Stian Øby Johansen, PhD fellow at the University of Oslo Faculty of Law*

I recently attended a hearing at the Court of Justice of the European Union (CJEU) concerning a case brought by Russian energy company Rosneft against EU sanctions imposed after Russia’s intervention in Crimea. The case, heard by the High Court of Justice (England & Wales), asks the CJEU to clarify the legitimacy of several aspects of these EU sanctions.

Given the case’s complexity, this report will first outline the specifics of the challenged sanctions before examining the arguments presented by each party. It will primarily focus on the CJEU’s jurisdiction to analyze sanctions imposed under the EU’s Common Foreign and Security Policy (CFSP). Please note that this report is based on personal notes and may contain inaccuracies.

THE CONTESTED PARTS OF THE EU SANCTIONS REGIME

The case focuses on sanctions “targeting sectoral cooperation and exchanges with Russia,” referred to here as “sectoral measures.” These measures, outlined in Council decision 2014/512/CFSP and Council regulation 2014/833/EU, essentially restrict EU individuals and entities from entering into contracts with, or providing financial services to, certain Russian state-owned companies and banks.

These sectoral measures differ from targeted sanctions, such as those outlined in Council decision 2014/145/CFSP and Council regulation 2014/269/EU. Targeted sanctions directly impact specific Russian individuals and entities (excluding Rosneft) by, for instance, requiring European financial institutions to freeze their assets. Rosneft, however, primarily experiences the impact of sectoral measures indirectly, due to limitations on accessing European suppliers, consultants, and financial institutions.

This distinction is mirrored in Article 215 of the Treaty on the Functioning of the European Union (TFEU), which allows the EU to implement measures that either partially or completely disrupt economic and financial relationships with other countries (sectoral measures) or implement restrictive measures against specific entities or individuals (targeted sanctions). As sectoral measures are framed as prohibitions on EU citizens and businesses, they appear to only indirectly impact Rosneft by restricting its EU partners. However, Rosneft argues that it is directly affected and considers these measures as targeted sanctions. This summary will largely assume the sanctions are sectoral, as was the general assumption during the hearing.

A significant aspect of CFSP sanctions regimes is their implementation through two distinct legal instruments: a Council foreign policy (CFSP) decision under Article 29 of the Treaty on European Union (TEU) and a Council regulation under TFEU Article 215, which implements the CFSP decision within the internal market. In this case, the relevant instruments are Council decision 2014/512/CFSP and Council regulation 2014/833/EU, referred to hereafter as the “CFSP decision” and “the regulation.” The connection between these two instruments was central to many arguments presented during the hearing.

The CFSP decision, adopted under the CFSP chapter of the TEU, has specific implications. First, legislative acts are not permitted under the CFSP (TEU Article 31(1)). Second, the CJEU’s ability to review the decision is generally restricted because it falls under the CFSP chapter (TFEU Article 275(1)). Lastly, while EU member states must align their national policies with the CFSP decision, it is not legally binding on individuals or entities.

The regulation, implemented under TFEU Article 215, enacts the CFSP decision within the internal market. As it is not a CFSP measure, it is entirely binding and applicable within EU member states’ legal systems (TFEU Article 288(2)). This implies that the CJEU should be able to review the regulation, although the Commission argues otherwise (discussed below).

The specific content of each instrument within EU sanctions regimes is unclear. The treaties only offer limited guidance, specifying that (a) legislative acts cannot be implemented as CFSP decisions, and (b) if a CFSP decision dictates a complete or partial disruption of economic and financial relations with another country, the Council must implement “necessary measures” through a regulation under TFEU Article 215. In practice, both the CFSP decision and the regulation typically use nearly identical wording, as seen in this case.

This background paves the way for a discussion of the case and the central arguments presented during the hearing.

PARTIES AND KEY MEMBERS OF THE COURT

The parties involved in the CJEU case include Rosneft, the United Kingdom, the UK’s Financial Conduct Authority, the Council, and the Commission, all of whom submitted written arguments and participated in the hearing. Several other EU member states also participated in the hearing, most having submitted written arguments as well.

