7—Unjust Enrichment and the EU Institutions

7


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Unjust Enrichment
and the EU Institutions


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IT WAS NOTED at the end of the last chapter that the French courts have referred to répétition de l’indu as a principle common to public, private and what is now European Union (EU) law,1 and that no picture of claims involving unjust enrichment and public bodies would be complete without an investigation of the impact of the EU on such claims. There are three obvious reasons for this. First, as far as the EU-Member State relationship is concerned, the EU’s free movement and anti-discrimination rules have provided an important source of nullity in the sense that the power of Member States’ public bodies are limited not only by domestic law but also by the requirement to comply with EU law. Thus the reason why a particular contract, tax or levy may be beyond the powers of a public body in a particular case may well be provided by EU law rather than by domestic public law. In addition, and more directly, the European Court of Justice (ECJ) has laid down criteria which must be fulfilled by the national courts when providing a remedy in such cases. The influence of these two factors on French law was seen clearly in the cases discussed in chapter six such as Café Jacques Vabre2 and Fils Henri Ramel.3 Similarly, in England, one of Lord Goff’s reasons4 for allowing recovery in Woolwich Equitable Building Society v IRC5 was:


 


the decision of the European Court of Justice, in Amministrazione delle Finanze dello Stato v SpA San Giorgio,6 which establishes that a person who pays charges levied by a member state contrary to the rules of Community law is entitled to repayment of the charge, such right being regarded as a consequence of, and an adjunct to, the rights conferred on individuals by the Community provisions prohibiting the relevant charges . . 7 I only comment that, at a time when Community law is becoming increasingly important, it would be strange if the right of the citizen to recover overpaid charges were to be more restricted under domestic law than it is under European law.8


In the same way, the decision of the ECJ in Metallgesellschaft and Hoechst v IRC was of course the catalyst for several important English cases such as Deutsche Morgan Grenfell v IRC,9 Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v IRC,10 and The Test Claimants in the FII Group Litigation v The Commissioners for Her Majesty’s Revenue & Customs (FII).11 For all these reasons, then, it is important to understand the precise relationship of EU and Member State law on questions involving unjust enrichment and public bodies,12 and in particular what happens when there is an EU law element in the cases as well as the national public law and unjust enrichment elements discussed so far. Does EU law simply provide an imperative for national courts to reach a particular outcome in a particular case, regardless of the national mechanism chosen to do so, or has EU law begun to develop its own conceptions of those mechanisms? Such questions are important enough in their own terms, but become even more so when combined with investigation into the possibilities of codifying European private law,13 or matters concerning the conflict of laws. However, in addition to these issues relating to the EU-Member State relationship, the third reason for examining unjust enrichment in the EU is of course that the public body involved in the claim may not be a domestic body at all, but one of the institutions of the EU itself. It is this issue with which the rest of this chapter will be concerned.


An EU Law of Unjust Enrichment?


Relatively early on in the development of the European Economic Community (EEC), it became clear that it would not be possible for the ECJ to avoid questions relating to unjust enrichment, and given that those working in the court had started their careers as lawyers in their respective national systems, it is hardly surprising to find them using reasoning familiar to those national systems. In Mannesmann AG v High Authority,14 for example, a payment was made by the Imported Ferrous Scrap Equalisation Fund, as part of the compulsory EC scheme on the equalisation of ferrous scrap established under Article 53 of the European Coal and Steel Community (ECSC) Treaty. The Community’s internal resources in ferrous scrap were not sufficient to cover the requirements of the scrapconsuming undertakings (SCUs), and imported scrap was much more expensive than Community scrap. The equalisation scheme was thus set up to ensure an orderly supply of scrap at reasonable prices for all SCUs. The fund would pay out the difference between the price of Community scrap and imported scrap on each consignment of the latter purchased, but in order to do so it needed certification of the origin of the imported scrap. In Germany, the regional office for the administration of this scheme was known as the DSVG. Rather than paying the money to the SCUs (who would then have to pay it to their scrap suppliers), the DSVG paid it directly to the supplier for the account of the SCUs. In one such contract, Hansa (a scrap supplier) provided the certificates required for the payment of the equalisation money and named the applicant SCU as the undertaking entitled to receive the scrap in question. However, it turned out that there were mistakes in the certificates, so that the equalisation payments made by the DSVG were made in error. The High Authority asked the applicant SCU (Mannesmann) for the repayment of these sums, but Mannesmann refused, and so the High Authority took decisions ordering them to repay. These decisions were enforceable under Article 92 of the Treaty, and the applicant challenged the validity of these decisions. The ECJ upheld Mannesmann’s claim and in annulling the High Authority’s decision for infringement of the rules of law relating to the application of the ECSC Treaty it held that:


 


[I]t cannot be argued that any unjustified enrichment on the part of the applicants exists.


