The fundamental freedoms of the single market on the path towards horizontal direct effect: the free movement of capital ? lex lata and lex ferenda

• Author: Vladimir Savkovic
• Position: Associate professor
• Pages: 208-223

The fundamental freedoms of the single market

on the path towards horizontal direct effect:

the free movement of capital – lex lata and lex ferenda

Associate professor Vladimir SAVKOVIĆ1

Abstract

The paper examines both likeliness and expediency of establishing horizontal

direct effect of the TFEU provisions inaugurating the free movement of capital as the

“youngest” of the four fundamental freedoms in the Single Market. In pursuing this aim,

author starts with portraying the status quo regarding horizontal direct effect of other

fundamental freedoms and attempts to deduce from some of the cornerstone cases the most

important arguments given by the CJEU, i.e. key rationale utilized thus far for establishing

horizontal direct effect. After these general analyses, the author examines the current scope

of application of the free movement of capital provisions in view of the issue at hand and

investigates whether in conjunction with the reasoning of the CJEU in other free movement

cases similar approach is likely to be utilized in order to establish the same effect of Article

63 TFEU. Finally, notwithstanding certain opposite opinions, the author establishes that

this particular fundamental freedom becoming horizontally effective is not something likely

to happen any time soon and makes an effort to support such standpoint. Moreover,

conclusion is put forward that even if it opts for such course of action the CJEU should

take certain preliminary, i.e. precautionary measures.

Keywords: fundamental freedoms; free movement of capital; horizontal direct

effect; effet utile; public entities; private entities.

JEL Classification: K22, K33.

1. Introductory remarks

It is a long established fact that that the provisions of the Treaty on the

Functioning of the European Union (hereinafter: “TFEU”) in which the

fundamental freedoms of the Single Market are enshrined satisfy the standard “Van

Gend en Loos eligibility test” for establishing direct effect of EU law.2 At the time

when this famous case was decided by the Court of Justice of the European Union

(hereinafter: “CJEU”)3, the notion of direct effect equalled the nowadays notion of

1 Vladimir Savković – Faculty of Law, University of Montenegro, vsavkovic@t-com.me.

2 For a recapitulation of the case and the test itself, for instance, see Tony Storey and Chris Turner,

Unlocking EU Law, Routledge, Abingdon, NY, 2014 (4th ed.), p. 153; Morten Rasmussen,

Revolutionizing European law: A history of the Van Gend en Loos judgment, „International Journal

of Constitutional Law”, Vol. 12(1), January 2014, pp. 136-163.

3 The Court of Justice of the European Union plays an important role in the application of the Treaty to

concrete situations occurring among Member States, and has set benchmarks over time to strengthen the

internal market – see Cătălin-Silviu Săraru, State Aids that are Incompatible with the Internal Market in

European Court of Justice Case Law, in Cătălin-Silviu Săraru (ed.), Studies of Business Law – Recent

Developments and Perspectives, Peter Lang, Frankfurt am Main, 2013, p. 48.

Juridical Tribune Volume 7, Issue 2, December 2017 209

vertical direct effect, which allows private persons to rely directly on an EU law

provision to regulate their relation with a Member State or its various emanations,

i.e. public entities.4 It was not long after the Van Gend en Loos,5 though, before the

CJEU established the concept of full direct effect in Defrenne v Sabena,6 i.e. both

vertical and horizontal direct effect of certain EU law provisions. In time,

recognizing of such “enhanced” effect of EU law provisions by the CJEU has

become more and more common. Therefore, today there are numerous provisions

of EU law having direct effect not only with regard to relation between a private

actor and a Member State but between purely private actors as well (i.e. horizontal

direct effect). Put differently, one private person may now invoke the duties of

another under particular provisions of EU law before a national court just as it

would do so, for instance, with regard to national legislation in the field of contract

or administrative law. Moreover, there is even evidence now that not only certain

segments of its formal sources but also the uncodified principles of EU law have

been recognized as having horizontal direct effect.7

As for the fundamental freedoms of the Single Market, it has been

notorious dilemma for quite some time now which free movement provisions of the

TFEU have horizontal direct effect and under which circumstances? The debate on

this topic is ongoing and quite lively, and it is so largely thanks to the CJEU.

Namely, in delivering preliminary rulings in cases involving horizontal direct

effect, the CJEU has not only demonstrated different approach with regard to

different freedoms but its approach (ratio decidendi) has been known to vary –

some would say evolve - slightly but noticeably from one case to another

addressing the protection of the same fundamental freedom.8 In its defense, it

seems that the CJEU was bound to demonstrate such approach in a legal system as

specific as that of the EU, whose regulatory framework is renowned for

generalized definitions of certain legal notions enshrined in its key regulatory

instruments. Put differently, as much as it interprets the ideas of the European

4 For the purpose of this particular paper, the notion of public entity is understood in its broadest

sense, so as to include state agencies, public institutions, local self -governments, state-owned

commercial entities exercising commercial activity of general, i.e. public interest, as well as

exclusively private entities entrusted with executing specific public function, when executing it, all

of which are occasionally also referred to as “emanations of the state” by the CJEU. For a more

detailed analysis of this notion under the CJEU case law, for instance, see Maria Wiberg, The EU

Services Directive: Law or Simply Policy? T.M.C. Asser Press, Hague, 2014, 141-147.

5 See Case C 26-62, NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v

Netherlands Inland Revenue Administration (5 February 1963) EU:C:1963:1.

6 See Case C 43 - 75, Gabrielle Defrenne v Société anonyme belge de navigation aérienne Sabena (8

April 1976) EU:C:1976:56.

7 See Mirjam de Mol, Kücükdeveci: Mangold Revisited – Horizontal Direct Effect of a General Principle

of EU Law: Court of Justice of the European Union (Grand Chamber) Judgment of 19 January 2010,

Case C-555/07, “European Constitutional Law Review”, Vol. 6(2), 2010, pp. 293-308.

8 For instance, see Eva Julia Lohse, Fundamental Freedoms and Private Actors ‒ towards an

‘Indirect Horizontal Effect’ “European Public Law”, February 2007, Vol. 13(1), pp. 159-190;

Harm Schepel, Constitutionalising the Market, Marketising the Constitution, and to Tell the

Difference: On the Horizontal Application of the Free Movement Provisions in EU Law,

“European Law Journal”, Vol. 18(2), 2012, pp. 177-200.