Overview

In a key judgment handed down by the Grand Chamber of the European Court of Justice in Luxembourg on 11th December 2007, much-needed clarification was given to the thorny question of the precedence of two key principles of EU law – those of the right of establishment and the right to take collective action.

The importance of this case can be seen through the large number of interventions and observations submitted to the European Court. Fifteen member states in fact took the trouble of submitting observations.

Factual background

The case arose in the context of a decision by Viking Line ABP [“Viking”], a Finnish ferry operator, to reflag its Finnish-flagged vessel “Rosella” and register it in Estonia. The rationale for the decision was that the vessel, which plied its trade between Finland and Estonia, was making losses as a result of competition from Estonian-registered vessels operating on the same route but with lower wage costs. In other words, Viking wanted to level the playing field. The problem arose when Viking told the crew of the “Rosella” and the Finnish Seamen’s Union [“the FSU”]. The FSU made clear its opposition to the proposed action by Viking and informed the International Transport Workers’ Federation [“the ITWF”], to which it was (and remains) affiliated. The ITWF then sent round a circular to all its national affiliates requesting them not to enter into negotiations with Viking – in other words, a boycott was imposed on Viking. Various preliminary legal skirmishes then took place in Finland without resolving the issue.

The situation as set out above had arisen towards the end of 2003. On 1st May 2004, Estonia became a member of the EU, thereby allowing Viking to rely on its intra-Community right of establishment. To that end, Viking brought an action in the English Commercial Court, seeking a declaration that its establishment rights under Article 43 EC Treaty had been infringed and also seeking an injunction for the withdrawal of the boycott circular. By order of 16th June 2005, Mrs. Justice Gloster granted the relief sought by Viking. That order was appealed to the Court of Appeal, which referred the matter to the European Court of Justice for a preliminary ruling.

However, the case was first brought in the Finnish court and it appears that the owners were not able to progress their case successfully there and consequently brought the matter to the English court. One can only guess at the motives for such a switch, possibly to gain a speedier resolution of the matter, with one of the defendants headquartered in London, or to use the maritime expertise of the English court.

The precedence issue

The first issue the ECJ had to answer was whether the collective action of the ITWF could actually be reviewed in the light of Article 43 EC Treaty or whether it was somehow exempt from such a review, by virtue of the privileged status of the fundamental right of trade unions to take such action. The Court ruled that the collective action was not exempt from such a review – the fact that issues such as union rights and the right to strike were recognised in Community law as fundamental rights did not mean that the exercise of those rights was immune from restrictions imposed through the operation of Community law. In other words, the fundamental right to strike was not to be treated as “above the law” and not subject to the restrictions other fundamental rights (such as the right of establishment) might impose.

Horizontal effect

Having held that Article 43 EC Treaty was in play, the Court then had to decide whether Viking could rely on it horizontally as against another undertaking, in this instance a trade union or association of such unions. The issue of horizontal direct effect is more usually see  in the context of directives which by definition are addressed to Member States. However, the issue was relevant here because Article 43 EC Treaty is aimed at public rather than private measures. The Court, in “positivist” mode, sought to rely on earlier although not exactly analogous case law, to push forward EC law and accordingly held that Viking was entitled to rely on its rights of establishment under Article 43 EC Treaty as against the ITWF.

Restrictions and their justification

The Court was then asked whether there had been a restriction of Viking’s rights under Article 43 EC Treaty and, if so, whether such a restriction was justified. As to the first point, the Court found it indisputable that the boycott had the effect of emasculating Viking’s rights under Article 43 EC Treaty because it prevented Viking from enjoying the same treatment in Estonia as other ferry companies established there. As to the second, the Court recalled that restrictions could be justified if they pursued a legitimate aim compatible with the EC Treaty and were further justified by overriding reasons of public interest. The restrictions also had to be proportionate. The ITWF argued that the restriction in this case met those criteria because it was necessary to protect workers’ rights, which are fundamental rights recognised under Community law. The Court agreed that the right to take collective action – in this case impose a boycott – was a legitimate interest which in principle justified restricting the right of establishment of another party. The Court also recalled that the EU was not only involved with the internal market but also with policies in the social sphere – accordingly it had a social as well as an economic purpose. Those policies and purposes had to be balanced. The Court then decided it was for the Court of Appeal to carry out the balancing act. In doing so, the ECJ gave some hints for carrying out that task. First, the Court of Appeal would have to decide whether the objectives pursued by the unions concerned the protection of workers. In that regard, if Viking were to give an undertaking that it would not terminate the employment of the crew of the “Rosella”, then there would be no requisite protection of workers and, accordingly, there could be no justification for the collective action. If, however, the Court of Appeal found that the jobs or conditions of employment of the crew of the “Rosella” were jeopardised or under serious threat by the re-flagging of the vessel, then the Court of Appeal would have to ascertain whether the unions’ actions were suitable and proportionate. Finally, the ECJ emphasised that insofar as ITWF’s policy resulted in shipowners being prevented from registering their vessels in a State other than that of which the beneficial owners of those vessels were nationals, the resultant restrictions on the right of establishment could not be objectively justified.

Conclusion

This case is important to EC law devotees and shipowners alike. Both sets of interested groups will now have a clearer idea of when re-flagging within the EU may give rise to problems under EC law and when it will not. Even more clarity will be given by the Court of Appeal when it eventually rules on the restored hearing. However, advice should be sought prior to taking re-flagging decisions, as much will depend on the facts and in particular whether undertakings as to the protection of the particular crew can or should be given.

Finally, justice grinds slowly. This case started in 2003 and has still not finished. The economic rationale for the continuation of the “Rosella”, doubtless still operating at a loss, must be in doubt. It is to be hoped that going forward, courts will be able to move more quickly.