The CJEU convened as a grand chamber, presided over by President Koen Lenaerts. Judge Allan Rosas served as the judge-rapporteur, while Advocate General Melchior Wathelet was assigned to the case and committed to delivering his opinion by May 31, 2016.

CFSP JURISDICTION OF THE CJEU – THE REGULATION

The initial question presented to the CJEU concerned its authority to review (a) the regulation and/or (b) the CFSP decision. While TEU Article 19(1) grants the CJEU general jurisdiction over EU law, TFEU Article 275(1) outlines a significant exception. This provision states that the CJEU does not have jurisdiction “with respect to the provisions relating to the common foreign and security policy nor with respect to acts adopted on the basis of those provisions.”

According to TFEU Article 275(2), there are two exceptions to this restriction. The CJEU can monitor compliance with TEU Article 40, which differentiates between foreign policy and other EU measures. It can also review the legality of decisions implementing restrictive measures against individuals or entities if those decisions are adopted by the Council, in line with TFEU Article 263(4). When these exceptions apply, the CJEU regains jurisdiction.

The hearing participants generally agreed that the CJEU could review the regulation. This is unsurprising, as the regulation is not a CFSP measure, placing it under the CJEU’s jurisdiction according to TEU Article 19(1).

However, there was significant disagreement on the extent of the CJEU’s jurisdiction to review the regulation. Firstly, there was debate about whether its jurisdiction extended to preliminary ruling proceedings, a point addressed later. Secondly, the Commission aimed to limit the CJEU’s review of CFSP regulations by introducing a “political questions” or “act of state” doctrine into EU law. This unusual move by the Commission sparked considerable debate.

The Commission’s proposal essentially aimed to restrict the CJEU’s jurisdiction over CFSP measures based on substance rather than form. It argued that TFEU Article 275(2) clarifies the principle that the CJEU always maintains jurisdiction over restrictive measures affecting individuals. While this should serve as the guiding principle, the Commission argued that the CJEU should not be able to review the underlying “political choices” of restrictive measures.

In this case, the Commission believes the CJEU should be prevented from examining the decision to impose a trade embargo on Russia, the targeting of the petroleum sector, and the necessity (proportionality) of the measures. The Commission did, however, offer examples of areas where the CJEU would retain competence, such as interpreting the disputed regulation and assessing its validity in relation to other EU primary law provisions.

Despite the novelty of this argument, the Commission insisted its use of the “act of state” term was merely a label for political choices exempt from CJEU review. It claimed it wasn’t advocating for a legal overhaul but rather for acknowledging the general principles underpinning TFEU Article 275.

The Council, Rosneft, and other member states firmly opposed the Commission’s “act of state” doctrine. They accused the Commission of exceeding the treaties’ text, context, and purpose in an attempt to expand and redefine the CJEU’s jurisdiction. They highlighted that the jurisdictional carve-out in TFEU Article 275(1) makes no distinction between CFSP acts and avoids mentioning an “act of state” or “political questions” doctrine. Some pointed to a 1989 opinion by Advocate General Darmond in Case C-241/87 Maclaine Watson (later settled) where an “act of state doctrine” within EU law was rejected. France argued that the recent Elitaliana case (C-439/13 P) implicitly rejected the Commission’s proposed general jurisdiction over CFSP measures, allowing for only an “act of state” exception. Poland reminded the CJEU that TEU Article 40 only grants it the authority to distinguish CFSP measures from non-CFSP measures, implying that the CJEU cannot draw distinctions within the CFSP. Rosneft echoed this sentiment, stating that introducing such a vague doctrine into Union law would be “dangerous.” They also referenced Advocate General Maduro’s Opinion in the Kadi case (paras 41-45).

