1. Facts and background of the case
The Thelen Technopark Berlin judgment of 18 January 2022 promised to be an important one as the Court of Justice had decided to allocate the case to the Grand Chamber. The case, referred by the German Supreme Court (Bundesgerichtshof), raised easy issues of interpretation of the Services Directive but, more importantly, put once more the eternal question of the horizontal effect of directives in the Court’s docket. The judgment is, however, a bit of a damp squib. The Court did not budge from its established line of thinking on the horizontal effect of directives, and it ignored the proposal of its Advocate-General to take a new turn within that established doctrine (Case C-261/20, Thelen Technopark Berlin GmbH v MN, EU:C:2022:33).
Here are the essential facts of the case. MN, who operates an engineering firm in Germany, had concluded a contract of engineering services with Thelen Technopark Berlin in 2016, a private company. They agreed on a price of 55,000 euro for those services, and that sum was duly paid, but subsequently, MN sent an additional invoice of 103,000 euro for the same services. That additional sum was calculated based on the minimum rates set in a German Decree on fees for services provided by architects and engineers (Verordnung über die Honorare für Architekten- und Ingenieurleistungen) (hereafter, ‘the Decree’). As Thelen Technopark refused to pay the additional invoice, litigation ensued and MN was successful in the first and second instance, as the courts decided that the higher official minimum rate prevailed over the contractually agreed price. However, on final appeal to the Federal Court of Justice (Bundesgerichtshof), that court, rather than directly confirming the judgments of the lower courts, sent a preliminary reference to the Court of Justice enquiring about the EU law dimension of the case. As the case was unfolding before the German courts, the Court of Justice had, through a judgment of July 2019 in an infringement case against Germany, found the Decree on the minimum rates to be incompatible with the EU Services Directive (Directive 2006/123). The Court found a breach of Article 15 of that directive, stating that the imposition of minimum and/or maximum tariffs for the provision of services can only be justified if the member state concerned shows that they are necessary for the protection of an overriding reason relating to the public interest. The Court of Justice found that Germany had not sufficiently shown that the Decree was a necessary measure for the protection of consumer rights and the quality of the services (Case C-377/17, Commission v Germany, EU:C:2019:562).
2. The Court confirms its traditional position on the horizontal effect of directives
The substantive question of the compatibility of the Decree with the Services Directive had, therefore, effectively been solved by the time the Thelen Technopark Berlin case reached the ECJ, even though the Decree had not yet been amended or repealed by the time the Court gave its preliminary ruling. However, as the Court of Justice held, that substantive solution could not be applied in the Thelen Technopark Berlin case because it had arisen in a dispute between private parties. The European Court of Justice insists, in its judgment, on the principled position that directives do not have horizontal direct effect; they cannot be relied upon as such against an individual. The Court acknowledges that this introduces an exception to its usual way of identifying the direct effect of an EU law norm: ‘Therefore, even a clear, precise and unconditional provision of a directive does not allow a national court to disapply a provision of its national law which conflicts with it if, were that court to do so, an additional obligation would be imposed on an individual.’ (Point 32). The fact that the existence of a conflict between the national provision and the directive had been confirmed, by the Court itself, in an infringement case relating to that national provision, does not change the situation (Points 38 to 40). Applying this reasoning to the case at hand, the Court gives a very clear answer to the referring court: ‘The referring court is therefore not required, solely on the basis of EU law, to disapply Paragraph 7 of the [Decree], even if that provision is contrary to Article 15(1), 2(g) and (3) of Directive 2006/123.’ (Point 37 of the judgment). As a result, the German supreme court could confirm the lower court judgments that went in favour of MN and against Thelen Technopark.
After this firm reaffirmation of its traditional doctrine regarding the horizontal effect of directives, the Court then goes on to offer the usual consolation prize, namely that the claimant (Technopark Berlin) may decide to turn against the state and claim compensation for the harm suffered because the State failed to comply with the Services Directive. At this point, the existence of the earlier infringement judgment against Germany does become relevant since it facilitates the finding of state liability. Indeed, one of the traditional conditions for state liability is that the state’s breach of EU law should be ‘sufficiently serious’. If the breach has been established by a prior Court judgment (as is the case here), and if the member state has not taken action to repair that breach, then it must clearly be considered a serious one (point 47 of the judgment).
