EUROPEAN UNION CASE LAW AS A SOURCE OF EUROPEAN PRIVATE LAW:
A Comparison with American Federal Common Law⁽¹⁾

1. Introduction

2. American federal common law

2.a Introduction

2.b Review of landmark cases

2.b.1 Early case law

2.b.2 Federal general common law: Swift v. Tyson (1842)

2.b.3 No federal general common law: Erie v. Tompkins (1938)

2.b.4 Examples of specific areas of federal common law and of areas where state law is chosen as the applicable federal rule

2.b.4.1 Conflict of laws: Klaxon v. Stentor (1941)

2.b.4.2 Commercial paper issued by the United States: Clearfield Trust Co. v. United States (1943)

2.b.4.3 Recovery of amounts because of injuries caused to a soldier: United States v. Standard Oil Co. of California (1947)

2.b.4.4 Collective bargaining agreements: Textile Workers Union of America v. Lincoln Mills of Alabama (1957)

2.b.4.5 Act of State Doctrine: Banco Nacional de Cuba v. Sabbatino (1964)

2.b.4.6 Mineral leases: Wallis v. Pan American Petroleum Corp. (1966)

2.b.4.7 Protection of constitutional rights: Bivens v. Six unknown named agents of the Federal Bureau of Narcotics (1971)

2.b.4.8 Corporation law: Burks v. Lasker (1979)

2.b.4.9 Right of contribution in antitrust cases: Texas Industries Inc. v. Radcliff Materials Inc. (1981)

2.b.4.10 Interstate trade (bill of lading): Southern Pacific Transportation Co. v. Commercial Metals Co. (1982)

2.b.4.11 Environmental law: Comprehensive Environmental Response, Compensation and Liability Act 1980 (CERCLA), Pennsylvania v. Union Gas Co. (1989)

2.b.5 The Uniform Commercial Code as federal common law:United States v. Wegematic Corp. (1966) and Kimbell Foods v. United States (1979)

3. European Union case law

3.a Introduction

3.b Protection of community rights by Member States

3.c State liability

3.c.1 Francovich (1991)

3.c.2 Dori (1994)

3.c.3 Brasserie du Pêcheur and Factortame (1996)

3.c.4 El Corte Inglés, Hedley Lomas and Dillenkofer (1996)

3.d Unjustified enrichment

3.d.1 San Giorgio (1983)

3.d.2 Comateb and Fantask (1997)

3.d.3 Dilexport (1999)

3.e State liability and unjustified enrichment combined: Metallgesellschaft (2001)

4. Comparing and concluding remarks

Notes

. . . on constate donc que le droit privé de chaque État est maintenant largement influencé, voire transformé par le droit communautaire. Ceci est évident dans le domaine des rapports économiques, mais, pour être plus discrète, la présence du droit communautaire n’en est pas moins bien réelle en droit des personnes et de la famille.

Toute étude de droit privé doit dorénavant intégrer la dimension communautaire.

En outre, il est important de tenter d’appréhender de façon globale le droit privé communautaire afin de comprendre les liens qui unissent des domaines a priori fort éloignés et d’apprécier la cohérence du tout. Cette appréhension globale met en cause des aspects de droit institutionnel communautaire: ainsi, il faut savoir, en fonction de l’objectif recherché dans chaque cas (unification, harmonisation, ou simple coordination) les instruments techniques à utiliser (règlement, directive ou convention intergouvernementale), les fondements juridiques de ces instruments, les droits qu’ils confèrent aux particuliers, les recours dont ils peuvent faire l’objet.

Cette vue générale permet seule d’appréhender dans toute sa complexité le double mouvement que l’on peut actuellement observer: mouvement nécessaire de rapprochement, et mouvement non moins nécessaire de respect des identités nationales. Il faut trouver l’équilibre souhaitable entre ces deux mouvements et c’est un projet ambitieux offert à la réflexion des ‘privatistes’ qui, quelles que soient leurs opinions sur l’Europe, ne peuvent plus se désintéresser du droit privé de l’Union européenne.

H. Gaudemet-Tallon, ‘Droit privé et droit communautaire: Quelques réflexions’, 437 Revue du Marché commun et de l’Union européenne (2000), 228, p. 242.

In ‘De conflictu legum’ (a commemorative issue of the Nederlands Tijdschrift voor Internationaal Recht, published in 1962), Van Hecke already foresaw that European economic integration would not be possible without legal integration.⁽³⁾ He predicted that European private law would focus on private international law and on restatements of the law, following the American example. Some 25 years later, it had already become clear that Van Hecke’s somewhat visionary remarks were correct, albeit that rules of substantive European private law were rapidly gaining importance.⁽⁴⁾ At present, European private law has become a field of major importance and interest. Much attention is being paid to the areas in which private law might become European instead of remaining strictly national. Recently, the European Commission published a communication (Green Book) to the Council and the European Parliament on European contract law, in which four alternatives were presented for future EC initiatives in contract law.⁽⁵⁾ The alternatives range from no EC action to the adoption of new comprehensive legislation at EC level. The debate not only touches the substance of legal integration, but also the form: European law (regulations, directives) or non-binding instruments aimed at persuasion, issued by authoritative bodies, working groups or individuals.⁽⁶⁾ Clearly an integrationist tendency can be observed, in which the convergence of legal systems and the conviction that – when analysed in depth both historically and conceptually – the diverse European legal systems have a common core, are central ideas. A countertendency can also be seen, which stresses the value of diversity and the danger that integrationism may lead to the annihilation of national and regional diversity.⁽⁷⁾

Postmodernist theories – as I tried to explain in my inaugural lecture⁽⁸⁾ – have made it clear that the complex reality in which we live cannot be explained by one all-embracing theory. Neither looking at developments purely from an integrationist perspective, nor simply stressing the values of national or local communities explains or justifies what is happening. The former approach is too offensive, the latter too defensive. Europe is characterised by integrationism and localism at the same time. A prime example of integrationism is the Economic and Monetary Union, but even there some Member States decided not to take part and not to replace their national currencies with the Euro. The value of economic development can be counterbalanced by other values or interests. If a Member State wishes to preserve its own rules as to, e.g., vicarious liability in the light of that state’s labour law and traditional insurance schemes, it should not be forced to abandon its law merely because of its membership of the European Community. This is why subsidiarity and proportionality (article 5 EC) are among the leading principles of European law. The Community is only to take action in areas which do not fall within its exclusive competence if by reason of the scale or effects of the proposed action and as far as necessary the Community has a better chance of achieving results than individual Member States. A balancing of values and interests is needed here, to prevent that the population of a Member State (or certain of its interest groups or political parties) feels overtaken and powerless. Comparative law, being a learning process based upon the analysis of ideas and experiences of others, will show how such a balancing process may take place.

From a comparative law viewpoint, the American legal system, in particular the American federal system, offers a good example of how one legal system may learn from another. The United States of America has a history of more than two hundred years, the European Union a history of about fifty years. Still, both are characterised by a divided power system: the US is a federal state with a both vertical and horizontal separation of powers, the European Community is an autonomous legal order, also with a both vertical and horizontal separation of powers. The two systems can be characterised as integrationist in nature, encompassing economic, monetary, political and legal integration, limited, however, by their respective founding documents. The European treaties and the American Constitution clearly also protect the interests of the (member) states. In the case of the US, integration also means cultural integration, although the diversity of the various communities is more and more stressed and valued. In their founding documents (the US Constitution and the European treaties), both systems recognise the value of local diversity. For American law, a reference can be made to the Xth Amendment (‘The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people’) and for European law to the subsidiarity principle mentioned above.

American legal history shows that the division of powers between the federal government and state governments changed over time. It also shows that the federal judiciary, particularly the US Supreme Court, played a pivotal role in this process. I only need to refer to the cases relating to one of the most important powers of Congress: to legislate in the area of interstate commerce (Article I, Section 8, Clause 3 US Constitution). In this report, I will focus on the role of the US Supreme Court in this process of balancing federal and state interests, particularly the – failed! – attempt to create a general body of so-called federal common law. The Supreme Court no longer intends to go further along that path; it is now only willing to create ‘special’ federal common law. This is in line with what can be seen in Europe. The European Court of Justice is gradually developing pockets of European private law, trying to strike a balance between the need to integrate in order to achieve the goals which the Member States set themselves in the European treaties and the need to safeguard the Member States against overzealous European institutions which forget that the treaties created a community of enumerated powers. The Member States did not surrender their identities (as expressed in their – legal – culture and language) when they decided to become members of the EU.

Transatlantic comparative studies have been done by many others before me, also as to the case law emanating from the US Supreme Court and the ECJ.⁽⁹⁾ One of the major general studies in this area is the ‘Integration through law’ project, which was developed in the intellectual surroundings of the European University Institute in Florence (Italy). This project was aimed at an in-depth historical-comparative analysis of American law and (developing) European institutional and substantive law. It seems that in recent years this series of studies no longer attracts the attention it deserves. Several reasons can be mentioned for this diminishing interest in transatlantic comparison. The series dates from the early years of European integration in a period when Europe still felt the bitter consequences of the Second World War, both economically and politically. In part because of American military efforts, freedom and democracy had returned to Europe. Further strengthened by the economic assistance offered by the US to rebuild Europe, the result was an enormous and profound interest by Europeans in American society. This is also true for the American legal system. It soon became clear to legal scholars who studied the European integration process, most notably those who taught at the European University Institute in Florence, that parallels could be drawn between what was happening in Europe as a result of the establishment of the European Communities and the history of the US. Also, the awareness arose that, although the legal and political structure of the US of course had a history and development of its own, Europe might still learn from the American experience. In the ‘Integration through law’ series some very interesting and remarkable parallels were drawn between US law and (still embryonic) European law, which opened a window that would let in fresh air in a still traumatised Europe.⁽¹⁰⁾

It now seems that European integration is on a course of its own. The changes in the European institutional structure, which (to use the words of Article 1 of the Treaty on European Union) are leading to ‘an ever closer union’ – or, to quote a famous phrase from the Preamble of the American Constitution, a ‘more perfect union’ – follow one another so rapidly that it sometimes takes even specialists by surprise as to which legal areas can be ‘Europeanised’ – I need only refer to the recent regulations in the area of private international law⁽¹¹⁾ – not to mention the larger part of the legal community which still focuses on national law and considers knowledge of European law to be of limited and exceptional value. Still, in less than two decades the awareness has arisen – also gradually outside circles of specialists in European law – that this ever-developing European institutional framework not only leads to changes in the national legal systems of the Member States in the area of customs duties, etc., but also in areas of private law (contract, tort, unjustified enrichment, property and perhaps even family law).

In order to fully understand the impact of the European integration on the laws of the Member States, it is vital to understand the relationship between European institutional law (the public law side of the integration process) and European substantive law.⁽¹²⁾ This tends to be forgotten by private lawyers, who consider the development of European private law the end result of comparative research aimed at finding underlying principles. Such an approach towards European private law runs the risk of defending a re-created natural law paradigm. It considers European private law to be a ‘brooding omnipresence in the sky’, as the famous American Justice Holmes typified the approach towards the common law as a system complete and convincing in itself.⁽¹³⁾ It should never be forgotten that the enactment of European private law and the development of European private law by the ECJ is limited by the European treaties. The ECJ takes great care to create a relationship of cooperation and respect – comitas to use an old term⁽¹⁴⁾ – between the courts of the Member States and itself. This can be seen clearly in the ECJ case law that I will discuss.

In the following chapters, I will start by considering American federal common law from a historical viewpoint, focusing on an analysis of case law. This will be followed by an analysis of case law developed by the ECJ in the area of private law. In a final chapter, I will draw comparative conclusions and attempt to make some projections for the future of European private law.

When the US became a federal state, the new Constitution provided for a federal Supreme Court and other lower federal courts next to the courts that were to exist in each state (Article III, Section 1). This dual court structure reflected the nature of a federal nation, where federal law exists next to state law and each system of substantive law is applied by separate courts. The Constitution (Article III, Section 2) furthermore provided rules about a federal court’s jurisdiction. Federal courts were only given jurisdiction in certain limited cases, such as admiralty and so-called ‘diversity cases’: cases involving citizens of different states. The question then arose which law had to be applied in these ‘diversity cases’.⁽¹⁵⁾ Should state law be applied (and if so, which state’s?) or federal law? That federal law could be created by Congress, albeit within the boundaries set by the Constitution, was clear. But could the federal judiciary do the same, i.e. create uniform law applicable in the whole federation, thus following the example of the old English judges who created a ‘common’ law of England? And, finally, there was the question which law (state or federal?) should govern procedural matters when a federal court was to give a decision.

Gradually, the answers to these questions became clear. Let me begin with some brief remarks as to how uniformity was reached in the area of procedural law.⁽¹⁶⁾ This differed according to the substantive law area to be applied: common law or equity. In common law cases, the federal courts had to apply the procedural practice of the states in which they were established. As to the procedure in equity cases, however, the US Supreme Court immediately was given rule-making power. Congress changed this in the Rules Enabling Act 1934.⁽¹⁷⁾ The Enabling Act authorised the Supreme Court to issue procedural rules not just for equity cases, but also for common law cases. This resulted in the Federal Rules of Civil Procedure (FRCP), which were promulgated in 1938.⁽¹⁸⁾

In regard to substantive law, the developments did not go in one direction; rather, they were very fragmented. The substantive law to be applied by federal courts is either the existing federal statutory, regulatory and case law or, in the absence of such law, the laws of the several states. These laws of the several states are to be regarded as ‘rules of decision’ in civil actions (comprising both common law and equity cases). This is laid down in Section 34 of the Judiciary Act 1789 (Rules of Decision Act), at present – as later amended – codified in 28 USC Section 1652. That section now reads as follows:

The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.

