“Fog over parliament”

10th February 2011

In his Municipal Journal article, Ai Director Jeremy Smith highlights the legal flaws in Part 2 of the current Localism Bill, in which the government seeks to give itself a new power to claw back from local authorities certain fines imposed on Britain by the European Court of Justice. He points out that the government would be acting as prosecutor, judge while also being ‘co-defendant’ in such cases – so the issue should go to an independent court or arbitrator:

“Fog over Channel – continent cut off”, as the old newspaper heading went. But the Localism Bill could give us a new one “Fog over Parliament – EU fine”… well, ‘EU fines’ actually, as Part 2 of the Bill is headed. And a fog of confusion certainly exists over parts of Westminster.

The aim of Clauses 30 to 34 of the Bill is to give Ministers, for the first time, a power to claw back from a local authority (and there may be several involved) all or part of fines imposed on the UK by the European Court of Justice under Article 260 of the Treaty on the Functioning of the European Union, where the Minister is satisfied that acts or omissions of the authority have “caused or contributed to the infraction of EU law for which the EU financial sanction was imposed”.

Where the Minister is “satisfied that acts of any person or body other than the authority… also caused or contributed to the infraction of EU law concerned, the amount specified… must not exceed the proportion of that total amount which the Minister considers fairly reflects the authority’s share of the responsibility for that infraction.” The Minister must also “have regard to the effect on the authority’s finances of any amount it may be required to pay.”

So far, it would seem, so good or bad. But hold on. What does Article 260 of the Treaty actually say? For once, it is not too complex:

1. If the European Court of Justice (ECJ) finds [normally on a case brought by the European Commission] that a Member State has failed to fulfil an obligation under the Treaties, the State shall be required to take the necessary measures to comply with the judgment of the Court.

2. If the European Commission considers that the Member State has not taken the necessary measures to comply with the judgment of the Court, it may bring the case before the Court.

If the Court finds that the Member State concerned has not complied with its judgment, it may impose a lump sum or penalty payment on it.

There is no power given to the Court under these provisions to impose a fine or penalty simply for an infraction of EU law – the only power of the ECJ to impose a fine is when and because a Member State fails to comply with the terms of its judgment. And the Court, if it finds non-compliance, will normally set a reasonable time-scale for the Member State to get into compliance.

So when the Localism Bill seeks to apportion shares of the fine or penalty on local authorities according to their degree of responsibility for the “infraction of EU law”, it is aiming at the wrong target. For the term “infraction of EU law” is defined as a failure by the UK to comply with an obligation under the EU Treaties – it is not limited to the responsibility for non-compliance with the ECJ’s judgment. An authority could be partly responsible for the infraction of EU law that led to the UK being first brought before the Court, without being in any way responsible for the failure to carry out the judgment of the Court which has actually led to the fine!

There is also a third paragraph to Article 260, newly added by the Treaty of Lisbon. In brief, it provides for the Commission to bring a case to the ECJ on the grounds that a Member State has “failed to fulfil its obligation to notify measures transposing a directive adopted under a legislative procedure”. If the Court finds that there is an infringement, it may impose a penalty on the Member State.

Here, then, the Court can indeed impose “fast track fines”, as Bob Neill put it, MJ 20th January, for “infractions of EU law”. But wait a moment! Local authorities, not being legislative bodies, have no power to notify measures transposing a directive. So the provisions of the Localism Bill could never apply to any such paragraph 3 proceedings, since only central government (in England) has the relevant responsibility.

There is however a wider point of concern about Part 2 of the Bill. There is no independent decision-maker. The Minister takes the decision to make the local authority pay – even though central government may be partly or largely responsible for the infraction in the first place, e.g. through delayed action, poor drafting, or for myriad other reasons. This means that the Minister may be simultaneously prosecutor, judge, jury – and co-defendant! This is surely not a healthy legal precedent. Yet the Bill is strangely coy about the possibility of central government’s co-responsibility for non-compliance with the ECJ’s judgment – which is in fact highly likely to arise in practice.

Therefore, Part 2 of the Localism Bill needs fundamental rethinking. If there is to be a claw-back provision at all, it should not be Ministers who decide, since central government is almost certainly an interested party. The process should be for the Minister to refer the matter to the High Court or independent arbitrator to determine any fair apportionment of the Article 260 fine imposed by the ECJ. The independent decision-maker can then take into account every party’s share of responsibility.

Second, the basis of apportioning the fine should reflect responsibility for failing to carry out the ECJ’s judgment, rather than for the infraction that led to the order. An authority could be partly responsible for the original infraction which led to the ECJ’s order, but it may have fully complied with the Court’s judgment while central government and others have not. Yet as the Bill stands, the Minister can apportion a share of the fine on to an authority which has actually implemented the judgment.

There may, or may not, be a good case for making local authorities pay some share of the fines imposed on the UK as a Member State under Article 260. But given that such cases are extremely rare across the whole EU, surely it would be better to take more time to consult local government and other public bodies who may be affected. If, at the end of this, it is still felt that the principle of apportioning fines across levels of government is right – to bring forward more accurate proposals which have the necessary element of independence.