Several court members appeared to share these concerns about the “act of state” doctrine. President Lenaerts repeatedly questioned the Commission’s representative on this matter, expressing particular confusion over the argument that the “act of state” doctrine would restrict the CJEU’s review of the regulation. When the Commission confirmed its position, Lenaerts recommended they reconsider and address it in their closing submission.

The Commission’s attempt to introduce an “act of state” doctrine is surprising. It appears to contradict the treaties’ wording, especially regarding the CJEU’s jurisdiction over the regulation. It’s also unexpected given the Commission’s generally supportive stance on judicial review within the CFSP. However, this represents only one aspect of their position on the CJEU’s jurisdictional reach.

CFSP JURISDICTION OF THE CJEU – THE CFSP DECISION

Since the regulation implements the sectoral measures and the CJEU seemingly has jurisdiction over it, one might question the need to discuss its jurisdiction over the CFSP decision. Rosneft argued that reviewing the CFSP decision is crucial because, even if the regulation is annulled, “member states would still be obliged to implement the decision” under TEU Article 29.

According to Rosneft, the legal basis for such a review lies in the general principles of EU law and Article 47 of the Charter of Fundamental Rights (CFR), which guarantees the right to an effective remedy. Rosneft argued that the CJEU has the authority to review any measure with legal implications for third parties.

Given the Commission’s restrictive stance on the regulation, it might seem contradictory that they argue the CJEU does have jurisdiction over the CFSP decision. However, this aligns with their proposed “act of state” doctrine: jurisdiction should depend on substance, not form.

Therefore, the key factor is not whether the contested provisions fall under a CFSP decision or its implementing regulation, but whether they qualify as “acts of state.” If not, the CJEU can review them. As the CFSP decision closely mirrors the regulation, the Commission argued that the CJEU could review significant portions of it.

The opposition to the “act of state” doctrine applies here as well: the text, context, intention, and drafting history of the treaties offer no support for it. The limits on the Court’s jurisdiction over national police operations (Article 276 TFEU) and, more clearly, on its review of sanctions against Member States (Article 269 TFEU) demonstrate that the drafters of the Treaties were explicit when they wanted to limit the Court’s ability to review the merits of a measure. TFEU Article 275(2) itself explicitly limits the review of restrictive measures “against natural or legal persons,” using language identical to that found in TFEU Article 215(2), but not 215(1). Sectoral measures, which are not against specific individuals or entities, therefore appear to fall outside the CJEU’s jurisdiction. At least, that is, according to the literal text of the treaties. The Commission attempts to circumvent this by arguing that TFEU Article 275(2) reflects a more general principle of EU law guaranteeing access to justice.

While the Commission’s proposal appears to be a suggestion for future legislation and not something the CJEU should act on, the concept of jurisdiction based on substance rather than form is intriguing. This would address the seemingly limited jurisdiction of the CJEU in CFSP matters while offering member states protection from judicial scrutiny of sensitive foreign policy decisions. This development could be considered during future revisions of the EU’s founding treaties. While an “act of state” or “political questions” doctrine might seem vague, the current delimitation of the CJEU’s jurisdiction is arguably no clearer.

Finally, it’s worth noting that the Commission presented an alternative argument, previously used in its submissions in Opinion 2/13. This argument proposes a broad interpretation of the term “restrictive measures” to encompass any human rights violations (similar to Rosneft’s argument). However, the CJEU seemingly rejected this in Opinion 2/13 by stating that “it is sufficient to declare that, as EU law now stands, certain acts adopted in the context of the CFSP fall outside the ambit of judicial review” (para 252). Therefore, in the Rosneft case, the Commission presents a new approach that yields a similar outcome. This suggests the Commission consistently advocates for expanding the CJEU’s influence over CFSP measures.

MAY THE CJEU REVIEW CFSP MEASURES IN PRELIMINARY RULING PROCEEDINGS?