Originally, the text did not state ‘civil actions’ but ‘trials at common law’. In equity, the federal courts followed local state law.⁽¹⁹⁾

The Rules of Decision Act directed the federal courts to apply the ‘laws’ of the several states, in areas where federal statutory law did not exist. The way the Supreme Court interpreted the word ‘laws’ shows a development contrary to what can be seen when looking at the Federal Rules of Civil Procedure. The FRCP were promulgated as only applicable to federal civil proceedings, but the rules were voluntarily accepted as an example by a large number of states. Unification in the area of procedural law became the result of a process from below: the voluntary acceptance by the states of a federal example. When it came to substantive (not: procedural) law, the US Supreme Court tried to create unity from above by applying federal substantive case law in as many cases as possible. This was, of course, only possible in cases where federal courts had jurisdiction. One of the main grounds for jurisdiction is diversity of citizenship: cases where the parties reside in different states. In such cases, it is not obvious that a federal court should only apply federal law. Jurisdiction does not imply by itself that the law of the forum (in this case, federal law) should be applied. The federal courts are given jurisdiction in this type of case to protect a party against possible bias that she might encounter outside her home state. Given this rationale, it would be more understandable if the court were to apply state law, to be selected by conflict of laws rules. Only after several decades did the Supreme Court accept this.

At first the Supreme Court expressed the view that ‘laws’ only referred to statutory laws, meaning that the case law of the several states did not have to be applied in the absence of federal statutory law. This line of reasoning resulted in favouring the creation of a federal common case law, suppressing existing state case law in a great number of areas. It looked as if the justices desired to play a role equal to that of the English judiciary which had created a common law of England. Then in 1938 – the same year in which the FRCP were promulgated – the Court changed its view and held that there was no federal general common law, leaving it open to decide in following cases whether perhaps in some areas federal special common law existed. This latter approach (i.e. the creation of pockets of federal common law) was followed in later decisions, especially cases concerning the New Deal legislation. I will explore this development more thoroughly by discussing several landmark cases.⁽²⁰⁾

Federal law in the US developed very gradually, as the Supreme Court first of all had to solve fundamental questions about the nature of a federal system. By 1842 commerce among the various states started to increase, and at the same time more and more states joined the union. These two developments complicated the legal relationship between the federation and the states. At first the Court interpreted the Constitution, as far as the federal lawmaking authority was concerned, still in a rather narrow sense.⁽²¹⁾ This meant that the power of Congress to regulate certain matters was far more limited than it is at present. Added to this limited view of federal power to create law by statutory means was the survival of essentially English legal ideology that the judge-made common law (as well as equity) was a truly ‘common’ law, a law that was shared by all.⁽²²⁾ US judges, both state and federal, felt that they had a duty to cooperate in developing those parts of the ‘common’ law which were essential to furthering both state and federal interests. This applied particularly to commercial law.⁽²³⁾ In Robinson v. Commonwealth Ins. Co.,⁽²⁴⁾ a case about the interpretation of a marine insurance policy, more particularly about what was meant by ‘abandonment’, Story J. stated this general point of departure for deciding commercial law disputes:

. . . questions of a commercial and general nature, like this, are not deemed by the courts of the United States to be matters of local law, in which the courts of the United States are positively bound by the decisions of the state courts. They are deemed questions of general commercial jurisprudence, in which every court is at liberty to follow its own opinion, according to its own judgment of the weight of authority and principle. On the present occasion, I feel myself bound to follow the doctrine of the supreme court of the United States, by whose judgment, indeed, I am bound; although, even as a new question, I have no hesitation to say, that I entirely concur in that judgment.⁽²⁵⁾

The feeling was that in commercial matters certainty should be created in the interest of all involved, a feeling which also prevailed in England. A good example here is Buller v. Harrison,⁽²⁶⁾ in which Lord Mansfield had said: ‘. . . I desire nothing so much as that all questions of mercantile law should be fully settled and ascertained; and it is of much more consequence that they should be so, than which way the decision is.’⁽²⁷⁾

Given this legal climate it is hardly surprising that only a few years later the US Supreme Court would declare that in cases where the federal courts had jurisdiction because of diversity of citizenship federal common law applied.

The facts in Swift v. Tyson are simple. Tyson had accepted, in the city of New York, a bill of exchange drawn by Nathaniel Norton and Jairus S. Keith, which bill had been given to them in part consideration for the sale of certain lands in the state of Maine by Norton and Keith to Tyson. The bill, in favour of the order of Nathaniel Norton, had been endorsed by Norton to Swift, a bona fide purchaser. Tyson accused Norton and Keith of, among other complaints, having no good title in the lands and for that reason refused to pay. The question then arose whether this was good defence against Swift, a third party to the sale of the lands in Maine, to whom the bill of exchange had been endorsed before it became due in part payment of a pre-existing debt owed to him by Norton.

Story J. delivered the opinion of a unanimous court. Given the enormous importance of the decision, influencing not only US constitutional but also American commercial law for nearly a century, I will quote somewhat more extensively from the case. The point of departure is Section 34 of the Judiciary Act of 1789. Story, after summarising the case law of New York, then discussed the meaning of Section 34 of the Judiciary Act of 1789. In his own words:

It never has been supposed by us that the section did apply, or was designed to apply, to questions of a more general nature, not at all dependent upon local statutes or local usages of a fixed and permanent operation, as, for example, to the construction of ordinary contracts or other written instruments, and especially to questions of general commercial law, where the state tribunals are called upon to perform the like functions as ourselves, that is, to ascertain upon general reasoning and legal analogies, what is the true exposition of the contract or instrument, or what is the just rule furnished by the principles of commercial law to govern the case. And we have not now the slightest difficulty in holding, that this section, upon its true intendment and construction, is strictly limited to local statutes and local usages of the character before stated, and does not extend to contracts and other instruments of a commercial nature, the true interpretation and effect whereof are to be sought, not in the decisions of the local tribunals, but in the general principles and doctrines of commercial jurisprudence. Undoubtedly, the decisions of the local tribunals upon such subjects are entitled to, and will receive, the most deliberate attention and respect of this court; but they cannot furnish positive rules, or conclusive authority, by which our own judgments are to be bound up and governed. The law respecting negotiable instruments may be truly declared in the language of Cicero, adopted by Lord Mansfield in Luke v. Lyde, 2 Burr. R. 883, 887, to be in a great measure, not the law of a single country only, but of the commercial world. Non erit alia lex Romae, alia Athenis, alia nunc, alia posthac, sed et apud omnes gentes, et omni tempore, una eademque lex obtenebit.⁽²⁹⁾

While referring to banking practice in the US and elsewhere, as well as to earlier US Supreme Court, English, Connecticut, New York and Massachusetts case law, Story then rejected Tyson’s defence against Swift’s claim.

In a case decided in 1901 (Western Union Telegraph Co. v. Call Publishing Co.),⁽³⁰⁾ the Supreme Court gave a further theoretical foundation of its ruling in Swift v. Tyson. Call Publishing published a newspaper, the Lincoln Daily Call, in Lincoln, Nebraska; its competitor was the Nebraska State Journal, published by the State Journal Company. Both newspapers received their information from Associated Press over the Western Union lines. Call Publishing alleged that, in its pricing policy, Western Union discriminated in favour of the Nebraska State Journal. Western Union answered that it was a common carrier and did not fall under the jurisdiction of a state court. It also claimed that there was no federal law applicable to this case. So it could hardly be a surprise that Brewer J., delivering the opinion of the Court, summarised the position of Western Union as follows: ‘The logical result of this contention is that persons dealing with common carriers engaged in interstate commerce and in respect of such commerce are absolutely at the mercy of the carriers.’⁽³¹⁾ He continued:

It [Western Union, JvE] contends that there is no Federal common law, and that such has been the ruling of this court; there was no Federal statute law at the time applicable to this case, and as the matter is interstate commerce, wholly removed from state jurisdiction, the conclusion is reached that there is no controlling law, and the question of rates is left entirely to the judgment or whim of the telegraph company.

. . .

There is no body of Federal common law separate and distinct from the common law existing in the several States in the sense that there is a body of statute law enacted by Congress separate and distinct from the body of statute law enacted by the several States. But it is an entirely different thing to hold that there is no common law in force generally throughout the United States, and that the countless multitude of interstate commercial transactions are subject to no rules and burdened by no restrictions other than those expressed in the statutes of Congress.⁽³²⁾

Brewer J. then referred to a collation of extracts from opinions of the Supreme Court by District Judge Shiras, opinions

all tending to show the recognition of a general common law existing throughout the United States, not, it is true, as a body of law distinct from the common law enforced in the States, but as containing the general rules and principles by which all transactions are controlled, except so far as those rules and principles are set aside by express statute.⁽³³⁾

The final decision was that a suit based upon unfair discrimination was possible, though within certain strict limits.

It is interesting to note that in this decision the scope of federal common law is closely linked with interstate commerce. The US Constitution (Article II, Section 8, Clause 3, the so-called ‘Commerce Clause’) gives Congress the power to regulate commerce with foreign nations, among the several states and with Indian tribes. At the time Western Union Telegraph Co. v. Call Publishing Co. was decided, a strict interpretation of the Commerce Clause prevailed, and one gets the impression that somehow this strict delineation of the federal statutory field is compensated by a very wide area where judge-made federal law can develop.⁽³⁴⁾ This would suggest that the very moment the Commerce Clause would be interpreted more extensively, the need for a federal general common law would disappear. A federal specialised common law might then be sufficient, particularly in the light of the fact that the whole idea behind a federal general common law, i.e. to have a law uniform not only as part of federal law but also as part of the law of the several states, had become more and more illusory. After a period of deeply divided views, finally a more extensive interpretation of the Commerce Clause was adopted in the New Deal cases.⁽³⁵⁾ The change as to the acceptance of general federal common law came in a 1938 case: Erie Railroad Company v. Tompkins.

As in Swift v. Tyson, the facts of this case are simple. During a dark night, Tompkins, a citizen of Pennsylvania, was walking along a commonly used, beaten footpath, which for some distance ran along the tracks of the Erie Railroad Company, a New York corporation. He was struck and injured by ‘something that looked like a door projecting from one of the moving cars’ of a passing freight train belonging to Erie Railroad Company. His negligence claim was brought as an action in a federal court, which decided in his favour on the basis of a federal common law of negligence. Erie, however, contended that the case should have been decided on the basis of Pennsylvania state law, which did not accept a negligence claim under the circumstances of this case. The US Supreme Court had to decide which law should have been applied: federal common law or state law?

The opinion of the Court was written by Brandeis J., who began by summing up the practical difficulties which had arisen because of Swift v. Tyson. He summarised the latter case as follows:

Swift v. Tyson, . . . , held that federal courts exercising jurisdiction on the ground of diversity of citizenship need not, in matters of general jurisprudence, apply the unwritten law of the State as declared by its highest court; that they are free to exercise an independent judgement as to what the common law of the State is – or should be . . .⁽³⁷⁾

After adding that this rule also was applied in equity cases, Brandeis referred to the fact that the desired uniformity between federal law and state law had not been reached and Swift v. Tyson thus had led to forum shopping. He then pointed out that federal common law had been extended to areas not related to commercial law, such as state decisions construing local deeds, mineral conveyances and devises of real estate.⁽³⁸⁾ Brandeis concluded as follows:

Except in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State. And whether the law of the State shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern. There is no federal general common law. Congress has no power to declare substantive rules of common law applicable in a State whether they be local in their nature or ‘general’, be they commercial law or part of the law of torts. And no clause in the Constitution purports to confer such a power upon the federal courts.⁽³⁹⁾

That there is no federal general common law does not mean that there cannot be a federal specialised common law, which later cases make abundantly clear. The interesting question now is: Given that the sovereignty of the states is taken as a starting point, on what grounds is the decision being made that an area should or should not be governed by federal specialised common law? What are the decisive factors and circumstances? To answer these questions, I will discuss several cases decided over the years after 1938 until the present.

In a diversity of citizenship case, conflict of laws rules to be applied by a federal court must conform to those prevailing in a state court. ‘Any other ruling,’ Reed J. said,⁽⁴¹⁾ ‘would do violence to the principle of uniformity within a state, upon which the Tompkins decision is based.’

In a case concerning a forged endorsement of a cheque drawn upon the Treasurer of the United States, the Supreme Court decided that

the rule of Erie R. Co. v. Tompkins . . . does not apply to this action. The rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law. . . . In absence of an applicable Act of Congress it is for the federal courts to fashion the governing rule of law according to their own standards.⁽⁴³⁾

Then a rather remarkable argument follows:

In our choice of the applicable federal rule we have occasionally selected state law. . . . And while the federal law merchant, developed for about a century under the regime of Swift v. Tyson . . . , represented general commercial law rather than a choice of a federal rule designed to protect a federal right, it nevertheless stands as a convenient source of reference for fashioning federal rules applicable to these federal questions.⁽⁴⁴⁾

What can be seen here is that matters of commercial law are still more likely to be approached as in need of a uniform solution than non-commercial matters. The fact that in this case the cheque was issued by the US no doubt played a crucial role as well.

