ASW ECJ Legal Case

As you will be aware, on 13th July the Advocate General (AG) gave her view on the legal case against the UK Government that Community has taken to the European Court of Justice (EO) on your behalf. I thought that it would be helpful to explain fully the role of the EO, the AG and the UK High Court, as well explain what the AG actually said, what we expect the EO to say and then summarise the next likely steps. In addition, I thought that I should explain to you what the position is on the temporal limitation that the Government requested the EO should consider in the event of the EO finding in our favour.

Who is the Advocate General?

It is important to start with an understanding of the role of the EO in a case such as this.

Many cases in the UK Courts turn on the application of European law. In most cases the meaning of the European law provision in question is clear and it can be applied the same way as any other rule of law. If the European law provision is not clear, the UK Court can ask the EO for an advisory opinion: it is effectively a questions and answers service. The EO tells us what European law requires; it remains the job of the UK court to apply it to the facts of the case.

In that scheme, the AG's assist the Court. They are responsible for presenting an 'opinion' in the cases assigned to them. The case is argued at a public hearing, before the bench and the AG. The judges and the AG may put to the parties any questions they consider appropriate. Some weeks later, the AG delivers his or her opinion. He or she analyses in detail the legal aspects of the case and suggests completely independently to the Court of Justice the response which he or she considers should be given to the problem raised. The AG has usually read into the case in more detail than the judges and that is why his or her opinion is useful to the Court.

The AG's opinion is followed by the full Court in 80-85% of all cases. But the AG's opinion is not a "judgment" in any real sense: it is a guide to the likely result.

The Questions put to the ECJ.

Our case turns on the first and third of the following three questions:
first, what does Article 8 of the Insolvency Directive require? Secondly, does it require a Member State to make payments itself as the measure it introduces to guarantee employees expected pension benefits? Thirdly, if it requires more than what UK law provides, is the failure of successive Governments to give proper effect to Article 8 sufficiently serious that the Government ought to compensate members of the public who have lost out as a result?

The answers that the Advocate General has suggested are as follows:
1. Article 8 requires full protection of employees' interests with regard to their acquired or prospective rights under occupational pension schemes. The protection afforded by Article 8 also extends to losses resulting from the under-financing of the scheme, if those losses are attributable to insolvency.
2. Article 8 does not oblige Member States to guarantee the protection of employees' interests by means of payment by the State.
3. A breach of Community law will be sufficiently serious where, in the exercise of its legislative powers, a Member State has manifestly and gravely disregarded the limits imposed on the exercise of its powers. The mere infringement of Community law may be sufficient to establish the existence of a sufficiently serious breach if, at the time when it committed the infringement, the Member State in question was not called upon to make any legislative choices and had only considerably reduced or even no discretion.

Analysis.
The AG's answer to question 1, if adopted by the Court, means that current UK law is defective.

Prior to April 2006, UK law did not guarantee anything. It required pension scheme assets to be kept separate from the employer's assets if the scheme was to receive favourable tax treatment. The level of benefits provided by the scheme was entirely open. The Financial Assistance Scheme (FAS) was introduced retrospectively, by the Pensions Act 2004. It does not meet the standards required by Article 8 because it does not provide "full protection" of accrued and prospective rights (i.e. pensions in payment and deferred pensions). Full protection requires a guarantee of 100% of all scheme benefits.

The Pension Protection Fund (PPF) does not meet the requirements of Article 8 either. The limits on PPF benefits fall short of 100% protection.

The answer to question 2 means that, if the Government's method of protecting benefits is to create a life-raft such as the PPF, Article 8 does not require the state to underwrite it. It can be funded by a levy, by general taxation, or by some other means.
The answer to question 3 means that, to decide whether a failure to implement a Directive is so serious that the offending State should compensate citizens who have lost out as a result, you have to start by looking to see how wide a discretion the State had. If the State had little or no discretion (i.e. the Directive specified the result to be achieved and the method for achieving it) then a mere breach is enough without any need to analyse why there was a breach. If the State has a discretion, it will have to pay compensation if its failure to observe the limits on the discretion available was "manifest and grave."

The Advocate General said that this is not a Directive where "mere breach" is enough. She listed five factors that the UK Court will have to consider when answering the question whether the breach was "manifest and grave" in our case:

1. The degree of clarity and precision of the provision breached,
2. The extent of the discretion which the national authorities are recognised as having,

3. Whether the breach or the damage caused were intentional,
4. Whether any error of law may have been excusable, and

5. Any possible contribution by a Community institution to the breach.
According to the EO's case-law, it is also necessary to consider the question whether the provision of the Directive was capable of bearing the interpretation on which the national legislature based its implementation, or whether that interpretation was not manifestly contrary to the wording of the Directive or to the objective pursued by it.

None of these factors is controversial or unexpected. At first glance, two of them cause us problems.

The first is the lack of clarity in Article 8. The AG says that its requirements are not clear and that the Government's interpretation (that separation of assets is enough) is plausible even if it is wrong. We disagree: we think that it has always been clear that separation of assets is insufficient to protect benefits. However we would expect the ECJ to limit itself to answering the questions that were actually put to it and
leave it to the UK High Court to decide this matter (as the AG actually went on to say it should after giving her own opinion on it!).

The second is the fact that the Commission gave the UK legislation a clean bill of health when it reported on the implementation of the directive in 1995 (the fifth factor). Having seen the information supplied to the Commission as well as the report, however, it is clear why they did so: the summary of UK law supplied was incomplete and known, at the time, by the Department of Social Security to be incomplete.

The AG said that the weighing up of these factors is a matter for the UK Court to decide; but she then said that, in her view, the breach was not sufficiently serious. That is not her function. She has not seen any of the evidence on the subject; it was not produced before the ECJ because its function is to declare what the relevant factors are, and not to decide how to apply them to the facts of the case. That is what the High Court in London has to consider and that is where the relevant evidence will be produced.

Next steps.

We must now wait for the judgment of the EO. We don't know when that will be produced but it is likely to be in September or October. The case then returns to the High Court in London to decide whether the Government should compensate the Claimants, in the light of the EO's opinion on the meaning of Article 8 and the factors to be taken into account in deciding whether the Government's failure to implement the Directive (if it has failed to do so) is sufficiently serious. The ECJ will declare what European law requires. The High Court will then apply it to the facts of our case.

Temporal Limitation.
In the proceedings before the EO, the UK, Irish and Dutch Governments all invited the EO to impose a "temporal limitation."

The case which the High Court and the EO are concerned with deals only with the members of the ASW pension schemes. A finding that 0) Article 8 has not been implemented and 0j) the failure was sufficiently serious will establish these two points for every other case but will not establish an entitlement to compensation in those other cases.

If a ruling from the EO has particularly dire financial consequences, however, the EO occasionally imposes a temporal limitation, the effect of which is that no-one other than the parties to the litigation (i.e. the ASW members) can rely on it for past losses, unless they have already started proceedings. That is why, on discovering that some Community ASW Scheme members were not on the original writ issued in 2003 (we are still seeking to establish why this was the case for people who were members of the union on 9th July 2002, although we believe it may have been as a result of problems which occurred when our membership records were transferred to a new system).

In the event, the opinion says nothing on the subject at all. We fully expect the Government to draw the question to the EO's attention again, and the EO to say something on the subject. The fact that the Advocate General has said nothing on the issue makes it less likely that a temporal limitation will be imposed but it is still perfectly possible that it will.
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