The Supreme Court concluded that there was no such national liability rule applicable in the present case.

The main question underlying the Supreme Court judgment in Edquist was whether the legislator had to amend the general tax legislation in light of the EEA principles of capital movements in Article 40 EEA. The case therefore concerned non-implemented or incorrectly implemented EEA law. The Supreme Court had already ruled in the Finanger II-judgment[3] that Norwegian law did not include a principle of state liability for non-implemented directives. In Edquist the Supreme Court ruled that similar considerations applied to provisions that did not correctly reflect obligations under EEA law.[4] There was hence no room for a national liability rule in addition to the EEA state liability principles.

This must be seen against the background that the case concerned a conflict between two different acts of Parliament – the relevant tax legislation on the one hand and the EEA Act[5] and Article 40 EEA on the other. According to Norwegian law, there is no room for state liability in cases of a conflict between two different acts of Parliament.

The Ministry notes that even a theoretical national liability rule, similar to the one applicable in Norway for illegal administrative decisions, would hardly provide the complainants with a wider possibility than is provided for under the EEA state liability principles. Such a liability rule would require fault on the hand of the public authorities.[6]

All these factors demonstrate that the principles of equivalence and effectiveness were not violated by the Supreme Court in Edquist.

4       The allegations related to EEA State liability principles
The Supreme Court addresses the EEA state liability principles, and the application of these principles, in a thorough manner.[7] This was the main issue of the case and was accordingly determining the dispute between the parties, see section 2 above on the principle of res judicata. The Ministry does not find it appropriate, under the present procedure, to present the extensive material on which the Supreme Court judgment relies. 

However, based on the Authority’s question, the Ministry will give a brief account of some of the elements in the Supreme Court’s ruling.

The Supreme Court formulates the norm of “sufficiently serious breach” with reference to consistent case law from the EFTA Court and the ECJ. It is evidently correct when the Supreme Court holds that the test is whether the state has manifestly and gravely disregarded its EEA obligations. The Supreme Court continues that this depends on an assessment of all the factors characterising the case, including the clarity and precision of the rule infringed, the level of discretion left by that rule to the national authorities, whether the infringement was intentional or involuntary, and whether any error of law was excusable or inexcusable.[8]

The complainants seemingly criticise the application of these aspects, and choose to refer only to a minor part of the Supreme Court’s assessment.[9] This is misleading because important parts of the Supreme Court’s assessment is absent in the complaint, including a thorough assessment of relevant case law,[10] practice of EU Member States,[11] and of the debate in legal literature.[12] The Supreme Court thoroughly demonstrates that the scope of Article 40 EEA, in relation to cross border dividends, was not sufficiently clear in the autumn of 2003. One of the unsolved questions was whether the states, when assessing the logic of the tax system, had to take into account aspects beyond the national tax system, i.e. also tax systems of other states. At this time, the majority of EU Member States were yet to change their similar tax legislation on cross border dividends, and the Commission was yet to initiate proceedings against these states.

The Ministry also notes that the complainants seem to be of the position that the different criteria relevant to determine whether there is a sufficiently serious breach of EEA law, should be subject to an isolated analysis. However, these criteria are interconnected. The Supreme Court’s assessment of relevant case law, of national practices and of legal literature, for instance, indicates that the relevant EEA rule was far from clear. At the same time, the Court demonstrates the level of discretion for the states, and it demonstrated why the state did not infringe EEA law intentionally (or negligently for that matter) and also why the state’s assumption was excusable.

5       The allegations relateD to access to the EFTA Court
The third question from the Authority concerns access to the EFTA Court. The background for the question is apparently that the Supreme Court found it unnecessary to ask for an advisory opinion in this particular case. Even this question is therefore basically an attempt to reopen an issue from the Supreme Court judgment. It does not seem adequate to address all the submissions of the complainants.

The complainants seek to make this question of a more general and principle nature, claiming inter alia that Norwegian courts have a “widespread …  practice of blocking access to the EFTA Court”.

Admittedly, there are not that many references made to the EFTA Court. The Ministry do not know the reasons in each case for the lack of reference, but it is fair to assume that the rationale will vary from case to case. In some EEA related cases the question of whether to ask the EFTA Court for an advice is simply not raised by any of the parties, in others there is sufficient guidance in the jurisprudence of the EFTA Court and/or the ECJ, whereas yet other cases seem to depend primarily on factual questions or on the application of EEA law to the facts of the case, questions that as a rule fall outside the scope of the reference procedure.[13] The Ministry believes that such assessments must be for the individual court in each case to make.

Further, there is no indication that the national courts do not apply EEA law in a loyal manner. There is in the Ministry’s view clearly no blocking of access to the EFTA Court. During the last five years, for instance, the EFTA Court has given advisory opinions in 12 national proceedings pending before Norwegian courts (or administrative bodies). Eight of these proceedings involved the Government as one of the parties to the court case.[14] In one case the referral to the EFTA Court was initiated by an administrative body,[15] whereas three proceedings were pleaded between private parties.[16]

It is an important element of the advisory opinion procedure that national courts do not have an obligation to refer questions to the EFTA Court, but may do so. It is for the national court in each individual case to determine whether a reference should be made to the EFTA Court. This follows explicitly from the wording of Article 34 of the Surveillance and Court Agreement (SCA). This procedure was deliberately set out differently from the preliminary procedure under EU law. Under the latter procedure, a national court ruling in the last instance is obliged to refer the matter to the ECJ, unless the question is already clearly resolved (acte clair), and the judgment from the ECJ will be binding for the national court.