On the basis of Clearfield Trust v. United States, the Supreme Court decided that recovery of amounts expended by the US because of injuries caused to a soldier, federal law should govern. In the words of Rutledge J.:

. . . the Erie decision, which related only to the law to be applied in exercise of that [i.e. diversity, JvE] jurisdiction, had no effect, and was intended to have none, to bring within the governance of state law matters exclusively federal, because made so by constitutional or valid congressional command, or others so vitally affecting interests, powers and relations of the Federal Government as to require uniform national disposition rather than diversified state rulings.⁽⁴⁶⁾

To which he added concerning the role of state law:

But we do not undertake to delimit or categorize the instances where it is properly to be applied outside the Erie aegis. It is enough for present purposes to point out that they exist, cover a variety of situations, and generally involve matters in which application of local law not only affords a convenient and fair mode of description, but also is either inescapable, . . . , or does not result in substantially diversified treatment where uniformity is indicated as more appropriate, in view of the nature of the subject matter and the specific issues affecting the Government’s interest.⁽⁴⁷⁾

Still, in spite of the fact that federal law governed the case, the federal government lost. In the view of the Supreme Court, liability in cases like this could not be created by the courts, but had to be created by Congress – and Congress had not done so.

What can be seen here is the introduction of a balancing test, based on interest analysis: state and federal interests (the principle of diversity vs. the occasional need for uniformity) are weighed against one another. That, at the end of the day, the Supreme Court refused to accept the submissions by the federal government has no impact on the way this balancing test functions. Once it has been decided that federal law should govern, this does not necessarily entail that courts can create the relevant legal rules. Here a second balancing test applies: Which branch of the government should create the relevant rules, Congress or the judiciary? In this case, it was decided that Congress should do so and, as a result, the judiciary was not in a position to act.

In this case, the correlation between the above-mentioned changed approach as to interpretation of the Commerce Clause and the ‘specialised’ approach to federal common law can be seen clearly. The case is about the Labor Management Relations Act of 1947. This Act derived its constitutionality directly from the extensive interpretation of the Commerce Clause. As it was now accepted that, through the Act, Congress had validly decided that this was an area of federal law, federal courts interpreting that Act could never violate the Erie ruling, viz. that they were not allowed to create federal general common law. The result of these developments is, in other words, twofold. On the one hand, the need for an authority vested in the federal judiciary to fashion federal general common law no longer was necessary in view of the wide powers that were now given to Congress under the Commerce Clause. On the other hand, federal courts could, while interpreting federal legislation, never be accused of stepping outside the boundaries of Erie v. Tompkins, as interpretation of a specific Act could – almost by definition – only result in the creation of special areas of federal common law. The above-mentioned balancing test to decide whether federal or state law governs is for that reason only supplementary and to be applied in those cases where either federal legislation is lacking or the implementation of federal legislation by case law might go beyond the limitations as set by Erie. But the latter is not likely to happen soon.

In Textile Workers Union v. Lincoln Mills the facts were as follows. The union had concluded a collective bargaining agreement with Lincoln Mills. The agreement contained a grievance procedure with, at the end, the possibility of arbitration. The union had complaints about the workload and the work assignments. For that reason it requested arbitration as provided for in the agreement. Lincoln Mills refused the request. The union then brought a suit in federal court asking the Court to compel the employer to agree with arbitration. Could a federal court grant the relief sought? Section 301 of the 1947 Labor Management Relations Act gave federal courts the jurisdiction to rule on this question. But did having jurisdiction also mean having the power to fashion substantive federal common law? In his majority opinion, Douglas J. gave the following answer:

The question then is, what is the substantive law to be applied in suits under § 301 (a)? We conclude that the substantive law to apply in suits under § 301 (a) is federal law which the courts must fashion from the policy of our national labor laws. . . . The Labor Management Relations Act expressly furnishes some substantive law. It points out what the parties may or may not do in certain situations. Other problems will lie in the penumbra of express statutory mandates. Some will lack express statutory sanction but will be solved by looking at the policy of the legislation and fashioning a remedy that will effectuate that policy. The range of judicial inventiveness will be determined by the nature of the problem. . . . Federal interpretation of the federal law will govern, not state law. . . . But state law, if compatible with the purpose of § 301, may be resorted to in order to find the rule that will best effectuate the federal policy. . . . Any state law applied, however, will be absorbed as federal law and will not be an independent source of private rights. It is not uncommon for federal courts to fashion federal law where federal rights are concerned. See Clearfield Trust Co. v. United States . . .⁽⁴⁹⁾

The balancing test to decide whether a pocket of federal common law should be created or whether state law qua state law should apply is clearly further elaborated upon in this case. In deciding which interests prevail, state or federal, federal policy as expressed in a federal statute, in the light of the nature of the problem, is a factor of great weight. This seems to imply that when a conflict between state and federal interests arises, federal interests have some prima facie prevalence. State law can, however, be used to fashion federal law. Its source of authority would then be federal law; it would not apply solely because it was enacted by a state legislature or created by a state judiciary.

What is the difference, so it can be asked, between this balancing approach in the light of the extensive interpretation of the Commerce Clause and the decision in Swift v. Tyson, where, based on a comparative legal analysis, a uniform rule concerning negotiable instruments was given? What it comes down to is a difference of degree: although the desire to create a federal common law no longer is a starting point when answering the type of question under review here, still federal interests and federal policy implementation are of great force as arguments to shape a rule of federal special common law. In order to see how this line of reasoning further developed, a look into other pockets of federal common law may be illuminating.

In 1960 the Cuban government nationalised US property in Cuba, in retaliation for the reduction of sugar quota by the US government. Although the act violated international law, it was an act of a recognised foreign state, valid under Cuban law. What should have priority: international law or Cuban law? The answer was: Cuban law. Although this case mainly deals with international law problems, Harlan J., in his majority opinion, devoted some very interesting remarks to federal common law, as part of the decision that the Act of State Doctrine was federal in nature. Referring, among others, to Textile Workers v. Lincoln Mills and to the importance of protecting ‘uniquely federal interests’, Harlan concluded: ‘We are not without other precedent for a determination that federal law governs; there are enclaves of federal judge-made law which bind the States.’⁽⁵¹⁾

In this case, it was decided that contracts between private parties concerning oil and gas leases validly issued under the Mineral Leasing Act of 1920 are governed by state law. Again a balancing test is used – in the words of Harlan J.:

In deciding whether rules of federal common law should be fashioned, normally the guiding principle is that a significant conflict between some federal policy or interest and the use of state law in the premises must first be specifically shown. It is by no means enough that, as we may assume, Congress could under the Constitution readily enact a complete code of law governing transactions in federal mineral leases among private parties. Whether latent federal power should be exercised to displace state law is primarily a decision for Congress. Even where there is related federal legislation in an area, as is true in this instance, it must be remembered that ‘Congress acts . . . against the background of the total corpus juris of the states . . .’ Hart & Wechsler, The Federal Courts and the Federal System 435 (1953). Because we find no significant threat to any identifiable federal policy or interest, we do not press on to consider other questions relevant to invoking federal common law, such as the strength of the state interest in having its own rules govern . . .⁽⁵³⁾

In Georgia Power Co. v. Sanders, the US Court of Appeals (Fifth Circuit)⁽⁵⁴⁾ further developed this balancing test. In doing so, the Court gave the following instructive summary of existing case law. In the Court’s view, the first decision to be made is on the applicability of either state or federal law. If federal law applies, this does not necessarily mean that a rule of federal common law has to be framed in the absence of a statutory rule. In the words of Randall C.J.:

The answer to the question [whether the court should choose federal common law or state law as the applicable federal rule, JvE] is largely dependent upon whether one begins with the position that state law should be adopted unless it is shown that legislative intent or other sufficient reasons exist to displace state law with federal common law or with the position that federal common law should be utilized unless it is shown that legislative intent or other sufficient reasons exist to warrant adoption of state law. Basic considerations of federalism, as embodied in the Rules of Decision Act, prompt us to begin with the premise that state law should supply the federal rule unless there is an expression of legislative intent to the contrary, or failing that, a showing that state law conflicts significantly with any federal interests or policies present in this case. Wallis v. Pan American Petroleum Corp. . . .⁽⁵⁵⁾

The balancing test (weighing state and federal interests) is thus not only used to decide if state or federal law should apply, but also to decide if state law should apply as the federal rule. The uniformity in the latter case is limited to the federal rule, to be applied generally, that state law will govern.

In Bivens v. Six Unknown named agents of the Federal Bureau of Narcotics, the Supreme Court decided that violation by federal agents of the IVth Amendment, which gives protection against unreasonable searches and seizures, gives rise to a federal cause of action for damages. In the words of Brennan J.:

Accordingly, as our cases make clear, the Fourth Amendment operates as a limitation upon the exercise of federal power regardless of whether the State in whose jurisdiction that power is exercised would prohibit or penalize the identical act if engaged in by a private citizen. It guarantees to citizens of the United States the absolute right to be free from unreasonable searches and seizures carried out by virtue of federal authority. And ‘where federally protected rights have been invaded, it has been the rule from the beginning that courts will be alert to adjust their remedies so as to grant the necessary relief.’, Bell v. Hood, 327 U.S. at 684 . . .⁽⁵⁷⁾

In Federal Deposit Insurance Corporation v. Meyer,⁽⁵⁸⁾ the Supreme Court refused to extend this liability to an agency itself, in part because of the ‘potentially enormous financial burden for the Federal Government’. Decisions, so it was stated, involving federal fiscal policy should be left to Congress.⁽⁵⁹⁾

Non-interested directors of an investment company decided that a shareholders’ derivative suit against members of the board of directors was against the best interests of the company. They moved the Court, which had to decide on this suit, to dismiss the action. The question then arose whether the federal Investment Company Act and the federal Investment Advisers Act prevented the independent directors, acting under the so-called ‘business judgment rule’ (i.e. deciding independently and in good faith), from entering this motion. Brennan J., delivering the opinion of the Court, decided as follows: First of all the source of the shareholders’ right was assumed to be federal, because it was based upon the two federal Acts mentioned. Brennan continued, saying: ‘Since we proceed on the premise of the existence of a federal cause of action, it is clear that "our decision is not controlled by Erie R. Co. v. Tompkins . . ." and state law does not operate of its own force.’⁽⁶¹⁾After concluding that he had to decide a federal question, he remarked:

The fact that ‘the scope of [respondents’] federal right is, of course, a federal question’ does not, however, make state law irrelevant . . . It is true that in certain areas we have held that federal statutes authorize the federal courts to fashion a complete body of federal law. See Textile Workers v. Lincoln Mills . . . Corporation law, however, is not such an area.⁽⁶²⁾

Then Brennan stressed the relevance of state law in the area of corporations and, consequently, directors’ rights and duties. He contrasted state law with federal law, which he characterised as ‘largely regulatory and prohibitory in nature’, adding: ‘In short, in this field congressional legislation is generally enacted against the background of existing state law; Congress has never indicated that the entire corpus of state corporation law is to be replaced simply because a plaintiff’s cause of action is based upon a federal statute.’⁽⁶³⁾

We have seen that the balancing test of state and federal interests works at two levels: (1) Should federal law apply or state law? and (2), if federal law applies, can state law operate as a subsidiary source of federal law or should a substantive federal rule be created? This test is supplemented here with the policy-weighing factor which can also be found in Wallis v. Pan American Petroleum Corp. (discussed above), that federal law presupposes state law. As a consequence of this presupposition of state law, the ambit of federal law is interpreted narrowly, also in the light of the federal policies which lie behind the federal statute.

In Texas Industries v. Radcliff Materials Inc., the Supreme Court refused to fashion a federal common law right of contribution among joint antitrust wrongdoers. Before deciding this, Burger C.J. summarised the law up to this case as follows:

There is, of course, ‘no general federal common law.’ Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Nevertheless, the Court has recognized the need and authority in some limited areas to formulate what has come to be known as ‘federal common law.’ See United States v. Standard Oil Co., 332 U.S. 301, 308 (1947). These instances are ‘few and restricted’, Wheeldin v. Wheeler, 373 U.S. 647, 651 (1963), and fall into essentially two categories: those in which a federal rule of decision is ‘necessary to protect uniquely federal interests’, Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 426 (1964), and those in which Congress has given the courts the power to develop substantive law, Wheeldin v. Wheeler, supra, at 652.⁽⁶⁵⁾

On the basis of this summary of case law, he then proceeded to give the reasons for the Court’s refusal to create a federal common law of contribution in antitrust cases. Contribution did not implicate ‘uniquely federal interests’ and it was within the realm of Congress to decide the complex policy questions involved in supplementing the antitrust acts (Sherman Act and Clayton Act) with a right of contribution.

If a common carrier violates credit regulations issued by the Interstate Commerce Commission, promulgated pursuant to the Interstate Commerce Act,⁽⁶⁷⁾ is he then barred from collecting the lawful freight charge which the shipper-consignor should pay him as the person primarily liable under the bill of lading? In this case, the consignor had not executed a so-called ‘nonrecourse’ clause in the bill of lading, forbidding the carrier to deliver the goods without payment of freight and other lawful charges by the receiver-consignee of these goods. This meant that the consignor remained liable for the charges. However, the carrier had extended credit to the consignee which lasted longer than allowed by federal regulations. Without any discussion, the case was decided on the basis of federal statutory and common law; the carrier’s claim was accepted. Obviously, the fact that this was a case about interstate trade was the sole reason for applying federal law without any hesitation.