Indeed, equalization was designed to make up the difference in price between so-called imported scrap, which was more highly-priced and scrap recovered within the common market. According to the very principles underlying equalization, that extra cost was to be borne not by the applicants in proportion to the supplies of imported scrap which they received, but by the scrap consumers as a whole through the Fund. Thus the payment of equalization did not constitute an enrichment for the applicants by virtue of a payment which benefited them directly, but was the result of an operation bringing scrap delivered down to the price of the internal market. Moreover, an obligation to make restitution on the grounds of an unjustified enrichment also presupposes the absence of any justification whatever in the dealings between the parties. However, that legal justification exists independently of whether the equalization was paid directly to the scrap sellers, thus constituting the difference between the price on the internal market and the import price, or whether it was paid to the applicants to enable them to buy imported scrap instead of buying scrap coming from the internal Community market. Therefore in this instance the requirements of unjustified enrichment giving rise to restitution are not fulfilled.15


Considering each of these two requirements in turn, it is clear that both can be regarded as relating to the law of unjust enrichment. First, although it is immediately apparent that the requirement of an ‘absence of justification’ reflects the French approach of enrichissement sans cause or répétition de l’indu rather than the English unjust enrichment, this does not, of course, mean that the two systems would come to different conclusions, as was noted in chapters one and six.16 What might in France be treated as either a fact rendering the sum due, or with cause, could in the English system be seen as providing a basis for the transfer, thus avoiding what is sometimes known as a failure of consideration outside contract. It is not clear from the ECJ’s judgment what form this justification took, only that there was such a justification. However, AG Roemer explains in more detail that the certificates came from the Netherlands, where they were administrative measures and thus could only be rendered voidable by their shortcomings, not void. Since the Netherlands authority had not revoked the certificates, AG Roemer concluded that ‘the scrap in respect of which the certificates were issued thereby kept the nature of scrap from third countries’.17 In other words, the basis for the payment had therefore not failed, and (whether this is seen from the civilian or the English perspective), there was thus no reason for the payments to be returned.


The second problem was, of course, that the SCU in question had not been enriched. Here, too, the ECJ’s reasoning is the same as that found in the English and French systems. The applicant SCUs were never intended to pay more than the price for scrap recovered within the Community. The whole purpose of the equalisation scheme was to prevent them from ever having to pay the price for importing scrap. They therefore could not be said to be enriched by the payment of the difference by the Fund, as this was not a discharge of their debt. Had the lack of proper certification invalidated the Fund’s payment, it is possible that the scrap supplier, Hansa, could have been said to be enriched, as the scheme was not set up for its benefit. Indeed, the ECJ stated that its judgment did not prejudice ‘the High Authority’s right to proceed against the perpetrators of the frauds [presumably for compensation as a response to wrongdoing] and against those who profited from them’.18 That is, presumably, those who were unjustly enriched. The only action thus precluded was therefore an action based on unjust enrichment being brought against the applicant SCUs for return of the money.


Interestingly the applicants in Mannesmann had also tried to argue that the High Authority had acted beyond its competence by trying to use a public law power to create a claim for itself in private law. However, the ECJ decided that in operating the scrap equalisation scheme the High Authority was acting in a public manner, and since the right to repayment of the sums wrongly paid was directly connected to the obligation to pay the correct sums, the right to repayment came from a public law relationship and thus was within the competence of the High Authority. This is significant in that the ECJ thus clearly saw the relevance of both the public and private law issues in the case, a position which supports the argument made in part one and which therefore contrasts with the English approach. However, its significance is nevertheless limited by the fact that in the English cases discussed in previous chapters the public bodies were parties to private law actions in unjust enrichment. In contrast, the action in Mannesmann was for judicial review of the competence of the High Authority to demand repayment, albeit that the basis for that demand was the alleged unjust enrichment of the applicants.


