T-33/09 Portugal v. Commission: the prison break

Is that so easy for a Member State to escape penalty payments under Art. 260 TFEU (ex Art. 228 TEC)? All you have to do is repeal the incompatible legislation and replace it with another legislation and that stops the penalty payments even if that new legislation is (considered) incompatible with the EU law? That would seem to be the conclusion offered by the General Court in T-33/09.

The story

On 14 October 2004 (C-275/03), the Court of Justice found Portugal in breach of Article 1(1) and Article 2(1)(c) of Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts "by failing to repeal Decree-Law No 48 051 of 21 November 1967, making the award of damages to persons harmed by a breach of Community law relating to public contracts, or the national laws implementing it, conditional on proof of fault or fraud".
On 10 January 2008 (C-70/06), the same Court, now dealing with the matter under Article 228 TEC (now Article 260 TFEU), found that "on the date of expiry of the period laid down in the reasoned opinion addressed to it on 13 July 2005, the Portuguese Republic had not yet repealed Decree-Law No 48 051". As a result, Portugal was ordered to pay a penalty payment of EUR 19 392 for every day of delay in implementing the measures necessary to comply with the 2004 judgment, from the day of delivery of judgment in the present case until the day on which the 2004 judgment is complied with.
Right after the 2008 judgment, Portugal communicated to the Commission Law 67/2007 which repealed repealing Decree-Law No 48 051 and therefore, Portugal claimed, the Portuguese Republic had taken all the measures necessary to comply with the 2004 judgment. The Commission, for its part, took the view that Law 67/2007 did not constitute an adequate and complete measure to comply with the 2004 judgment. The Commission confirmed this position in Decision C (2008) 7419 final of 25 November 2008 (requiring payment of the penalty payments due pursuant to the judgment of the Court of Justice in Case C-70/06 Commission v Portugal) and Portugal followed by lodging the application at issue requesting annulement of that decision.

The General Court

The General Court, in fact, did annul the decision.

It started by setting out the limits of its jurisdiction:

65 Therefore, the General Court has jurisdiction to hear and determine such an action, in accordance with the provisions of the first subparagraph of Article 225(1) EC.
66 However, in exercising such jurisdiction, the General Court cannot impinge on the exclusive jurisdiction reserved to the Court of Justice under Articles 226 EC and 228 EC.
67 The General Court may not rule, therefore, in the context of an action for annulment based on Article 230 EC and brought against a decision of the Commission relating to the enforcement of a Court of Justice judgment delivered on the basis of Article 228(2) EC, on a question relating to the infringement by the Member State of its obligations under the EC Treaty that has not been previously decided by the Court of Justice.

Turning to the substance, the General Court was quick to conclude that a/ it follows from the operative part of the 2008 judgment that "it was sufficient for the Portuguese Republic to repeal Decree-Law No 48 051 in order to comply with the 2004 judgment and that the penalty payment would be due until that repeal". By claiming that, despite the repeal of the Decree-Law concerned, Law 67/2007 did not constitute adequate compliance with the 2004 judgment, the Commission "failed to take into account the operative part of the 2008 judgment. The contested decision must therefore be annulled".

The General Court rejected the argument of the Commission according to which "the infringement persisted as long as Portuguese law continued to make the award of damages to persons harmed by a breach of Community law relating to public contracts, or the national laws implementing it, conditional on proof of fault or fraud" and therefore the repeal of the Decree-Law concerned was not enough in itself.

The General Court's response was this:

81 Indeed, in the context of enforcing a judgment of the Court of Justice imposing a penalty payment on a Member State, the Commission must be able to assess the measures adopted by the Member State to comply with the judgment of the Court of Justice in order, inter alia, to prevent the Member State which has failed to fulfil its obligations from simply taking measures that, in reality, have the same content as those that were the subject of the judgment of the Court of Justice.
82 However, the exercise of that power of appraisal can prejudice neither the rights – and in particular the procedural rights – of the Member States, as they result from the procedure set out in Article 226 EC, nor the exclusive jurisdiction of the Court of Justice to rule on the compliance of national legislation with Community law.
83 It must be stated that the Court of Justice did not rule on the compliance of Law 67/2007 with Directive 89/665 either in its 2004 judgment or in its 2008 judgment.
84 Furthermore, it is common ground that Law 67/2007 repealed Decree-Law No 48 051 and introduced a new system of liability including substantial modifications to the system that prevailed under Decree-Law No 48 051.
85 The Commission itself acknowledges, in the contested decision, that ‘Law 67/2007 makes it potentially less difficult for tenderers, who have been harmed by an unlawful act of the contracting authority, to obtain damages’ and, in its written pleadings, that the Portuguese legislature did not confine itself to repealing Decree-Law No 48 051, but replaced it with a new system of rules by means of Law 67/2007.
86 Furthermore, it is clear both from the discussions between the parties before the adoption of the contested decision, and from their written pleadings in the context of this case, that they do not agree on whether Law 67/2007 complies with Community law.
87 To decide such an issue would amount to assessing the compatibility of Law No 67/2007 with Community law, which requires a complex legal analysis that goes far beyond a formal review to determine whether or not Decree-Law No 48 051 has been repealed.
88 The rights and duties of Member States may be determined and their conduct appraised only by a judgment of the Court of Justice under Articles 226 EC to 228 EC (see paragraph 58 above).
89 Consequently, the Commission was not entitled to decide, in the context of the enforcement of the 2008 judgment, that Law 67/2007 did not comply with Community law and then draw conclusions from this for the calculation of the penalty payment determined by the Court of Justice. In so far as it considered that the system of rules introduced by the new law did not constitute a correct transposition of Directive 89/665, the Commission should have initiated the procedure provided for in Article 226 EC.
90 For the sake of completeness, the General Court notes that the argument put forward by the Commission, which consists in claiming that greater discretion should be granted to it in relation to the enforcement of a judgment delivered by the Court of Justice under Article 228(2) EC, would have the consequence that, when a Member State has challenged before the General Court an assessment by the Commission that goes beyond the actual terms of the operative part of the judgment of the Court of Justice, the General Court would, inevitably, be required to make a ruling on the compliance of national legislation with Community law. Such an appraisal falls within the exclusive jurisdiction of the Court of Justice and not that of the General Court.