In an environmental clean-up case, a private party – sued by the federal government to recoup the costs made because of this clean-up – sued in its turn the State of Pennsylvania as the ‘owner and operator’ of the polluted site. The question then arose whether the XIth Amendment of the US Constitution protected the state against this claim. In the XIth Amendment the states are given immunity, barring lawsuits against them by citizens from other states or from foreign states. The Supreme Court ruled (Brennan J.) that, by ratifying the Constitution containing the Commerce Clause, the states gave their consent to be held liable in cases where Congress, exercising its power under that clause, decided that such a liability should be created.

The value of this case as a precedent is now questionable as a consequence of more recent cases such as US v. Lopez⁽⁶⁹⁾ and Seminole Tribe of Florida v. Florida⁽⁷⁰⁾, which make clear that the present US Supreme Court is far more willing to protect states’ interests than a decade ago.⁽⁷¹⁾ Still, it is interesting to see how the connection between the Commerce Clause, the XIth Amendment (also in the light of the Xth Amendment, securing the – albeit limited – sovereignty of the states) and the development of federal common law is seen. Brennan J. explained this connection in the following way:

The general problem of environmental harm is often not susceptible of a local solution. See Illinois v. Milwaukee, 406 U.S. 91 (1972) (recognizing authority of federal courts to create federal ‘common law’ of nuisance to apply to interstate water pollution, displacing state nuisance laws). We have, in fact, invalidated one State’s effort to deal with the problem of waste disposal on a local level. See Philadelphia v. New Jersey, supra [437 US 617, JvE]. A New Jersey statute prohibited the treatment and disposal, within the State, of any solid or liquid wastes generated outside the State. Indicating that a law applicable to all wastes would have survived under the Commerce Clause, . . . , we held that the exemption of locally produced wastes doomed the statute . . . As a practical matter, however, it is difficult to imagine that a State could forbid the disposal of all wastes. Hence, the Commerce Clause as interpreted in Philadelphia v. New Jersey ensures that we often must look to the Federal Government for environmental solutions. And often those solutions, to be satisfactory, must include a cause of action for money damages.⁽⁷²⁾

Obviously, the view defended by Brennan means that as far as the Commerce Clause gives power to Congress, the states surrendered their sovereignty and, consequently, immunity from suit. Interpreting federal statutes, enacted on the basis of the Commerce Clause, is clearly within the realm of the federal judiciary, which by doing so creates federal common law. In areas covered by the Commerce Clause where Congress has not yet acted, but which are ‘not susceptible of a local solution’, the courts can also act independently (i.e. not depending on the enactment of a federal statute) and in that way create federal common law.

In the area of commercial law, not only federal law is the source of unification, but also uniform state law. The principal example here is the Uniform Commercial Code (UCC). The code was not enacted as a federal statute, although according to some it could have been. For this reason the question could arise, if, in cases governed by federal law, the UCC might be applied in the form of federal common law.

United States v. Wegematic was a case about a contract between the Federal Reserve Board and a manufacturer of computers.⁽⁷³⁾ The manufacturer could not deliver on time, because of ‘basic engineering difficulties’, and requested the cancellation of the contract without damages. The Federal Reserve Board then concluded a contract with International Business Machines (IBM), refused to accept the request and demanded damages. Wegematic defended itself by stating that it was excused to perform the contract given the ‘practical impossibility’ of completing it. (The redesign would have cost between USD 1,000,000 and USD 1,500,000.)

The parties agreed that federal law governed the contract. Given the rather fragmented case law in this area, the US Court of Appeals (Second Circuit) decided the case on the basis of the UCC. The arguments given by Circuit Judge Friendly to look to the UCC as the source of federal law were the following:

We find persuasive the defendant’s suggestion of looking to the Uniform Commercial Code as a source for the ‘federal’ law of sales. The Code has been adopted by Congress for the District of Columbia, 77 Stat. 630 (1963), has been enacted in over forty states, and is thus well on its way to becoming a truly national law of commerce, which, as Judge L. Hand said of the Negotiable Instruments Law, is ‘more complete and more certain, than any other which can conceivably be drawn from those sources of ‘general law’ to which we were accustomed to resort in the days of Swift v. Tyson.’ . . . When the states have gone so far in achieving the desirable goal of a uniform law governing commercial transactions, it would be a distinct disservice to insist on a different one for the segment of commerce, important but still small in relation to the total, consisting of transactions with the United States.⁽⁷⁴⁾

Friendly then proceeded on the basis of Section 2-615 UCC and rejected Wegematic’s claim that this was a situation of impracticability of performance.

What can be seen here is that the unification of commercial law is no longer imposed by the federal level upon the state level. No longer are federal courts developing federal general common law; they accept as federal law what might be called the ‘states’ general common law’. The law to be generally applied by federal courts in the situation described above is now the result of the developing corpus iuris of the states and is not the creation of the federal judiciary.

This change in approach was reinforced by a unanimous decision of the US Supreme Court in United States v. Kimbell Foods Inc./United States v. Zac A. Crittenden, Jr., dba Crittenden Tractor Company.⁽⁷⁵⁾ Both cases, decided together, concerned the priority of liens. In United States v. Kimbell Foods, the conflict was between two contractual security interests in the personal property of O.K. Super Markets. Both liens were perfected under the UCC as adopted in Texas. The lien by Kimbell Foods was based on a security agreement that preceded the federal lien – the latter lien securing a loan by Republic National Bank of Dallas guaranteed by the Small Business Administration (SBA) – but where the advances were only made after the federal guarantee. United States v. Crittenden concerned a conflict between a federal contractual security interest in a tractor and a subsequent repairman’s lien in that same tractor. The Farmers Home Administration (FHA) had given several loans to Ralph Bridges and these loans were secured by obtaining a security interest in Bridges’ crops and farm equipment. The interest was perfected by filing a standard FHA financing statement with Georgia officials. (Georgia at that time had not yet adopted the UCC.) Crittenden repaired Bridges’ tractor on several occasions, and when the outstanding balance was not paid, retained the tractor in his possession. He thus acquired a lien therein under Georgia law.

To decide which security interest (lien) had priority, the Supreme Court first of all had to decide whether state or federal law governed the priority question. Given the ruling in the Clearfield Trust case, federal law governed, as these were national federal programmes. The second question to be answered was, given that federal law governed, if state law should be chosen as the federal rule of decision or whether a uniform federal rule should be formulated. Important factors here are: (1) the need for uniformity, (2) whether application of state law would frustrate the specific objectives of the federal programme and (3) whether application of a federal rule would disrupt commercial relationships predicated on state law. Marshall J. speaking for the Court, then continued:

We are unpersuaded that in the circumstances presented here, nationwide standards favoring claims of the United States are necessary to ease program administration or to safeguard the Federal Treasury from defaulting debtors. Because the state commercial codes ‘furnish convenient solutions in no way inconsistent with adequate protection of the federal interests’ . . . we decline to override intricate state laws of general applicability on which private creditors base their daily commercial transactions.⁽⁷⁶⁾

Marshall J. refused to equate these federal liens with (high-priority) federal tax liens, arguing that the SBA and FHA security interests were consensual and that the US in these two cases could not qualify as an ‘involuntary creditor of delinquent taxpayers, unable to control the factors that make tax collection likely’.⁽⁷⁷⁾ The only reason why in situations like these state law might be ignored was that state law would prejudice federal interests.⁽⁷⁸⁾ Marshall J. added: ‘The issue here, however, involves commercial rules of general applicability, based on codes that are remarkably uniform throughout the Nation.’⁽⁷⁹⁾ He also pointed out that if federal liens were given priority, in fact the federal government would be entitled to an undisclosed security interest. This would frustrate private creditors’ expectations and generate inconsistencies in application, given that the now common (UCC) way of establishing a valid security interest against third parties was by public filing of a notice.⁽⁸⁰⁾

United States v. Kimbell Foods shows the same tendency as Wegematic v. United States. In a commercial setting, local law prevails over federal law in a situation where local law has been harmonised voluntarily (‘from below’) and does not discriminate against federal interests. The result of this approach was that in both cases state law was decisive in order to establish the priority between conflicting security interests.

A first glance at the case law as developed by the ECJ gives the impression that most cases concern questions of a fairly abstract public law nature. Two examples are: Should a particular measure be qualified as a quantitative import or export restriction?⁽⁸²⁾ What are the consequences of the four freedoms as laid down in the Europan treaties (the free movement of goods, persons, services and capital)? In the beginning of the European Community’s existence this was certainly true. First of all, a common market had to be created and as a result, e.g., differing trade barriers had to be abolished. Gradually, the focus changed from obvious barriers to less clear obstacles: the differing private law rules in the Member States. This led to a steadily growing stream of regulations and directives regarding contract and tort law, particularly aimed at consumer protection. At the moment, as I already mentioned in the introduction, it is even considered to enact a European Civil Code.⁽⁸³⁾

Given that the number of European private law rules is increasing, so the number of cases increases where the Court has to interpret these rules, and by doing so further develops existing European private law.⁽⁸⁴⁾ Sometimes the Court goes even further and, in order to safeguard the basic Community rules as laid down in the European treaties, creates new rules of European private law applicable to and in all the Member States. A major example is constituted by the private law consequences of non-implementation of directives by Member States. In this field, the Court established European rules of state liability. Another example concerns the private law consequences of imposing duties or taxes which are later declared null and void as a violation of the EC treaty. Do these duties or taxes have to be paid back, and if so, under which conditions? This raises various questions relating to unjustified enrichment of both Member States and citizens.

The above-mentioned fields concern the creation of substantive private law, but the Court sometimes also creates European procedural law. A recent case in which such a rule was established is Océano Grupo Editorial SA and Salvat Editores SA v. Rocio Murciano Quintero (Joined Cases C-240/98 – C-244/98), in which the Court ruled that ‘the protection provided for consumers by the [unfair terms in consumer sales contracts,⁽⁸⁵⁾ JvE] directive entails the national court being able to determine of its own motion whether a term of a contract before it is unfair when making its preliminary assessment as to whether a claim should be allowed to proceed before the national courts’.⁽⁸⁶⁾

Finally, there is a growing number of cases in which the Court has to give an interpretation of Article 288 (ex Article 215) EC: ‘In the case of non-contractual liability, the Community shall, in accordance with the general principles common to the law of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties.’ Here the Court creates European private law at the level of the Community institutions.⁽⁸⁷⁾ To a certain degree, this European private law differs from the European private law I just mentioned, as the former only concerns Community institutions and does not touch the law of the Member States. On the other hand, it will come as no surprise when principles of tort law developed within the framework of Article 288 EC also surface in cases where the Court has established Member State tort liability.⁽⁸⁸⁾

One of the first authors to draw attention to the growing role of the ECJ in creating European private law is Van Gerven.⁽⁸⁹⁾ He points out that ECJ case law may even have an impact outside the area of European private law and may lead to voluntary harmonisation of the law by national courts. Van Gerven asks why a national court should not apply European principles to purely domestic cases (situations which do not involve the common or internal European market and are not touched by the European treaties).⁽⁹⁰⁾ It has been shown that courts are more and more inclined to consider foreign solutions.⁽⁹¹⁾

In the following paragraphs, I will focus on two main areas of ECJ case law where it has become apparent that the Court is actively establishing a private law common to the Member States. These main areas are: state liability for non-implementing directives and unjustified enrichment resulting from imposing or levying void duties or taxes. I am aware that, among other topics, the consequences of the nullity sanction which results from Article 81 (ex Article 85) EC⁽⁹²⁾ on unfair competition might also have been discussed. However, this area of the law is so connected with public (antitrust) law that I felt that within the limits set in this report I should focus on the two areas mentioned.⁽⁹³⁾

Before I discuss the two private law areas mentioned (state liability and unjustified enrichment), some preliminary general remarks should be made from the perspective of the Court’s case law in matters relating to the protection of community rights.⁽⁹⁴⁾ The relationship between the European institutions and the Member States has always been delicate, also – perhaps even particularly so – in the area of adjudication. The ECJ took and still takes great care to create an atmosphere of comitas (or what in American law is called ‘comity’) between itself and the national judiciaries. This can be seen clearly in two unjustified enrichment cases from 1976: Rewe-Zentralfinanz eG and Rewe Zentral AG v. Landwirtschaftskammer für das Saarland (Case C-33/76)⁽⁹⁵⁾ and Comet v. Produktschap voor Siergewassen (Case C-45/76)⁽⁹⁶⁾. These cases concerned the repayment of charges for phytosanitary inspection on the import of apples, which were regarded as equivalent to customs duties (Rewe) and undue payment of levies constituting charges having an effect equivalent to customs on exports of bulbs and corms of flowering plants (Comet). The Court ruled that if no community rules exist as to the protection of rights created by community law, the law of each Member State must designate the courts having jurisdiction and must lay down the procedural rules and conditions governing the actions to protect those rights. The Court also made clear that the freedom of the Member States in this area was certainly not complete. The relevant law of the Member States should be in conformity with two basic principles: the principle of equivalence and the principle of effectiveness. This means that the Court demands that the relevant national rules are not less favourable than those governing similar domestic actions and that they do not render practically impossible or excessively difficult the exercise of rights conferred by community law. It is within the framework of this approach that the Court developed its case law on state liability and unjustified enrichment.

