In this blog post, Hugh Whelan of Monckton Chambers discusses the recent case of Case C-692/20 Commission v UK (Fiscal marking of gas oil) (ECLI:EU:C:2023:707)(“Fiscal marking of gas oil”) in which the Court of Justice ordered the UK to pay a penalty of €32 million for having failed to implement necessary measures to comply with EU law before the relevant deadline.
The case
Fiscal marking of gas oil concerned the appropriate penalty for the UK’s failure to prohibit the use of marked fuel in private pleasure boats, contrary to EU Directive 95/60/EC, within the Commission’s prescribed time limit. The fact of the UK’s breach of Directive 95/60/EC had already been established in an earlier judgment, Case C-503/17 Commission v UK (“the 2018 Judgment”). As such, the present proceedings, commenced by the Commission, concerned the UK’s failure to take the necessary measures to implement that judgment between 17 October 2018 (the date of the 2018 Judgment) and 30 September 2021 (the date of implementation).
The Court agreed with the Commission that a penalty was appropriate, as the UK had failed to take the necessary measures to comply with the 2018 Judgment. In reaching this conclusion, the Court rejected the UK’s submissions regarding the prematurity of the Commission’s action and the practical difficulties of implementation.
But of particular interest for present purposes was the question as to the sum the UK should pay. The UK submitted that a penalty of €250,000 would be appropriate. The UK reached this figure by noting, among other reasons, that: (i) non-compliance was minimal in that less than 0.2% of marked fuel was used in the United Kingdom for the propulsion of private pleasure crafts between 2017 and 2019; and (ii) at the date of judgment, only Northern Ireland would remain subject to Directive 95/60/EC and accordingly any penalty should be assessed by reference to the GDP of Northern Ireland alone, not the UK as a whole. More broadly, the UK submitted that Brexit was a relevant factor: “since its withdrawal from the European Union, [the UK] was in a different situation compared with the Member States, such that it was appropriate to treat it differently… and to reduce the amount of the lump sum” (at [92]).
The Court began by noting its broad powers under Article 260 TFEU, which “confers a wide discretion upon the Court in deciding whether or not to impose such a penalty and determining, if necessary, its amount. In addition, it is for the Court, in the exercise of its discretion, to fix the lump sum in an amount appropriate to the circumstances and proportionate to the infringement” (at [96]). The Court directed its discretion by reference to three factors: (i) “the seriousness of the established infringement”; (ii) “its duration”; and (iii) “the Member State’s ability to pay” (at [96]).
As to the seriousness of the infringement, the Court rejected the relevance of the 0.2% figure, because “the infringement in question is likely to penalise a considerable number of users of private pleasure craft and therefore adversely affect the public and private interests concerned” (at [103]). However, the Court accepted as a mitigating circumstance the fact that EU law applied to the UK as a whole until 31 December 2020 and only to Northern Ireland thereafter. This meant that “the effect of the infringement is reduced from [1 January 2021]” (at [111]).
As to the duration of the infringement, the Court stated that the infringement had lasted “almost three years” (at [114]).
As to the UK’s ability to pay, the Court recorded the “predominant factor” of “fixing penalties that are sufficiently dissuasive and proportionate in order effectively to prevent a repeat of similar infringements of EU law in the future” (at [115]). In that regard, the Court rejected the UK’s submission that the GDP of Northern Ireland should be used to determine the proportionality of any penalty, notwithstanding the fact that since 1 January 2021 the infringement had only concerned Northern Ireland:
“118. However, it is stated in Article 12(1) of the Protocol on Ireland and Northern Ireland that it is the authorities of the United Kingdom, and not those of Northern Ireland, which are to be responsible for implementing and applying the provisions of Union law made applicable by that protocol to and in the United Kingdom in respect of Northern Ireland. Against that background, contrary to the United Kingdom’s submissions, the fact that it has not been a Member State since 1 February 2020 is irrelevant for the assessment of its ability to pay, with the result that it is not appropriate to apply treatment that is different from that applied to Member States in that respect.
119. Moreover, as is clear from the case-law set out in paragraph 115 of this judgment, the ability to pay is taken into account in order to fix penalties that are sufficiently dissuasive and proportionate, with the aim of effectively preventing the repetition of similar infringements of EU law in the future. A penalty imposed on the United Kingdom calculated, as regards the assessment of the ability to pay, taking into account only the GDP of Northern Ireland, as regards the continuation of the infringement after the end of the transition period, would not be sufficiently dissuasive and therefore would not make it possible to achieve that aim.
[…]
121. Having regard to the foregoing, it is appropriate to take into account the GDP of the United Kingdom as a whole for the entire period of the infringement for the purpose of determining the ability of that State to pay.”
Applying this reasoning, the Court concluded that the appropriate lump sum penalty would be €32 million.
Comment
There are two points of note from the Fiscal marking of gas oil.
First, the judgment is instructive for understanding how the Court of Justice perceives the obligations of the UK as a whole after Brexit. In quantifying the penalty by reference to the UK’s GDP for the entire period of the infringement, the Court has signalled its intention to regard Northern Ireland as a subsidiary component of the UK, and not in economic isolation. The legal basis for this conclusion in terms of liability is Article 12(1) of the Northern Ireland Protocol, which provides, in relevant part: “the authorities of the United Kingdom shall be responsible for implementing and applying the provisions of Union law made applicable by this Protocol to and in the United Kingdom in respect of Northern Ireland.” But what is perhaps more surprising is that the Court relied on this provision to account for its quantification of the penalty too, notwithstanding Brexit.
Second, the judgment is also instructive for apprehending how the Court perceives its own role in policing the acts of the UK after Brexit. The Court regarded itself to have a considerable discretion in ensuring its penalties have a deterrent effect. This discretion was exercised to reach a figure that was almost four times higher than the €8,215,000 “minimum lump sum” proposed by the Commission and almost two times higher than the €17 million sum proposed by Advocate General Collins. In view of this discrepancy, it might be expected that the Court would explain how that particular sum was reached. It did not do so, beyond referencing the imperative of “effectively preventing the repetition of similar infringements of EU law in the future” (at [119]). This will add a considerable degree of uncertainty if future litigation arises, no doubt contributing to the Court’s intended effect of deterrence.
Taking these points together, the future impact of the judgment is therefore unclear. On the one hand, the judgment suggests that the Court will be willing to impose substantial fines on the UK for breaches of EU law (potentially including that which continues to apply on account of the Withdrawal Agreement), without being limited to isolated considerations of the Northern Irish economy. But on the other hand, the facts of this case are likely to be somewhat unusual, in that the breach began before the UK departed from the EU. A more challenging case might be for an infringement committed solely in the Northern Irish market after Brexit. While the Court made no comment on this matter, the logic of its reasoning might suggest that for this type of infringement, the penalties imposed may considerably outstrip the effect in the Northern Irish economy, notwithstanding the non-involvement of the rest of the UK. If this is correct, then it is possible that the Court has identified a powerful disciplinary measure in UK-EU relations.
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