Background

On November 12 2012 the European Commission announced that it was recommending that the European Union 'stopped the clock' on certain aspects of its controversial scheme for greenhouse gas emission allowance trading. On April 24 2013 the European Parliament and the European Council passed Decision 377/2013 (known as the 'stop the clock' decision), derogating temporarily from Directives 2003/87/EC and 2008/101/EC, which established the aviation emissions trading scheme (ETS). The effect of the directives was extended to include the European Economic Area (EEA) (ie, EU member states plus Norway, Iceland and Liechtenstein). The purpose of the partial suspension of the ETS was the desire to encourage an agreement between the members of the International Civil Aviation Organisation (ICAO) (a UN agency) on a global framework for the regulation of aviation emissions.

In practical terms, the 'stop the clock' decision means that the ETS now applies to flights within the EEA and to flights from the EEA to certain third countries, including Switzerland, but not to almost all other third countries.

Swiss International Air Lines AG is an airline licensed in Switzerland. Swiss International challenged the validity of the national regulations implementing the directives in the United Kingdom – namely, the Greenhouse Gas Emissions Trading Scheme (Amendment) Regulations 2013.

The reason why Swiss International brought proceedings in the United Kingdom was because the United Kingdom is Swiss International's "administering Member State" under the directives, since Swiss International's greatest estimated attributed aviation emissions in the relevant period related to UK flights. Swiss International argued that the 'stop the clock' decision breached the EU law principle of equal treatment by treating Switzerland differently from other third countries and sought a reference to the European Court of Justice (ECJ) under the Treaty on the Functioning of the European Union.

Swiss International's initial application for judicial review was rejected by the High Court of Justice of England and Wales on two grounds:

  • EU law does not oblige the European Union to extend equal treatment to all third countries in relation to the conduct of external relations; and
  • even if the principle of equal treatment applied, there was no arguable case that it had been breached, because the 'stop the clock' decision was a political judgment by the European Union as to where best to strike the balance in relation to progressing matters at a global level within the ICAO framework.

Swiss International appealed before the Court of Appeal of England and Wales, arguing that the external affairs exception from the principle of equal treatment has thus far been applied only where the adverse consequences result from the discriminatory acts of the European Union in making treaties with third countries. Swiss International submitted that since the 'stop the clock' decision does not concern any treaty-making power, it is outside existing principles and should be referred for consideration to the ECJ.

As to the question of justification of the discrimination if the principle of equal treatment applied, Swiss International argued that Switzerland's close connection with the European Union, which was briefly mentioned in the recitals of the decisions, did not constitute adequate justification. According to Swiss International, the equality principle is engaged and a fully reasoned case is required.

Decision

The Court of Appeal(1) held that there is no general principle obliging the European Union in its external relations to accord to third countries equal treatment in all respects, but found that the meaning of the qualification 'in all respects' has never been properly explained by the ECJ.(2)

Although the Court of Appeal saw great force in the High Court judge's approach, it was not free from doubt. It found that a reference should be made to the ECJ, unless the High Court was right to hold that there was no arguable breach of the principle of equal treatment. However, in the absence of a reasoned explanation from the EU institutions, the Court of Appeal found it arguable that if the principle of equal treatment applied in this situation, the European Union exceeded the bounds of its discretion by singling out Switzerland for special treatment.

As a result, the court allowed the appeal and granted permission to Swiss International to apply for judicial review and referred the following key questions to the ECJ for a preliminary ruling:

  • Does the EU decision infringe the general EU principle of equal treatment insofar as it establishes a moratorium on the requirements to surrender emissions allowances imposed by the directives in respect of flights between EEA states and almost all non-EEA states, but does not extend that moratorium to flights between EEA states and Switzerland
  • If so, what remedy must be provided?

Comment

The regulation of aviation carbon emissions is an extremely contentious subject. The 'stop the clock' decision was welcomed by many airlines, but strongly criticised by others, which continue to question what they perceive to be an unequal and anti-competitive decision. It is to be expected that the ECJ's preliminary ruling will address such concerns in respect of carriers based in Switzerland. The ruling may also be of general interest in relation to EU law and its effect on Switzerland and other non-EU countries.

For further information on this topic please contact Andreas Fankhauser at Baumgartner Mächler by telephone (+41 44 215 4477) or email (afa@bmlaw.ch). The Baumgartner Mächler website can be accessed at www.bmlaw.ch.

Endnotes

(1) [2015] EWCA Civ 331, Swiss International Air Lines AG v Secretary of State for Energy and Climate Change.

(2) The Court of Appeal analysed the following three cases: Balkan-Import Export GmbH v Hauptzollamt Berlin-Packhof (Case 55/75) [1976] ECR 19; Offene Handelsgesellschaft in Firma Werner Faust v Commission of the European Communities (Case 52/81) [1982] ECR 3745; and Germany v Council (Case C-122/95) [1998] ECR I-973, [1998] 3 CMLR 570.

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