In a series of cases, the ECJ has created a European type of state liability when Member States do not implement directives correctly and citizens are suffering damage as a result of both the non-implementation and the absence of direct effect. This development is of extreme importance, not just because the effect will, no doubt, be that Member States will become very careful not to implement directives within the period prescribed, given the financial consequences attached to non-implementation, but also because of the way this liability was given shape by the Court. A new area of European private tort law has, in fact, come into existence. I will first of all discuss the case that introduced state liability (Francovich), followed by more recent cases in which state liability was further developed.

In Francovich v. Italy,⁽⁹⁷⁾ former employees (Andrea Francovich, Danila Bonifaci and others) of two, now insolvent, employers demanded damages from the Italian state, which they suffered because of non-implementation of Council Directive 80/987/EEC. This directive gives employees certain minimum rights to payment of wages in the case of insolvency of their employers. If the employer is no longer able to pay, a guarantee institution is to take over reimbursement. Italy did not have a guarantee institution as meant in the directive. Consequently, the employees had nowhere else to go for their outstanding rights to payment. They sued the Italian state for their damages.

The Court began by saying that the directive cannot have direct effect, as it is not clear which person/institution should be liable in the absence of any transposing (national) measure. As to the possibility of Member State liability, the Court ruled as follows. With reference to the well-known Van Gend & Loos⁽⁹⁸⁾ and Costa/ENEL⁽⁹⁹⁾ cases, the Court pointed out that the EC Treaty had created its own legal system in the form of an autonomous legal order, integrated into the national legal systems, which the national courts are bound to apply. These national courts play a pivotal role in the community legal order. Member State liability must be part of the community legal order in situations where citizens cannot be given any protection otherwise. Such legal protection is inherent in the system of the Treaty and finds its base in Article 5 EC Treaty (Article 10 EC). This article obliges Member States to fully support the community legal order. As to the conditions under which such a Member State liability may arise, the Court decided as follows: A fundamental policy-weighing factor is the nature of the breach (in this case, non-transposition of a directive). This leads the Court to the following three conditions for state liability: (1) the result prescribed by the directive should entail the granting of rights to individuals; (2) it should be possible to identify the contents of those rights on the basis of the provisions of the directive; (3) the existence of a causal link between the breach of the state’s obligation and the loss and damage suffered by the injured parties. If these three conditions are fulfilled – as they are in this case – community law gives the plaintiffs a right which is directly founded on it. The further substantive and procedural conditions are, absent community legislation, a matter of national law. However, national law may not be framed in such a way that the (community) rights of the citizen are less favourable than those relating to similar domestic claims and must not be such as to make it virtually impossible or excessively difficult to obtain reparation. As the Court had already stated, when examining the direct effect of the directive, that it was clear that the employees were given a right with an identifiable content, the only problem left was the causal link between damage and non-transposition. Whether such a link exists is a matter for the national court to decide.

There can be no doubt that this decision was a breakthrough concerning the legal protection of citizens in the community legal order. Even if a directive does not have vertical or horizontal direct effect (i.e. is not binding between an individual and a Member State or between individual citizens), its indirect effect can be such that any Member State will have a great incentive to implement it and uphold its community obligations. Given this enormously important decision, it is not surprising that a flood of case law followed.

Let me begin with the case of Faccini Dori v. Recreb.⁽¹⁰⁰⁾ At Milan Central Railway Station, Miss Dori had concluded a contract for an English language correspondence course with a company called Interdiffusion. This happened on 19 January 1989. By registered letter of 23 January 1989 Miss Dori cancelled her order on the basis of Article 5 of Council Directive (EEC) 85/577. This directive should have been implemented before 23 December 1987, but at the time it had not yet been implemented. Interdiffusion replied on 3 June 1989 that the claim had been assigned to Recreb. Miss Dori reacted by sending Recreb a letter on 24 June 1989, confirming her cancellation. Then Recreb sued Miss Dori for the agreed price for the course with interest and costs.

The judge who had to decide the case (the Judge-Conciliator in Florence) asked the Court if the directive had direct effect, not only vertically, but also horizontally. Advocate General Lenz delivered an opinion, in which the developments up to the Dori case, as far as the legal effects of the implementation as well as non-implementation of directives were summarised in a succinct and clear way. He gave an overview of the effects of non-implemented directives in relations between the individual and the state (including a discussion of the broad meaning for the concept of the state), the obligation on all state institutions to apply Community law by way of interpretation and, finally, the possible entitlement to compensation from the state. He then argued explicitly for the acceptance of horizontal (i.e. between private persons) direct effect of non-implemented directives. In that plea he proved to be not successful.

The Court ruled, first of all, with reference to its decision in Marshall,⁽¹⁰¹⁾ that a directive cannot of itself impose obligations on an individual and cannot therefore be relied upon as such against an individual. The Court then gave four arguments why it would not change its approach towards the acceptance of horizontal direct effect. All of the arguments are not new, but it is interesting that the Court – as the Advocate General did – tried to systematise its previous case law in this area. The first argument is that the acceptance of vertical direct effect is a means to prevent a Member State from relying on its failure to comply with Community law. Secondly, the EC Treaty makes a clear distinction between a directive and a regulation; only the choice of the latter form empowers the Community to enact obligations for individuals with immediate effect. Thirdly, the Court refers to the obligation of all authorities of a Member State (including the judiciary) to implement a directive as far as can be done without transgressing the boundaries as set, e.g., by a Member State’s constitution. Finally, the Court refers to the Francovich decision and the possibility that a Member State is liable to individuals to make good damage caused by a failure to transpose a directive.

The Francovich decision was further elaborated upon in the Brasserie du Pêcheur case (Brasserie du Pêcheur SA v. Germany and R v. Secretary of State for Transport, ex p. Factortame).⁽¹⁰²⁾ Brasserie du Pêcheur, a French brewing company established in Schiltigheim (Alsace), claimed damages from the German government as it had to discontinue its exports of beer to Germany in the years 1981-1987 because its beer was not made in conformity with the purity requirement (Reinheitsgebot) of German law. In 1987 this purity requirement was held by the ECJ to be against Article 30 of the EC Treaty (Article 28 EC): a decision completely in line with the famous Cassis de Dijon case.⁽¹⁰³⁾ Therefore, exports of beer could be resumed after the Court’s decision.

Factortame claimed damages from the UK government, because of the enactment of certain provisions in the Merchant Shipping Act 1988 which made the registration of fishing boats subject to certain conditions relating to nationality, residence and domicile of the owners. Without the required (in some cases re-)registration, a fishing vessel was not allowed to fish under the British flag. These provisions were challenged in a series of cases and, finally, held not to be in conformity with Article 52 of the EC Treaty (Article 43 EC). The damages claimed occurred in part during the periods April to November 1989 and April 1989 to October 1990.

In the ensuing proceedings, several questions had to be answered, in part because of the particular national provisions on state liability which could have the effect that a Francovich claim would not succeed. The referring courts (the German Federal Court of Justice and the English High Court of Justice, Queen’s Bench Division, Divisional Court, respectively) asked almost identical questions. (1) Can state liability under the Francovich decision arise where it is the national legislature that is responsible for the infringement in question? (2) Under what conditions is the right to reparation of loss or damage caused to individuals by breaches of Community law attributable to a Member State guaranteed by Community law? (3) Is the Francovich liability conditional upon the existence of (intentional or negligent) fault? (4) What are the criteria for the determination of the extent of the reparation due? (5) Is it possible to claim damages relating to the period before a judgment is delivered by the ECJ that an infringement has taken place? (6) Should the temporal effects of the judgment in this case be limited?

The decision of the Court, while answering questions (1), (2) and (4), is based on elaborate reasoning, certainly compared to other decisions. Given the enormous importance of this case as to the further development of the judicial protection of individual rights and interests, but also because this case in effect creates a framework for a European tort law, I will quote from it somewhat more extensively.

The replies to questions (3), (5) and (6), however, are more succinct. For this reason, I want to start with those questions. As to question (3), the Court decided that ‘fault’ as such is not a concept of European tort law, but submerges in the more general question whether the breach of community law was sufficiently serious to lead to state liability. Concerning question (5), the Court answered that liability arises as a result of a breach of Community law, (again) provided that such a breach is sufficiently serious. This seriousness can, of course, be established by a judgement finding an infringement, but such a decision is not a conditio sine qua non for state liability. Question (6) was answered by referring to the national substantive and procedural conditions on reparation of damage; these national provisions can take account of the requirements of the principle of legal certainty. That is why, in the Court’s view, its decision does not have to be given in the form of, e.g., prospective overruling.

The heart of the case is, as remarked earlier, in the Court’s reply to questions (1), (2) and (4). In its answer to question (1), the Court was very clear: the fact that it was the legislature which did not act cannot be put forward as a justification for the Member State not being liable. It is the Member State as such that has to fulfill its Community obligation; the internal organisation of a Member State, its division of powers and their functioning is therefore that state’s responsibility. The Court further made it clear that state liability is not a subsidiary way of judicial protection: even if a provision of the EC Treaty (or a directive) confers rights directly on individuals, their economic interests (i.e. reparation of damage caused by an infringement of these rights) have to be judicially protected as well. The Court continued with what can only be seen as the outline of a European torts liability of Member States:

25. It must . . . be stressed that the existence and extent of state liability for damage ensuing as a result of a breach of obligations incumbent on the state by virtue of Community law are questions of Treaty interpretation which fall within the jurisdiction of the Court.

26. In this case, as in Francovich, those questions of interpretation have been referred to the Court by national Courts pursuant to Article 177 of the Treaty.

27. Since the Treaty contains no provisions expressly and specifically governing the consequences of breaches of Community law by Member States, it is for the Court, in pursuance of the task conferred on it by Article 164 of the Treaty of ensuring that in the interpretation and application of the Treaty the law is observed, to rule on such a question in accordance with the generally accepted methods of interpretation, in particular by reference to the fundamental principles of the Community legal system and, where necessary, general principles common to the legal systems of the Member States.

28. Indeed, it is to the general principles common to the laws of the Member States that the second paragraph of Article 215 of the Treaty refers as the basis of the non-contractual liability of the Community for damage caused by its institutions or by its servants in the performance of their duties.

29. The principle of the non-contractual liability of the Community expressly laid down in Article 215 of the Treaty is simply an expression of the general principle familiar to the legal systems of the Member States that an unlawful act or omission gives rise to an obligation to make good the damage caused. That provision also reflects the obligation on public authorities to make good damage caused in the performance of their duties.

30. In any event, in many national legal systems the essentials of the legal rules governing state liability have been developed by the Courts.

As to questions (2) and (4), the Court itself gave a summary of its arguments and decision. First the answer to question (2) (conditions for state liability):

74. . . ., the reply to the questions from the national courts must be that, where a breach of Community law by a Member State is attributable to the national legislature acting in a field in which it has a wide discretion to make legislative choices, individuals suffering loss or injury thereby are entitled to reparation where the rule of Community law breached is intended to confer rights on them, the breach is sufficiently serious and there is a direct causal link between the breach and the damage sustained by the individuals. Subject to that reservation, the state must make good the consequences of the loss or damage caused by the breach of Community law attributable to it, in accordance with its national law on liability. However, the conditions laid down by the applicable national laws must not be less favourable than those relating to similar domestic claims or framed in such a way as in practice to make it impossible or excessively difficult to obtain reparation.

Secondly, the answer to question (4) (actual extent of the reparation):

90. . . ., the reply to the national courts must be that reparation by Member States of loss or damage which they have caused to individuals as a result of breaches of Community law must be commensurate with the loss or damage sustained. In the absence of relevant Community provisions, it is for the domestic legal system of each Member State to set the criteria for determining the extent of reparation. However, those criteria must not be less favourable than those applying to similar claims or actions based on domestic law and must not be such as in practice to make it impossible or excessively difficult to obtain reparation. National legislation which generally limits the damage for which reparation may be granted to damage done to certain, specifically protected individual interests not including loss of profit by individuals is not compatible with Community law. Moreover, it must be possible to award specific damages, such as the exemplary damages provided for by English law, pursuant to claims or actions founded on Community law, if such damages may be awarded pursuant to similar claims or actions founded on domestic law.

This means, e.g., that the requirement of German law, under which a torts claim can only be awarded if one interest out of a list of specifically enumerated interests has been infringed, does not apply in the area of state liability under European law. European law directly creates minimum rights for individuals, to which a national legal system has to conform. The same is true for those provisions of German law which make a claim for damages only possible for third parties who can show that an obligation conceived in their favour has been breached by the legislature. Again: European law formulates the minimum standard which national law has to follow. It also means that English tort law, as far as it only recognises claims for pure economic loss in certain specific cases, is not in conformity with the European minimum standard. As to the claim for exemplary damages under English law, the effect of the Court’s ruling is different. Given that national remedies, if in conformity with the European minimum standard, have to be applied equally in both purely domestic and European liability cases, this means that if exemplary damages would have been available in a comparable domestic context, they should also be available in the context of a European case.

Consequently, a European tort law is being created which is in part unified, in part nationally diversified. The Court has done this by way of creating a baseline standard with both substantive and equality aspects. The applicable national laws may not lay down conditions which are framed in such a way that in practice it is impossible or excessively difficult to obtain reparation (the substantive aspect) and they must not be less favourable than those conditions relating to similar domestic claims (the equality aspect). The substantive part of the standard is meant to review the outcome of a case marginally by setting community-wide minimum criteria to which the national legal systems have to comply. These criteria apply irrespective of whether provisions of national law are concerned relating to legally relevant injured interests or national rules relating to the heads of damage which can be claimed. The equality part of the standard is meant to reach an equal result from the viewpoint of each national legal system separately. Individuals should not be deprived of rights which the law of a Member State in a purely national case would confer upon them, merely because the claim now arises by virtue of European law. This truly is a mixed tort system, trying to balance Community interests with Member States’ national interests.