Unjust Enrichment as a General Principle of EU Law


Although unjust enrichment-style reasoning could thus be found even in the very early days of the EC, it was in 1990 that the Court first recognised the prevention of unjust enrichment as a ‘general principle’ of EC law, holding that the Commission


 


cannot, without unjustly enriching the Community contrary to the general principles of Community law, refuse to take account of [certain relevant information] in calculating the correction to be made to the accounts of expenditure chargeable to the EAGGF [European Agricultural Guidance and Guarantee Fund] submitted by the Member State in question.19


This was reiterated in the subsequent cases of Corus UK v Commission,20 discussed in further detail below, and Vieira v Commission.21 However, in an echo of some of the French experience,22 though not so much the English,23 it has traditionally been much easier for the EC to obtain restitution, or for entities to obtain restitution in pursuance of EC goals, than it has been for private claimants to obtain restitution from the entities of the EC.


Staff Cases


For instance, obviously one group of individuals to which the EU regularly pays out money is its staff. Article 85 of the Staff Regulations provides two conditions in which a sum overpaid can be recovered; where the recipient was aware that there was no due reason for the payment, or where the fact of the overpayment was patently such that the recipient could not have been unaware of it. Thus in Meganck v Commission,24 Meganck had informed the Commission, for which he worked, that his daughter had left school and been employed, so that he was no longer entitled to a ‘head of the household allowance’, but although his dependent child allowance and education allowance were stopped, his head of household allowance was not. When informed that the Personnel Department were seeking to recover the amount overpaid, Meganck argued that the Court should declare that he was not aware that there was no due reason for the payment; that the fact of the overpayment was not patently such that he could not have been unaware of it; and that there should therefore be no right on the part of the Personnel Department to recover the money. The Court held that since Meganck had not informed the Commission until three months after his change in status, he had no right to retain the overpayments received in this period.25 For the period after notification the Court held that ‘even a superficial examination of [some of the later] salary slips would have shown the applicant that he was continuing to receive an allowance in a capacity which was no longer his’.26 However, the salary payments immediately after notification did not allow ‘a person exercising normal diligence to recognise the undue payment of an allowance as head of household’.27 Meganck was thus allowed to keep these, but only these, overpayments. Annemarie Kuhl28 was also overpaid in her capacity as an official of the Council. This time the overpayment was of an education allowance for her children to go to school in Germany. After they had moved to the European school in Brussels, Kuhl informed the appropriate departments, but continued to receive the allowance for them to be educated abroad. Two years later, she was informed of the overpayment and the fact that 28 691 Belgian francs were being deducted from her salary. The Court held again that ‘[t]he applicant should have known that the change of school . . . involved a reduction of the education allowance’.29 She was thus not entitled to retain the amount received before she notified the appropriate departments, and even after this,


 


she continued to receive as before the same education allowance . . . the applicant should have been aware of the perpetuation of the error. In the circumstances the fact of overpayment was patently such that the applicant could not have been unaware of it.30


To an English lawyer, although the courts have referred only to ‘the need to protect the Communities’ resources’ by asking for repayment, and to ‘legitimate expectations’ as a possible countervailing consideration,31 this reasoning looks very like the argument that any change of position on the parts of Meganck and Kuhl could not have been bona fide.32 Indeed, when Marcelle Exner did succeed in her claim against the Commission for annulment of the decision to reclaim her overpaid household allowance,33 AG Reischl specifically held that she could not ‘be said to have acted in bad faith, but must rather be regarded as having made an excusable error’.34 Indeed, it could be argued that the references to legitimate expectations simply support the argument made in chapter five that there is in fact a close link between that doctrine and the defence of change of position.35


These cases also illustrate the point made above, that apart from Exner, there is not much evidence of the operation of unjust enrichment against the EU, but plenty of evidence of the principle working to the benefit of the EU. Similarly, in Danvin v Commission,36 Danvin had taken over the duties of the chief accounting officer while continuing to receive only his salary as an assistant accounting officer. When he claimed the difference on the basis of unjust enrichment, the ECJ refrained from deciding whether this principle could apply to such a contract of employment, but rejected Danvin’s claim on the basis that ‘a generally accepted principle in the national legal systems’ was that the claimant must have suffered loss, and Danvin could not prove that he had. The references to damage are not helpful, but it is possible that the ECJ was simply denying the ‘at the expense of the claimant’ element of the cause of action. Another similar case was Schina v Commission,37 where the Court, according to Magliveras,38 ‘ducked the question’ and rejected the argument on the basis of a lack of evidence. Finally, AG Gand in Danvin attempted to discourage any future applicants from trying such a cause of action by holding that there was ‘nothing to be gained from transposing concepts of private law into an area for which they have not been conceived’.39 This seems to illustrate further recognition at European level of a distinction between public and private law,40 and provides an interesting parallel with English law, where employment contracts have also given rise to debate over the proper spheres of public, as opposed to private, law.41 However, it is clear from that context that, with respect, there is no reason at all why private law concepts of unjust enrichment should not be used in the public sphere, and conversely there is every reason why unjust enrichment actions should be available against the EU to the same degree as they are available in its favour.