The difference between EU law and EEA law on this matter was, at least from the Norwegian perspective, based inter alia on considerations of a constitutional nature.[17]

The complaint disregards these basic points and is therefore misleading. The Ministry finds it sufficient to make some short supplementary remarks on these matters.

It is not correct that national courts are prohibited from ruling on a matter that is not fully clarified by the EFTA Court, as repeatedly claimed by the complainants. The national courts represent the final judicial instance for resolving EEA disputes raised at national level. It must therefore be correct when the Norwegian Supreme Court has stated that it has both the authority and the obligation to assess what must be regarded as correct EEA law. This applies both in cases with and without an advisory opinion from the EFTA Court. In the latter case, the advice from the EFTA court is not binding, but should be given significant weight.[18] 

National courts are, in the Ministry’s view, applying EEA law loyally based on available sources, including judgments and opinions from the EFTA Court and the ECJ. The Ministry cannot see that the discretion whether to refer a question to the EFTA Court or not can be overruled by a reference to the principle of loyalty in Article 3 EEA.

Moreover, the number of references to the EFTA Court cannot in itself represent a breach of the right to a fair hearing prescribed for in article 6 of the ECHR. The complainants, as other parties to Norwegian court proceedings, have the right to try their cases in up to three instances, with the possibility to ask for a reference to the EFTA Court. The reference to the European Court of Human Rights’ (ECtHR) case Ullens de Schooten[19] seems to be of limited relevance. That case concerned the EU system in which a national court against whose decision there is no judicial remedy is obliged to refer a question to the ECJ unless – as a limited exception – the question is already clarified (acte clair). It seems to be on this basis that ECtHR found that it may be arbitrary if the limited exception is used without the national court giving any reasons.

The Ministry questions the relevance of this ruling in the EEA context in which national courts are not obliged to refer questions to the EFTA Court.[20]That said, even if fully applicable under EEA law, it would only require the national court to state reasons for its decision not to make a reference to the EFTA Court.

Finally, the complainants seem to draw conclusions from the principle of homogeneity between EU law and EEA law, referring in particular to the obligation for national courts in the EU legal order to refer questions to the ECJ. The principle of homogeneity is an essential principle under EEA law, but cannot disregard the wording of Article 34 SCA and the premises on which this provision rests. It is recalled that the provisions on reference procedures are fundamentally different in the EU law and EEA law systems.

Yours sincerely

Amund Noss 
General Director

                                                         Jon Tingvold
                                                         Deputy Director General

 

 

 



[1] Case C-234/04 Kapferer.

[2] It may rather be questioned whether the ECJ jurisprudence of res judicata may be transferred to the EEA legal system. The ECJ has based its case law inter alia on the premises that a subsequent ruling from the ECJ shows that the final national judgment was handed down without the national court getting a preliminary ruling from the ECJ, in breach of the obligation to do so under EU law. There is no such obligation under the EEA Agreement (Section 5). 

[3] Rt-2005-1365, paras. 105-106.

[4] Edquist, paras. 60-62.

[5] Act 27 November 1992 No 109 (EØS-loven) Section 1.

[6] The description of Norwegian legislation is clearly misleading on this point, cf. inter alia Rt-2010-291 (Vangen Eiendom), paras. 33-34.

[7] Edquist, paras. 89-114.

[8] Edquist, para. 89 with further references. See also e.g. the EFTA Court in Case E-4/01 Karlsson, para. 38, Case E-8/07 Nguyen, para. 33, and Case E-2/10 Kolbeinsson, para. 82. The Ministry adds that, contrary to what the complainants claim, the EFTA Court did not take a position on whether misunderstandings of the judiciary within the EEA system necessarily follows the parallel jurisprudence of the ECJ, see Kolbeinsson, para. 77.

[9] Only paras. 110 and 111 are cited (in an unofficial translation presumably made by the complainants), and the arguments in the complaint are primarily concerned with these two paragraphs.

[10] Paras. 95-99.

[11] Paras. 100-102.

[12] Paras. 103-107.

[13] See, for an overview, the EFTA Court’s Notice No 1/99 on advisory opinion requests, available at www.eftacourt.int

[14] Case E-7/07 Seabrokers, Case E-8/07 Nguyen, Case E-11/07 Rindal, Case E-1/08 Slinning, Case E-16/10 Phillip Morris, Case E-2/11 STX, Case E-15/11 Arcade Drilling, and Case E-3/12 Jonsson. In the two first mentioned cases, it was the Government that proposed to ask the EFTA Court for an advice. In a majority of these eight cases there was no dispute whether to ask for an advisory opinion from the EFTA Court, but in some cases on how to phrase the appropriate questions.

[15] Case E-1/11 Norwegian Appeal Board for Health Personnel.

[16] Case E-9/08 L’Oréal, Case E-10/07 Aarskog, and Case E-1/10 Periscopus.

[17] St.prp. nr. 100 (1991-92) p. 340.

[18] See, in particular, Rt-2000-1811 (Finanger I) on p. …

[19] Case Nos 3989/07 and 3853/07 Ullens de Schooten and Rezabek, paras. 57-60.

[20] The reference to the ECHR in Case E-18/11 Irish Bank in relation to the particular judicial system in Iceland does not alter the Ministry’s opinion on this.