Member State liability has proven to be a rapidly expanding legal area where the tension between European interests and Member States’ interests becomes ever clearer, very much in the same way as that struggle can be traced in case law developed by the US Supreme Court relating to federal common law. As can be readily understood, the acceptance of Member State liability raised many questions. It will therefore come as no surprise that in 1996 the ECJ had to decide more cases concerning this type of liability.

In the El Corte Inglés SA v. Cristine Blázquez Rivero case,⁽¹⁰⁴⁾ Mrs. Blázquez Rivero had concluded a contract for holiday travel with the travel agency Viajes El Corte Inglés SA. In order to finance her holiday, she had also concluded a financing agreement with the finance company El Corte Inglés SA. When she became disappointed as to the performance of the travel agency, Mrs. Blázquez Rivero stopped making payments on the loan. The finance company then sued her. The defence was that Article 11 (2) of Council Directive 87/102/EEC of 22 December 1986 concerning consumer credit⁽¹⁰⁵⁾ allowed her under the present circumstances to plead the same defence against the finance company’s claim as she would have been able to make against the travel agency. The directive had, however, not been implemented within the prescribed period in Spanish law and the Spanish judge felt that he could not interpret Spanish law in conformity with the directive as Article 1257 provided that contracts have effects only between the parties which concluded them and their heirs. Was there any other possibility by which European law could assist Mrs. Blázquez Rivero, also in the light of Article 129a EC Treaty (Article 153 EC), which made consumer protection an EC matter?

The Court of Justice reiterated (again) that directives did not have horizontal direct effect: this effect was exclusively given to regulations and decisions. The Court then referred to the Francovich and the Dori decisions. It stated that European law provided the possibility of state liability on the fulfilment of three conditions: (1) the purpose of the directive must be to grant rights to individuals, (2) it must be possible to identify the content of those rights on the basis of the provisions of the directive and (3) there must be a causal link between the breach of the state’s obligation and the damage suffered. Finally, the Court concluded that a direct defence as put forward in the present case, based on the above-mentioned directive, was not available under European law.

Another 1996 case in which state liability was discussed by the Court is The Queen v. Ministry of Agriculture, Fisheries and Food ex parte: Hedley Lomas Ireland Ltd.⁽¹⁰⁶⁾ Hedley Lomas had requested a licence for the export of live sheep from the UK to Spain for slaughter. On 7 October 1992, the Ministry refused to issue the licence following its policy not to issue any export for slaughter to Spain. The background of this policy was that the Ministry was convinced (although no sufficient evidence could be given to prove this as to the slaughterhouse where Hedley Lomas were to send their sheep) that a certain number of Spanish slaughterhouses were not acting in conformity with a 1974 EC directive on the stunning of animals before slaughter. After consultations with Spanish national and regional authorities, the European Commission decided that the UK’s general ban on exports of live sheep for slaughter to Spain was against Article 34 of the EC Treaty (Article 29 EC) and did not fall under the exception of Article 36 EC Treaty (Article 30 EC). From 1 January 1993 the general ban was lifted.

The Court agreed with Hedley Lomas that Article 34 had been violated and that Article 36 could not justify this violation. Then the Court had to answer the question whether state liability could also arise because of non-compliance with an Article from the EC Treaty itself (not: a directive). Referring to its previous case law (Francovich, Brasserie du Pêcheur) the Court answered this question in the affirmative. Relevant factors to decide whether state liability does arise, are: (1) the nature of the breach of Community law giving rise to the loss or damage, (2) in the case of a breach of Community law attributable to a Member State acting in a field in which it has wide discretion to make legislative choices,⁽¹⁰⁷⁾ the following conditions have to be fulfilled as well: (2a) the rule of law infringed must be intended to confer rights on individuals, (2b) the breach must be sufficiently serious and (2c) there must be a direct causal link between the breach and the damage suffered. As Article 34 was directly applicable and Article 36 did not apply, condition (2a) was fulfilled. In this case, the UK government hardly had any discretion left; therefore, mere infringement of Community law may be sufficient to establish the required seriousness of the breach (condition 2b). Whether condition (2c) had been fulfilled was a matter for the national court to decide. The Court then restated what it had said in Francovich and Brasserie about the role of domestic law and the European margins within which the applicable domestic law had to confer rights on individuals.

Dillenkofer and Others v. Germany⁽¹⁰⁸⁾ is a case about the non-transposition of a directive within the prescribed period. Mr. Dillenkofer and others bought package travel from Mp Travel Line International GmbH and Florida Travel Service GmbH. These two travel organisations became insolvent. Mr. Dillenkofer had paid in advance the entire cost of the package; he then cancelled his trip because of health problems. As a result of the insolvency no reimbursement of the price paid by him took place.

The principal question to be answered by the Court was whether the requirements for Member State liability as formulated by the Court in Francovich were compatible with the requirements for such an action as were laid down in the Brasserie decision. The Court gave the following, clear, reply: Although in the Francovich case the requirement of a sufficiently serious breach of community law was not expressly stated, it did also apply to that case, as it concerned the non-transposition of a directive. The Court then continued:

25. On the one hand, a breach of Community law is sufficiently serious if a Community institution or a Member State, in the exercise of its rule-making powers, manifestly and gravely disregards the limits on those powers. . . . On the other hand, if, at the time when it committed the infringement, the Member State in question was not called upon to make any legislative choices and had only considerably reduced, or even no, discretion, the mere infringement of Community law may be sufficient to establish the existence of a sufficiently serious breach . . .

Such a breach of community law gives the right to reparation of the damage if the other – above-mentioned – conditions are fulfilled. No reparation of loss and damage depends on a prior finding by the Court of an infringement of community law attributable to the state, neither does it depend on the existence of intentional fault or negligence on the part of the organ of the state to which the infringement is attributable.

What are the legal consequences of payments made under a rule of national law which is invalid as it is against European law? This question arose in several cases before the Court and, very much as can be seen in the state liability cases, again the Court made clear that the law of the Member States has a considerable role to play here. But also, again, within the limits set in the Rewe and Comet cases mentioned under 3.b of this section: the principles of equivalence and effectiveness.

The first leading case in this area is Amministrazione delle Finanze dello Stato v. SpA San Giorgio.⁽¹⁰⁹⁾ San Giorgio was required to pay health inspection charges which were levied contrary to Community law when it imported dairy products from other Member States. It then reclaimed the charges paid. The Court, referring also to earlier case law, ruled that when, contrary to the EC Treaty, charges having an equivalent effect to customs duties are levied or internal taxes are discriminatorily applied, repayment of these charges or taxes is a direct consequence of this prohibition. Although repayment will have to take place in accordance with the conditions as to both substance and form as laid down in the laws of the Member States, the conditions may not be less favourable than those relating to repayment of domestic charges and they must not make repayment virtually impossible either. Even if reimbursement of all or a substantial number of unduly paid taxes would not be allowed in a particular Member State, still the citizen is entitled to repayment of charges and taxes not levied in conformity with Community law. As such, this is a clear expression of the right of European citizens to judicial protection when their rights, given to them by the European treaties, have been violated. In the words of the Court, this is a ‘consequence of, and an adjunct to, the rights conferred on individuals by the Community provisions prohibiting charges having an effect equivalent to customs duties or, as the case may be, the discriminatory application of internal taxes’.⁽¹¹⁰⁾ But this is the public law side of the coin. The private law side is that the Member State which levied the charge or imposed the tax, received money without legal ground. In other words, the Member State would be unjustifiedly enriched. Also for this reason, the citizen is given the right to repayment. This private law side of the decision becomes even clearer when one reads the other considerations of the Court in this case. The Court states that repayment of charges or taxes does not violate citizens’ rights if repayment were to lead to unjustified enrichment of the citizen. This could happen in situations where the charge or tax has been incorporated in the price and is passed on to other persons (e.g. consumers), as long as this is what actually happened. The burden of proof as laid down in the laws of the Member States may, however, not have the effect of ‘making it virtually impossible or extremely difficult’⁽¹¹¹⁾ to reclaim the charges. As a consequence, the burden of proof in regard to the passing of the charges and duties to other persons must not fall on the citizen reclaiming money and the evidence which the citizen must put forward may not be limited to, e.g., documentary evidence.

The end result of this line of reasoning is that taxpayers can reclaim money paid, that the burden of proof is on the state which imposed the duties, charges or taxes, but if the state can prove that the duties were passed on to other persons, the citizen loses his claim – otherwise this citizen would be unjustifiedly enriched. The idea behind this reasoning is that in such a situation others might be able to reclaim the duties, but also that in case others cannot reclaim either, on balance it is fairer that the state keeps the proceeds of such duties than a citizen.

The problem of duties which were passed on was a key question in Comateb and Others v. Directeur Général des douanes et droits indirects.⁽¹¹²⁾ Guadeloupe levied an octroi de mer (dock dues) on the import into Guadeloupe of various goods from another Member State, from non-member countries and from other parts of the French territory. According to an earlier Court decision, the levying of these dock dues was against the EC Treaty. French law allowed a claim for the repayment of duties or charges which later proved to be not due. However, this claim was not allowed if the duties had been passed on to the purchaser of the goods. It was further argued in this case – to strengthen the argument in regard to the dues having been passed on – that all dock dues had to be incorporated in the price of the goods and as such were passed on. It was furthermore argued that resale at a loss was against the law. The Court did not agree. It might be that, although the dues should have been passed on, in reality this did not happen. Such a possibility must not be ruled out by the national court. A taxpayer must not be burdened by the presumption that taxes had been passed on and that it is for the taxpayer to prove the contrary. But this is not the end of the Court’s considerations. Even if the tax has been passed on, this does not necessarily entail a taxpayer’s unjust enrichment. It is still possible that the citizen suffered a loss, as he had to charge a higher price than competitors, and because of that he may have lost business. This damage may exclude ‘in whole or in part, any unjust enrichment which would otherwise be caused by reimbursement’ of the taxpayer.⁽¹¹³⁾ The Court continued that ‘where domestic law permits the trader to plead such damage in the main proceedings, it is for the national court to give such effect to the claim as may be appropriate.’⁽¹¹⁴⁾ The Court continued:

34. Furthermore, traders may not be prevented from applying to the courts having jurisdiction, in accordance with the appropriate procedures of national law, and subject to the conditions laid down in Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, for reparation of loss caused by the levying of charges not due, irrespective of whether those charges have been passed on.

It seems that the Court first of all considers the demand for damages within the framework of the unjustified enrichment claim: as the taxpayer suffers actual damages, he cannot be unjustifiedly enriched by reimbursement of taxes unduly paid, even if he passed these on to, e.g., consumers. The Court left open the possibility to base such a damages claim directly on grounds of state liability. In the Metallgesellschaft case, which will be discussed below, the Court reaffirmed that both claims are possible and may supplement one another.

It could be said that the ruling in Comateb is a further elaboration upon the principle of effectiveness, to which a national legal system must adhere. Another example of this principle can be found in Fantask A/S v. Industriministeriet (Erhvervsministeriet).⁽¹¹⁵⁾ The Danish government levied charges on companies which were no longer allowed under a directive concerning indirect taxes on the raising of capital. Confronted with claims for reimbursement of the charges, the Danish Ministry of Industry (Ministry of Trade) argued that under general principles of Danish law such a claim should be dismissed if for a long period of time neither the state nor the taxpayer had been aware that the charges were unlawful. The Court flatly rejected this appeal to excusable error, referring to the principle of effectiveness and adding, as a policy argument, that accepting this argument would ‘have the effect of encouraging infringements of community law which have been committed over a long period’.⁽¹¹⁶⁾ This does not mean, however, that a national legal system, when a directive has not been properly transposed, may not set limitation periods, provided the period is ‘reasonable’⁽¹¹⁷⁾ and does not violate the principles of effectiveness and equivalence.

The principle of equivalence was further developed by the Court in Dilexport v. Amministrazione delle Finanze dello Stato.⁽¹¹⁸⁾ In previous cases, the Court had ruled that an Italian tax on fresh bananas originating in other Member States, especially the French overseas departments, violated Article 95 of the EC Treaty (Article 90 EC). It had also ruled that the second paragraph of this article precluded the charging of a consumer tax on certain imported fruit when it might protect domestic fruit production. Dilexport then demanded reimbursement of the taxes it had paid. Again, as in the Fantask case, the question arose if a Member State could set time limits within which a claim had to be made. The Court’s answer is essentially the same as in the Fantask case. The Court also said, referring to earlier cases, that a Member State is allowed to create a special regime for reimbursement claims of charges and taxes as long as this special regime does not violate the principles of equivalence and effectiveness. Furthermore, again referring to earlier case law, the Court ruled that a claim for reimbursement cannot be restricted solely to plaintiffs who brought an action for repayment before delivery of the judgment. After these procedural aspects of the unjustified enrichment claim by Dilexport, a more substantive aspect of that claim had to be discussed: the problem of the passing on of the taxes to purchasers. The Court reaffirmed its ruling in the San Giorgio case.