Annulment Cases


Similarly, there has been a series of cases in which those who have paid fines to the EC have subsequently sought to have those fines annulled and recover the payments. Here again, although the situation has gradually improved, the ECJ has not always recognised the application of the principle of unjust enrichment against the European Institutions as it could have done.


The Wood Pulp Cases


On 19 December 1984, the Commission adopted Decision 85/202 (the Wood Pulp decision), following a proceeding under what is now Article 101 of the Treaty on the Functioning of the EU (TFEU) (ex Art 81 EC), in which it stated that 400 wood pulp producers, together with three of their professional associations, had concerted on prices in breach of Article 101(1) of the Treaty. 36 of those addressees, including nine ‘Swedish addressees’, were fined amounts between €50,000 and €500,000. 28 of the addressees, not including the Swedish addressees, brought an action for annulment of this decision before the ECJ. The ECJ annulled part of the Commission’s decision, holding that concertation was not the only plausible explanation for the parallelism of prices fixed by the addressees, and that the addressees had not had an opportunity to defend themselves effectively against an allegation of general concertation. The ECJ thus reduced the initial amounts of the fines by amounts between €125,000 and €2,000, taking them down to fines of €20,000 for each undertaking. Following delivery of this judgment on 31 March 1993,42 the Swedish addressees asked the Commission, in a letter dated 24 November 1993, to re-examine their position in the light of the judgment and to refund the overpaid fines. This request was finally rejected by the Commission on 4 October 1995. The Swedish addressees then brought an action before the Court of First Instance (CFI) for annulment of this decision under Article 263 TFEU (ex 230 EC) and in AssiDöman Kraft Products the CFI held that:


 


[T]he wood pulp decision, although drafted and published in the form of a single decision, must be treated as a bundle of individual decisions making a finding or findings of infringement against each of the undertakings to which it is addressed and, where appropriate, imposing a fine . . . Therefore, where an addressee did not bring an action under Article [263] for annulment of the wood pulp decision in so far as that decision relates to it, the decision continues to be valid and binding on it.43


The Swedish addressees were thus still bound by the wood pulp decision, as the time limit for bringing an action under Article 263 had expired. In order to review the Commission’s subsequent decision not to reassess the position of the Swedish addressees following the annulment of the fines in other cases, the CFI had to find that this second decision was separate from the first, and not merely a reiteration of it which would not have been open to challenge.44 This required it in turn to find that there was an obligation on the Commission under Article 266 TFEU (ex Art 233 EC)45 to reassess the position of the Swedish addressees following the wood pulp decision, so that the second letter of 4 October 1995 could be considered as taken pursuant to that Article and therefore separate from the wood pulp decision. The CFI found that the Commission was indeed required:


 


[I]n accordance with Article [266] of the Treaty and the principle of good administration—to review, in the light of the grounds of the Wood Pulp judgment, the legality of the wood pulp decision in so far as it relates to the Swedish addressees and to determine on the basis of such an examination whether it was appropriate to repay the fines.46


Having thus established the admissibility of the case, the CFI went on to consider the Commission’s argument that it was neither required, nor entitled to repay the fines. The court held that:


 


[T]he Community institutions are entitled, subject to the principles of the protection of legitimate expectations and of legal certainty, to withdraw, on the ground that it is unlawful, a decision granting a benefit to its addressee . . . That case-law applies a fortiori in situations where, as in this case, the decision in question merely imposes burdens or penalties on the individual. In such cases, the Commission is not precluded from withdrawing the decision by considerations relating to the protection of the legitimate expectations and vested rights of the person to whom the decision was addressed.47


Accordingly, the CFI continued that if the Commission were to conclude that the fines imposed on the Swedish addressees were unlawful:


 


[I]f Article [266] were not to be deprived of all its practical effect, the Commission would also be required, in accordance with the principles of legality and of good administration, to repay those fines, as they would have no legal basis.48


However, the CFI rejected the Swedish addressees’ claim for an order requiring the Commission to refund (with interest) part of the fines paid by them, since:


 