3. The alternative approach proposed by the Advocate-General
Thus, the Thelen Technopark Berlin judgment cements the Court’s existing approach to the domestic effect of directives. There is no overruling and not even an inflection of that ‘settled case law’. The judgment is mostly interesting for what it did not do: it did not engage with the alternative approach suggested by the Opinion of Advocate General Szpunar in this case (EU:C:2021:620). The Advocate General had started by restating the Court’s general doctrine about the non-horizontal effect of directives but had then focused on a major exception to that doctrine, namely the one first created by the ECJ in the Mangold judgment (Case C-144/04, EU:C:2005:709). In that well-known judgment, the Court held that where a directive embodies a general principle of EU law, that underlying general principle could be directly invoked in litigation between private parties, instead of the directive. In the Mangold case, a directive containing a specific prohibition of discrimination on grounds of age was materially applicable to the facts of the case but could not have direct effect because the domestic litigation was between private parties. Instead, the Court ruled, the general principle of equality could be applied in such a horizontal case, thus effectively ensuring that the provision of the non-discrimination directive was enforced. The Court later extended this approach from general principles to Charter rights. For example, in Bauer (Joined Cases C-569/16 and C-570/16, EU:C:2018:871), it held that the right to an annual period of paid leave, protected by Article 31(2) of the Charter can be invoked in a dispute between a worker and a private employer even though the dispute had initially turned on the interpretation of the working time directive (Directive 2003/88). What happens in these cases is that the provisions of a directive acquire horizontal direct effect when they overlap with the content of a directly effective fundamental right. Advocate General Szpunar proposed to adopt that same approach in the Thelen Technopark Berlin case. He started by arguing that, since the case came within the material scope of application of the Services Directive, the EU’s Charter of Rights was applicable. The relevant fundamental right, in this case, was the freedom of contract, which he considered to be a constituent part of the freedom to conduct business protected by Article 16 of the Charter (point 78). That right, according to the Advocate General, had direct effect (point 93). He then argued that Article 15 of the Services Directives, dealing with the imposition of minimum and maximum prices for professional services, is an expression of that freedom of contract. As a result, the AG opined that ‘the national court in the main proceedings should disapply the national provision at issue, which is contrary to Directive 2006/123, on the ground that the fundamental right to freedom of contract must be respected as regards the parties’ right to set the price.’ (Paragraph 113 of the Opinion). As a result of this reasoning, the national court should be expected to decide the case in favour of Thelen Technopark rather than MN.
4. The Court was right
The Court entirely ignored the approach proposed by its Advocate General, and it did well. The Mangold-Bauer line of cases had seriously unhinged the coherence of the Court’s case-law on the effect of directives, but at least it could be restricted to the application of directives whose main aim was to ‘implement’ a fundamental right, as is the case with the non-discrimination directives (as in Mangold) and with the working time directive (as in Bauer). The services directive is not a piece of fundamental rights legislation; its main aim is not to implement the Charter’s Article 16 and the specific provision of Article 15 of the directive affects the freedom to conduct a business only in a very remote way. If one followed the Advocate General’s Opinion, then most EU directives of market regulation (and their national transposition measures) would have to be considered as either implementing or restricting the freedom to conduct a business. This would lead to an undue marketization of fundamental rights law. It would also blow a very big hole in the Court’s doctrine on the lack of horizontal effect of directives, making that doctrine entirely inconsistent.
Posted by BRUNO DE WITTE (Professor of European Union law, Maastricht University)
Suggested citation: B De Witte, “The Thelen Technopark Berlin judgment: the Court of Justice sticks to its guns on the horizontal effect of directives”, REALaw.blog, available at https://realaw.blog/?p=1195.