If the CJEU decides it has jurisdiction to review either the regulation or the CFSP decision, another obstacle arises. TFEU Article 275(2), which would need a broad interpretation to encompass CFSP decisions, only refers to actions for annulment and specifically mentions the conditions outlined in TFEU Article 263(4). This seemingly excludes jurisdiction for preliminary rulings. Rosneft argued that a “strained literal interpretation” is unnecessary and that the CJEU should consider the underlying intention: granting it jurisdiction over some CFSP measures.

The Commission agreed with Rosneft’s desired outcome while advocating for its “act of state” theory of CFSP jurisdiction. According to this theory, the form of proceedings is irrelevant, as TFEU Article 275(2) merely reflects part of a broader EU law principle. Therefore, the CJEU also has the authority to issue preliminary rulings.

The Council and member states disagreed, arguing that the CJEU cannot review CFSP measures in preliminary ruling proceedings. They primarily cited the clear language of TFEU Article 275(2) and its explicit reference to TFEU Article 263(4).

Another related issue is Rosneft’s standing. An action for annulment under TFEU Article 263(4) would likely be dismissed because the sectoral measures do not directly or individually concern Rosneft. While this might seem odd, EU lawyers will recognize that the CJEU has consistently applied this language restrictively since its judgment in Case 25/62 [Plaumann v. Commission] [1963]. Although the Treaty of Lisbon introduced another basis for standing (regulatory acts of general application, if they are of direct concern and don’t require implementing measures), the CJEU has interpreted this narrowly as well.

However, one could question the applicability of the standing rules in TFEU Article 263(4). Normally, litigants do not need to meet standing requirements in preliminary ruling proceedings because domestic courts submit requests for preliminary rulings. Rosneft argues that standing requirements do not apply, while member states and the Council argue that they do. This report will not delve further into this particular point.

HOW SHOULD THE CJEU CONDUCT ITS JUDICIAL REVIEW?

If the CJEU determines it has jurisdiction to review the regulation or the CFSP decision, the manner of its review remains uncertain. Notably, several parties and the bench raised the issue of judicial restraint. This concept is distinct from jurisdiction; judicial restraint doctrines apply once a court has established its jurisdiction to conduct a review. It represents a principle within administrative or constitutional law that limits the intensity of judicial review.

During the hearing, this materialized as a discussion about the scope of the CJEU’s review of the regulation, assuming it lacks jurisdiction to review the CFSP decision. President Lenaerts and the Advocate General highlighted that, according to TFEU Article 215, enacting sanctions regulations requires a prior CFSP decision. They questioned whether this enabled the CJEU to review the regulation in light of the CFSP decision, even without jurisdiction over the latter.

The Council initially provided an unsatisfactory response, stating only that a “valid CFSP decision” is required before enacting a regulation. After further discussion, the Council conceded that it believed the CJEU should not conduct such a review, interpreting TFEU Article 215 as requiring merely the existence of a CFSP decision. The United Kingdom adopted a similar stance, explicitly referencing the doctrine of judicial restraint as developed in EU case law. Additionally, the Commission’s “act of state” doctrine could also function as a norm of judicial restraint at the substantive level.

WHAT IS THE ROLE OF THE COURTS OF THE EU MEMBER STATES?

The role of national courts within EU member states was a recurring theme during the hearing. This is because, if the CJEU lacks jurisdiction to review the CFSP decision, TFEU Article 274 dictates that those national courts become responsible for resolving such disputes. This article specifies that the Union loses its jurisdictional immunity when the CJEU lacks jurisdiction. This raises numerous complex issues, a few of which are highlighted below.

First, the Commission argued that its proposed “act of state” doctrine must extend to Member State courts reviewing matters like CFSP decisions. This was met with opposition from all other parties involved.

Second, the potential for inconsistent rulings across different member states’ courts was acknowledged by most parties. They maintained that this risk is an inherent consequence of the jurisdiction system established by the Treaties, with some suggesting that judicial dialogue between national courts might mitigate this risk. Additionally, Germany made the unexpected argument that the Commission could address diverging practices by initiating infringement proceedings. President Lenaerts reacted strongly to this suggestion, questioning whether Germany was serious and urging them to reconsider. While Germany promised to address this in their reply, they did not do so.