Article [266] of the Treaty provides for a division of powers between the judicial and administrative authorities, under which it is for the institution whose act has been declared void to determine what measures are required in order to comply with a judgment annulling an act, such as the Wood Pulp judgment, and to exercise, subject to review by the Community judicature, the discretion which it enjoys in that regard while respecting the operative part and grounds of the judgment which it is required to comply with and the provisions of Community law.49


On appeal by the Commission, however, the ECJ set aside the CFI’s judgment, holding that although Article 266 TFEU (ex 233 EC) required the institution concerned to ensure that any act intended to replace the annulled act was not affected by the same irregularities, this did not mean that the Commission must, at the request of interested parties, re-examine identical or similar decisions, allegedly affected by the same irregularity, addressed to addressees other than the applicant.50 It was, the Court held, settled law that a decision which had not been challenged by the addressee within the time-limit laid down in Article 266 TFEU (ex Art 230 EC), became definitive as against him.51 The principle of legal certainty thus precluded any necessity on the part of the institution which had adopted the decision to re-examine at the request of other addressees, in the light of the grounds of the annulling judgment, the legality of the unchallenged decisions.52 In holding that Article 266 TFEU (ex Art 233 EC) placed the Commission under a duty to re-examine the position of the Swedish addressees in the light of the Wood Pulp judgment, the CFI had thus erred in law.53


AG Ruiz-Jarabo Colomer explained further that although the issue appeared to be ‘deceptively simple’, it in fact raised the ‘difficult conflict’ between substantive justice and legal certainty as soon as it was examined in detail.54 He ‘fully agreed’ with the analysis of the Wood Pulp decision as a set of individual decisions, but in ‘clarifying’ the erga omnes effect of a judgment of annulment he explained that ‘[t]he legal basis of the obligation to re-examine final administrative measures adopted by Community institutions is . . . the need to give place, having regard to the general rule that such measures are not challengeable, to superior considerations of equity.55 He thus disagreed with the CFI’s view that such a duty arose from Article 266 TFEU (ex Art 233 EC) and the ‘principle of legality’. Similarly, he agreed with the CFI’s reasoning that the Commission was entitled to review the measure in respect of the Swedish addressees, but he disagreed with the CFI’s conclusion that the Commission was thus obliged to repay the Swedish addressees’ fines, pointing out that the principles of legality and good administration also require compliance with time limits and thus legal certainty and finality.56 In proposing his alternative solution, he then returned to his theme of ‘equitable considerations’, holding that:


 


[T]he proper solution to this dispute calls for the legal context chosen by the Court of First Instance to be abandoned. Any obligation which the Commission may be under to refund the fines to the Swedish undertakings should not be regarded as an emanation ultra partes of a judgment of annulment but rather as the recognition by the legal order of an intolerable injustice. That recognition is based therefore not on Article [266] but on equitable considerations known to the laws of all the Member States, which are capable of overriding the general principle that administrative measures cannot be attacked outside the time-limit for instituting proceedings. (emphasis added)57


He went on to list the equitable considerations which could have this effect as being divided into two kinds. On the one hand were categories which ‘display the common feature of relying upon a new factor’. These are: pleas calling for amendment (in favour of the interested party) of the factual or legal basis of the final measure being challenged; and pleas by which it is sought to rely on new evidence (or have existing evidence reappraised) prompting a decision more favourable to the person concerned. On the other hand, there were cases in which the defect prompting the challenge may have been inherent in the measure since the time of its adoption. These are: ‘outright nullity’58 and ‘manifest infringement of the law’,59 the latter of which appears from his opinion to contain ‘sets of measures producing discriminatory results’60 and ‘particularly severe penalties’.61 Such cases must, he explained ‘be exceptional and, in addition, must be strictly interpreted for fear of undermining the general rule that final measures are unchallengeable’.62 He further stated that ‘none of the circumstances making it advisable to restrict the degree of latitude ordinarily enjoyed by Community institutions’63 were present in the case of the Swedish addressees. He thus concluded that:


 


[S]ince there is no superior consideration of equity whatsoever, nor has there been claimed to be, the balancing of the various interests . . . can produce no result other than that pursued by the general rule, which is to preserve the finality of the contested penalty.64


It is this final sentence and the emphasised passages in the quote above which must be examined more carefully. It is clear from his reasoning that none of the ‘considerations of equity’ he listed applied to the present case, and that if these are the only ‘intolerable injustices’ to be considered then it was right to decide the case in favour of the Commission. However, it will be remembered from the discussion of the English law, and in particular the case of British Steel plc v Customs and Excise Commissioners65