The last case I would like to discuss here is a fairly recent one: Metallgesellschaft Ltd. and Others v. Commissioners of Inland Revenue and HM Attorney General.⁽¹¹⁹⁾ In this case, a point was raised which we also saw in the Comateb case: To what degree can a claim for restitution be replaced or supplemented by a claim for damages?⁽¹²⁰⁾

Under the then existing UK tax legislation, resident subsidiary companies of parent companies having their seats in Germany had to pay advance corporation tax (‘ACT’) when paying dividends to their parent companies. The subsidiaries concerned were subsequently able to set off the ACT they had paid against the mainstream corporation tax (‘MCT’) for which they were held liable. The parent companies then claimed that they had suffered a loss in the form of a cashflow disadvantage. Such a loss would not have occurred if the parent company had been resident in the UK, as in that situation payment of the ACT could have been avoided by making a group income election. The companies claimed that this was a disadvantage amounting to indirect discrimination on grounds of nationality contrary to the EC Treaty. They demanded that the UK should pay them interest over the period beginning when ACT was paid and ending when MCT was paid.

The Court agreed with the companies that payment of ACT was against Article 52 EC Treaty (Article 43 EC). It also rejected the argument put forward by the UK that by not allowing that country to levy ACT the coherence of its tax system would be in jeopardy. This is essentially a ‘state interests’ argument, to use American terminology: it is in the interest of the UK that in areas where it retained sovereignty (the levying of corporation tax) it can create a coherent system of taxation, which should not be upset by European interests aimed at creating economic integration. The Court ruled as follows:

65. According to the United Kingdom Government, to authorise exemption from ACT where a resident subsidiary pays dividends to its non-resident parent company would mean that the tax exemption afforded to the parent company in respect of the dividends received would not be offset by any tax charged on the payment of those dividends, which would be incompatible with the cohesion of the United Kingdom tax system.

66. That line of argument cannot be upheld.

67. The Court of Justice has, it is true, held that the need to safeguard the cohesion of a tax system may justify rules that are liable to restrict fundamental freedoms (Case C-204/90 Bachmann [1992] ECR I-249 and Case C-300/90 Commission v. Belgium [1992] ECR I-305).

68. That is not, however, the case here.

The Court denied that there was a direct link between the refusal to exempt subsidiaries as in this case from payment of ACT under a group income election and the fact that non-resident parent companies when they receive dividends from their UK subsidiaries are not liable to corporation tax in the UK. This was different in the two cases mentioned in paragraph 67 of the Court’s decision, in which such a direct link had been present.

Then the interest claim as such was considered. The Court stated the problem as follows:

77. Having regard to the answer given to the first question, the second question seeks in substance to ascertain whether, on a proper construction of Article 52 of the Treaty, where a subsidiary resident in the Member State concerned and its parent company having its seat in another Member State have been wrongfully deprived of the benefit of a taxation regime which would have enabled the subsidiary to pay dividends to its parent company without having to pay advance corporation tax, that subsidiary and/or its parent company are/is entitled to obtain a sum equal to the interest accrued on the advance payments made by the subsidiary from the date of those payments until the date on which the tax became chargeable, even when national law prohibits the payment of interest on a principal sum which is not due. The national court frames that question in two hypotheses: in the first alternative, where the claim by the subsidiary and/or parent company is made in an action for restitution of taxes levied in breach of Community law and, in the second, where the claim is made in an action for compensation for damage resulting from the breach of Community law.

First of all, the Court approached this problem from the perspective of unjustified enrichment: Are the companies entitled to reimbursement of the interest accrued on the ACT they paid?

It ruled:

84. According to well-established case-law, the right to a refund of charges levied in a Member State in breach of rules of Community law is the consequence and complement of the rights conferred on individuals by Community provisions as interpreted by the Court . . . The Member State is therefore required in principle to repay charges levied in breach of Community law . . .

85. In the absence of Community rules on the restitution of national charges that have been improperly levied, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, first, that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and, second, that they do not render practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness) . . .

86. It is likewise for national law to settle all ancillary questions relating to the reimbursement of charges improperly levied, such as the payment of interest, including the rate of interest and the date from which it must be calculated . . .

87. In the main proceedings, however, the claim for payment of interest covering the cost of loss of the use of the sums paid by way of ACT is not ancillary, but is the very objective sought by the plaintiffs’ actions in the main proceedings. In such circumstances, where the breach of Community law arises, not from the payment of the tax itself but from its being levied prematurely, the award of interest represents the reimbursement of that which was improperly paid and would appear to be essential in restoring the equal treatment guaranteed by Article 52 of the Treaty.

88. The national court [The High Court of Justice of England and Wales, JvE] has said that it is in dispute whether English law provides for restitution in respect of damage arising from loss of the use of sums of money where no principal sum is due. It must be stressed that in an action for restitution the principal sum due is none other than the amount of interest which would have been generated by the sum, use of which was lost as a result of the premature levy of the tax.

The Court then decided that under Article 52 EC Treaty the companies could claim interest. It then approached the same problem from the perspective of state liability: Are the companies entitled to payment of damages in a sum equal to the interest accrued?

The Court ruled as follows:

91. In that regard, as the Court has already held in paragraph 87 of its judgment in Brasserie du Pêcheur and Factortame [Joined Cases C-46/93 and C-48/93 [1996] ECR I-1029, JvE], . . . , total exclusion of loss of profit as a head of damage for which reparation may be awarded cannot be accepted in the case of a breach of Community law since, especially in the context of economic or commercial litigation, such a total exclusion of loss of profit would be such as to make reparation of damage practically impossible.

92. In this regard, the United Kingdom Government’s argument that the plaintiffs could not be awarded interest if they sought compensation in a claim for damages cannot be accepted.

93. Admittedly, the Court ruled in Sutton [Case C-66/95, [1997] ECR I-2163, JvE] that the Community directive at issue in that case conferred only the right to obtain the benefits to which the person concerned would have been entitled in the absence of discrimination and that the payment of interest on arrears of benefits could not be regarded as an essential component of the right as so defined. However, in the present cases, it is precisely the interest itself which represents what would have been available to the plaintiffs, had it not been for the inequality of treatment, and which constitutes the essential component of the right conferred on them.

94. Moreover, in paragraphs 23 to 25 of Sutton, the Court distinguished the circumstances of that case from those of Case C-271/91 Marshall [1993] ECR I-4367 (Marshall II). In the latter case, which concerned the award of interest on amounts payable by way of reparation for loss and damage sustained as a result of discriminatory dismissal, the Court ruled that full compensation for the loss and damage sustained cannot leave out of account factors, such as the effluxion of time, which may in fact reduce its value, and that the award of interest is an essential component of compensation for the purposes of restoring real equality of treatment (Marshall II, cited above, paragraphs 24 to 32). The award of interest was held in that case to be an essential component of the compensation which Community law required to be paid in the event of discriminatory dismissal.

95. In circumstances such as those in the cases in the main proceedings, the award of interest would therefore seem to be essential if the damage caused by the breach of Article 52 of the Treaty is to be repaired.

So the interest could also be claimed as damages resulting from state liability.

From the viewpoint of private law generally this ruling is highly important, as it tends to equalise payment of interest on the basis of restitution with payment of interest on the basis of damages. It is, however, outside the purpose of this report, which is aimed at comparing US Supreme Court case law with ECJ case law, to discuss this substantive law point further.

To conclude this report, I would like to make some comparisons between the case law concerning federal common law developed by the US Supreme Court and cases creating European private law by the ECJ. It has become clear that both courts are not led by an overriding doctrine of integrationism. Both the US federal Supreme Court and the ECJ express continuously that they are bound by the founding documents of the US and the EU respectively, which lay down that both forms of regional integration are based upon the idea of a divided power system. The US is such a system in the form of a federation, and the European Community in the form of an ‘autonomous legal order’.⁽¹²¹⁾ Still it seems that the US Supreme Court is less inclined to follow earlier established principles than the ECJ. The US cases give the impression of ad hoc decisions, very much in line with American legal reasoning generally, which tends to be pragmatic and result oriented. The only leading principle, so it seems, to which the Supreme Court still adheres is that there is no general federal common law. This makes it difficult to analyse the US cases. The impression is created that a coherent system of leading principles is lacking and that only so-called ‘policy-weighing factors’ can be formulated. As a consequence, the predictive value of such an analysis is limited.

Trying to find the relevant policy-weighing factors is exactly what M.A. Field attempted to do in a study in which she tried to rationalise the US cases.⁽¹²²⁾ She begins by pointing out that the traditional analysis distinguishes two stages. First of all, the question whether the Court has the power to create federal common law and, secondly, whether, given competing federal and state interests, a choice should be made as a matter of policy for a federal rule.⁽¹²³⁾ If the Supreme Court decides that it does not have the power to create federal common law, state law applies. In such a case, state courts give final decisions as to the interpretation of state law, as was decided in Murdoch v. Memphis,⁽¹²⁴⁾ and the US Supreme Court will not interfere. If, on the contrary, the Supreme Court decides that it does have the power to create federal law, but refrains from making such a rule, state law still applies. In this case, state law does not apply of its own force, but has become federal in nature, as it is replacing a common federal rule.

According to Field’s analysis, it is only feasible to look for a starting point from which a rationalisation effort can be made regarding the demarcation line between state and federal law. From this starting point, a list of policy-weighing factors can be given. This starting point is that the federal government is a government of limited powers: ‘[T]he primary limit on power to make federal common law is that there must be a source of authority for any given federal common law rule.’⁽¹²⁵⁾ As to the discretion whether to make federal common law, Field distinguishes the following factors:⁽¹²⁶⁾ (1) a need for national uniformity, (2) whether the US is a party to the dispute, (3) developed state law and intrastate uniformity (the first argues against a federal rule, the second, in favour) and (4) feasibility (why should a federal court, e.g., devise a period of limitation if state law is clear on that point?). Field adds: ‘The need for national uniformity, including the protection of federal interests on a nationwide scale, . . . explains most decisions to create a federal common law rule.’⁽¹²⁷⁾

As to the situation in Europe, it is evident that the ECJ is creating European private law only where it has the authority to do this based upon the European treaties, so within the limitations set by those treaties. At the same time, the Court takes great care not to upset the delicate balance between the courts of the Member States and itself, also given that – unlike in the US – the EU does not have a complete dual court structure. If the Court has the authority to decide a case, it will do so in cases which involve directly the interpretation of the treaties or European legislation. If it concerns a matter of protecting European citizens against the consequences of a violation of the treaties or, e.g., directives, then the Court is inclined to leave protection of those rights (including their private law aspects) to national law, though within certain outer limits which are rooted in European law. The Court must have the confidence that Member States’ law will give adequate (i.e. equivalent to purely domestic cases as well as effective) protection to both citizens from that Member State and other European citizens. If, however, the ECJ decides to create European private law itself, the Court will do so in an autonomous way to avoid the impression that it favours one (national) solution over the other.⁽¹²⁸⁾ Furthermore, the Court will take into account what in American terminology would be called ‘state interests’: the cohesion of a tax system (see the Metallgesellschaft case⁽¹²⁹⁾) or the clarity and transparency of a mortgage system, as the Court recognised in the Trummer and Mayer case.⁽¹³⁰⁾

To summarise the European approach, it can be said that the ECJ will first decide whether it has the authority to create European private law. In Europe, as in the US, the principle of limited powers applies, i.e. the ‘principle embodied in Article 3b of the EC Treaty (now Article 5 EC)’ that ‘the powers of the Community are limited to those specifically conferred on it’.⁽¹³¹⁾ This applies, of course, also to the power of the Court. Only after examination of its own authority under the EC Treaty can the Court decide if it will create a substantive rule of private law itself or leave the matter to the courts of the Member States, be it within certain limits. As such, this approach is not different from the common analysis of the US federal common law cases, where also a two-pronged test is used. In the first stage, a decision is made as to the authority to rule on the matter and whether federal law should govern. In the second stage, the question is answered whether a uniform federal rule is needed. If not, state law applies, though not of its own force, but as a rule of federal law.

The application of state law as a rule of federal law can also be seen in European state liability and unjustified enrichment cases: The law of the Member States applies, but within the limits set by the ECJ in the light of the European treaties. In other words, the law of the Member States does not apply by its own force, but by force of the European treaties. It does not really matter that the various laws of the Member States differ: diversity is not a problem, as long as all Member States give all European citizens the same adequate minimum protection when it comes to the enforcement of community rights.

In several respects, US law and European law show close resemblances in the area which I discussed in this report. European law and US law do, however, sometimes follow different paths, as the two systems of regional integration differ not only in regard to their history and legal basis, but also in regard to the prevailing legal cultures. This explains why the US federal common law cases give the impression that they are less principled than the European cases establishing European private law. European case law is heavily influenced by continental-European, code-based, legal reasoning. In such a climate, there is a clear desire to create a coherent system of principles and rules, which is then taken as a starting point for future cases. Comparative law, particularly transatlantic comparisons, may nevertheless be extremely relevant here: each time the ECJ has to make a first choice as to which principle to apply or as to the further elaboration of an existing principle, US experience shows that the establishment of uniform rules should not be an aim in itself, but the result of balancing European and Member States’ (national) interests. The Member States did not completely surrender their sovereignty as to private law matters. They work together in a Union and a Community aimed at creating a common (internal) market and establishing the four freedoms, though within the limits laid down in the European treaties. Private law, including case law, remains national law, unless it is vital for the creation of the common market and the establishment of the four freedoms that uniform European law exists. This is what the principles of subsidiarity and proportionality are all about and the case law of the ECJ makes this clear: European private case law is the exception, not the rule.