Third, France offered an interesting argument. Despite opposing the Commission’s EU-level “act of state” doctrine, they suggested that national courts should be able to apply their own domestic “act of state” doctrines when reviewing matters like CFSP decisions. France pointed to the existence of such a doctrine within French law ("acte de gouvernement"). Judge Rosas questioned the implications for the right to effective legal protection, as this implies a litigant might be unable to challenge a CFSP decision in either Union courts or certain member states’ domestic courts. France responded that the European Court of Human Rights has accepted such restrictions. Conversely, the United Kingdom argued that national doctrines that limit legal protection must be disregarded. The Council adopted a middle ground, stating it was “reluctant to give direction to domestic courts” while emphasizing that Article 47 of the EU Charter requires access to some form of court.

This hearing shed light on France’s previously puzzling stance during the negotiation of the EU’s accession to the European Convention on Human Rights. France was a strong advocate for attributing all conduct during Common Security and Defence Policy (CSDP) missions to participating countries, thereby excluding the EU’s responsibility as an organization. This stance seemed counterintuitive at the time, but considering their argument in this case, it becomes clearer. By attributing all actions to their own troops, France could avoid any judicial scrutiny of military CSDP missions.

SUBSTANTIVE ISSUES

The hearing primarily focused on jurisdiction, standing, and the standard of review, as emphasized in the CJEU’s written questions to the parties. While substantive issues were not extensively discussed, two of Rosneft’s arguments are worth noting.

Firstly, Rosneft argued that the CFSP decision was legislative due to its detailed provisions, which were largely identical to the implementing regulation. Since adopting legislative CFSP acts is prohibited under TEU Article 31(1), this would invalidate the CFSP decision. Consequently, the regulation would also be invalid because a valid CFSP decision is necessary to enact a regulation under TFEU Article 215. Conversely, it was argued that TEU Article 31(1) simply means that no CFSP decision can be classified as legislative. Therefore, even if it appears legislative, it doesn’t qualify as such and lacks the effects of a legislative act.

Secondly, Rosneft argued that the CFSP decision (and the regulation) violated international law, specifically the EU-Russia Partnership and Cooperation Agreement. Other parties countered that the agreement’s “essential security interests” exception, outlined in Article 99, was triggered by the “serious international tension” stemming from the situation in Ukraine. The Council characterized the sanctions regime as a measure “between words and war” and highlighted that Russia had responded with its own restrictive measures instead of invoking Article 99 of the agreement.

Rosneft countered by pointing out that the Council never provided a reason for invoking the “essential security interests” exception, neither in its initial CFSP decision nor in subsequent amendments. When questioned by the Advocate General, the Council failed to offer a concrete explanation. Rosneft effectively highlighted this omission, which could potentially work against the Council when the judgment is announced.

CONCLUSION

This case raises numerous significant and fascinating questions concerning EU law. However, courts often focus solely on resolving the dispute at hand and avoid addressing unnecessary, albeit interesting, questions, particularly when they are complex or contentious, as they are in this case.

Nevertheless, the Rosneft case presents the CJEU with an opportunity to clarify aspects of its CFSP jurisdiction. Given how Rosneft framed the case and the High Court’s explicit question regarding the CJEU’s jurisdiction over CFSP decisions, the CJEU has limited options. It seems the CJEU has three primary choices: (1) assert its jurisdiction over certain CFSP decisions; (2) review only the regulation, and if it is deemed invalid, note that a CFSP decision cannot be legislative and thus doesn’t require implementation in domestic law; or (3) deny jurisdiction over CFSP decisions, review only the regulation, and remain silent on the consequences of its invalidity or the legal implications of the CFSP decision.

*Reblogged from: https://obykanalen.wordpress.com/2016/02/25/a-report-from-the-oral-hearing-in-case-c-7215-rosneft/

Barnard & Peers: chapter 5, chapter 25

Photo credit: carnegieeurope.eu