1. Consultative report for the Netherlands Comparative Law Association (2001).

2. This report is in part a pre-publication of my draft book Common Ground for a Common Law. I would like to thank Richard Buxbaum and Jim Gordley (University of California, Berkeley), Walter van Gerven (Leuven University and Maastricht University) and Bruno de Witte (European University Institute, Florence, and Maastricht University) for their helpful insights while I was doing research for my book and for this report. I am also grateful to the law school of the University of California, Berkeley, and the law faculty of the European University Institute, Florence, for allowing me to use their library facilities.

3. G. van Hecke, ‘Intégration économique et unification du droit privé’, in: De conflictu legum: Essays Presented to R.D. Kollewijn and J. Offerhaus, special issue of the Nederlands Tijdschrift voor Internationaal Recht (Netherlands International Law Review) (Leyden: A.W. Sijthoff, 1962), pp. 198 ff.

4. J.H.M. van Erp, ‘Europees privaatrecht in ontwikkeling?’, in: A.A. Franken et al. (eds.), Themis en Europa: Een opening van nieuwe grenzen (Zwolle: Tjeenk Willink, 1989), pp. 61 ff.

5. COM (2001) 398 final, Brussels, 11.07.2001; see also the Commission report to the European Council: ‘Better Lawmaking 2000 (pursuant to Article 9 of the Protocol to the EC Treaty on the application of the principles of subsidiarity and proportionality)’, COM (2000) 772 final, 30.11.2000, as well as the interim report from the Commission to the Stockholm European Council: ‘Improving and Simplifying the Regulatory Environment’, COM (2001) 130 final, Brussels 7.3.2001.

6. See the various contributions to Part I, General Issues, in: A. Hartkamp et al. (eds.), Towards a European Civil Code (Nijmegen/The Hague [etc.]: Ars Aequi Libri/Kluwer Law International, 1998), especially F. de Ly, ‘Lex Mercatoria and Unification of Law in the European Union’ (pp. 41 ff.), R. Hyland, ‘The American Restatements and the Uniform Commercial Code’ (pp. 55 ff.) and W. van Gerven, ‘The ECJ Case-Law as a Means of Unification of Private Law?’ (pp. 91 ff.).

7. J.H.M. van Erp, Europees privaatrecht: Postmoderne dilemma’s en keuzen. Naar een methode van adequate rechtsvergelijking (inaugural lecture Maastricht University 1998), also published in English: European Private Law: Postmodern Dilemmas and Choices. Towards a Method of Adequate Comparative Legal Analysis, vol 3.1 ELECTRONIC JOURNAL OF COMPARATIVE LAW, (August 1999), <http://www.ejcl.org/31/art31-1.html>

8. See note 7. Cf. also U. Mattei and A. di Robilant, ‘The Art and Science of Critical Scholarship: Postmodernism and International Style in the Legal Architecture of Europe’, 75 Tulane Law Review (2001), 1053.

9. See, e.g., W.J. Feld and E.E. Slotnick, ‘"Marshalling" the European Community Court: A Comparative Study in Judicial Integration’, 25 Emory Law Journal (1976), 317.

10. See, e.g., M. Cappelletti, Integration through Law: Europe and the American Federal Experience, European University Institute, Series A, Law 2, Volume 1, book 1, Methods, Tools, and Institutions: A Political, Legal and Economic Overview (Berlin/New York: De Gruyter, 1985).

11. See, e.g., Council Regulation (EC) 1346/2000 on insolvency [2000] OJ L 160/1.

12. H. Gaudemet-Tallon, ‘Droit privé et droit communautaire: Quelques réflexions, 437 Revue du Marché commun et de l’Union européenne (2000), 228.

13. Southern Pac. Co. v. Jensen, 244 US 205, 37 S Ct 524, 61 L Ed 1086 (1917); 244 US, 222 (Holmes J. dissenting).

14. Cf. J. Israël, ‘Europees internationaal privaatrecht: De EG, een Comitas Europaea en "vrijheid, veiligheid en rechtvaardigheid"’, Nederlands Tijdschrift voor Internationaal Privaatrecht (2001), 135, applying the notion of comitas to private international law.

15. Cf. 28 USC 1332.

16. The development towards uniform federal rules of civil procedure is much more complicated than I can describe here. For further analysis see R.H. Fallon, Jr., D.J. Meltzer and D.L. Shapiro, Hart and Wechsler’s The Federal Courts and the Federal System (Westbury, NY: The Foundation Press, 1996, with annual supplements), pp. 556 ff., discussing the law applied in civil actions in district courts. See also M.K. Kayne, ‘The Golden Wedding Year: Erie Railroad Company v. Tompkins and the Federal Rules’, 63 Notre Dame Law Review (1988), 671.

17. 28 USC Section 2072.

18. The rules are published in 28 USC.

19. W.A. Fletcher, ‘The General Common Law and Section 34 of the Judiciary Act of 1789: The Example of Marine Insurance’, 97 Harvard Law Review (1984), 1513, p. 1529.

20. See for an overview of federal common law Fallon, Meltzer and Shapiro, Hart and Wechsler’s The Federal Courts and the Federal System, pp. 744 ff.

21. Cf. what is mentioned below as to the restrictive interpretation by the US Supreme Court of the Commerce Clause in the US Constitution. See also Murdock v. City of Memphis 87 US 590, 20 Wall. 590, 22 L Ed 429 (1875), in which the US Supreme Court decided that cases coming to the Court from state courts would be reviewed on a limited basis, i.e. only as to the federal questions which were raised and decided in cases under review.

22. Cf. for a thorough discussion of the role of the English common law in the early stages of American law, the dissenting opinion of Souter J. in Seminole Tribe of Florida v. Florida, 517 US 44, 116 S Ct 1114, 134 L Ed 2d 252 (1996).

23. See for further analysis of this approach in the area of marine insurance: Fletcher, ‘General Common Law’.

24. 3 Sumn 220, 20 Fed Cas, p. 1002 (1838).

25. Fed Cas, p. 1004.

26. (1777) 2 Cowp 565.

27. Ibid., p. 567.

28. 41 US (16 Pet.) 1, 10 L Ed 865.

29. 10 L Ed, 871.

30. 181 US 92, 45 L Ed 765, 21 S Ct 561.

31. 181 US pp. 94-5.

32. Ibid., pp. 100-101.

33. Ibid., p. 103.

34. See, however, Southern Pacific Co. v. Jensen, 244 US 205, 37 S Ct 524, 61 L Ed 1086. In this case, a majority of the Supreme Court decided that New York workmen’s compensation law did not apply to a stevedore engaged on an interstate ship in unloading her at wharf in navigable waters in New York. In his dissenting opinion, arguing that state common and statute law sometimes may supplement maritime law, to which on the basis of the Constitution (Article III, Section 2) the federal judicial power extends, Holmes J. makes this remark about Western Union v. Call Publishing Co. (p. 221):

For from the often repeated statement that there is no common law of the United States, Wheaton v. Peters . . .; Western Union Telegraph Co. v. Call Publishing Co. . . . and from the principles recognized in Atlantic Transport Co. v. Imbrovek having been unknown to the maritime law, the natural inference is that in the silence of Congress this court has believed the very limited law of the sea to be supplemented here as in England by the common law, and that here that means, by the common law of the State.

Holmes J. then adds one of his famous aphorisms (p. 222): ‘The common law is not a brooding omnipresence in the sky but the articulate voice of some sovereign or quasi-sovereign that can be identified. . .’

I should add that even if no common law of the US exists, this does not imply that no common law exists in the several states or that the federal judiciary cannot create federal common law. What Holmes probably means is that a federal, general common law to be shaped by the federal judiciary, not based on state common law, is theoretically impossible. From the viewpoint of legal theory, this is a very formalistic approach. Law can derive its authority from other sources than a sovereign, as is, e.g., the case with fundamental human rights. Above all, federal judges derive their authority directly from the US Constitution.

35. See for a comparable restrictive approach to state legislative power in that period Lochner v. New York, 198 US 45, 25 S Ct 539, 49 L Ed 937 (1905). The more extensive interpretation of the Commerce Clause was adopted in National Labor Relations Board v. Jones & Laughlin Steel Corporation, 301 US 1, 57 S Ct 615, 81 L Ed 893 (1937). For the historical background of the New Deal cases, see W.E. Leuchtenburg, Franklin D. Roosevelt and the New Deal,1932-1940 (New York: Harper & Row, 1963), pp. 232 ff.

36. 304 US 64, 58 S Ct 817, 82 L Ed, 1188.

37. L Ed, p. 1190.

38. Ibid., p. 1193. Brandeis also referred (p. 1191) to an article by Charles Warren, ‘New Light on the History of the Federal Judiciary Act of 1789’, 37 Harvard Law Review (1923), 49, in which Warren defended that the original draft of the Act made it clear that Swift v. Tyson was an erroneous interpretation of the Act’s original meaning.

39. Ibid., p. 1194.

40. 313 US 487, 61 S Ct 1020, 85 L Ed 1477.

41. 85 L Ed 1480.

42. 318 US 363, 63 S Ct 573, 87 L Ed 838.

43. 87 L Ed, p. 841 (Douglas J.).

44. Ibid., p. 842.

45. 332 US 301, 67 S Ct 1604, 91 L Ed 2067.

46. 332 US, p. 307.

47. Ibid., p. 309.

48. 353 US 448, 77 S Ct 912, 1 L Ed 2d 972.

49. 1 L Ed 2d, pp. 980-81.

50. 376 US 398, 84 S Ct 923, 11 L Ed 2d 804.

51. 11 L Ed 2d, p. 822.

52. 384 US 63, 86 S Ct 1301, 16 L Ed 2d 369.

53. 384 US, p. 68.

54. 617 F 2d 1112 (1980), cert. denied 450 US 936, 67 L Ed 2d 372, 101 S Ct 1403. The case concerned the exercise of eminent domain by a licensee of the Federal Energy Regulatory Commission under the Federal Power Act.

55. 617 F 2d, pp. 1115-16. The reference to the Rules of Decision Act is, in essence, a reference to Section 34 of the Judiciary Act 1789.

56. 403 US 388, 91 S Ct 1999, 29 L Ed 2d 619.

57. 403 US, p. 392.

58. 510 US 471, 144 S Ct 996, 127 L Ed 2d 308, 1994 US Lexis 1866 (1994).

59. Thomas J. for a unanimous Court, US Lexis, pp. 28-9.

60. 441 US 471, 99 S Ct 1831, 60 L Ed 2d 404.

61. 60 L Ed 2d, p. 411.

62. Ibid., p. 412.

63. Ibid.

64. 451 US 630, 101 Sct 2061, 68 L Ed 2d 500.

65. 451 US, p. 640.

66. 456 US 336, 102 S Ct 1815, 72 L Ed 2d 114.

67. The Interstate Commerce Commission was abolished by Section 101 of Pub. L. 104-88 (ICC Termination Act), effective 1 January 1996. It was replaced by the Surface Transportation Board (USC Title 49, Sections 701 ff.).

68. 491 US 1, 109 S Ct 2273, 105 L Ed 2d 1.

69. United States v. Alfonso Lopez, Jr., 514 US 549, 115 S Ct 1624, 131 L Ed 2d 626 (1995). Lopez, a 12th-grade student, had carried a concealed handgun into his high school. He was then charged with violating the Gun-Free School Zones Act, a federal statute. During the proceedings, the constitutionality of the Act was denied by Lopez. The Supreme Court agreed with him that the Commerce Clause did not give Congress the power to legislate this area.

70. 517 US 44, 116 S Ct 1114, 134 L Ed 2d 252 (1996). In this case, the Supreme Court ruled that a federal statute, allowing a private citizen to sue a state before a federal court for violation of a federal statute, could not abrogate a state’s sovereign immunity.

71. Nevertheless, notable exceptions are made, such as the case of George W. Bush, et al., Petitioners v. Albert Gore, Jr., et al., docket number 00-949 (to be found electronically at several web sites, such as: http://www.law.cornell.edu).

72. 491 US, pp. 20-1.

73. 360 F 2d 674.

74. Ibid., p. 676. See also his Cardozo lecture delivered before the Association of the Bar of the City of New York, 1964, entitled In Praise of Erie – and of the New Federal Common Law (New York: The Association of the Bar of the City of New York, 1964).

75. 440 US 715, 99 S Ct 1448, 59 L Ed 2d 711.

76. 59 L Ed 2d, p. 724-5.

77. 59 L Ed 2d, p. 729.

78. Ibid., fn. 37 of the judgment.

79. Ibid.

80. Fn. 42 of the judgment.

81. Recent case law by the ECJ (from mid-1997 onwards) is available at the Court’s web site: <http://curia.eu.int/en/jurisp/index.htm>

82. See Articles 28 and 29 EC.

83. I refer to the Communication from the Commission to the Council and the European Parliament on European Contract Law, COM(2001) 398 final (Brussels, 11.07.2001), to be found on the Internet: <http://www.europa.eu.int/comm/consumers/ policy/developments/contract_law/index_en.html> and to the working paper presented to the European Parliament The Private Law Systems in the EU: Discrimination on Grounds of Nationality and the Need for a European Civil Code, Legal Affairs Series, JURI 103 EN (06-2000), to be found at <http://www.europarl.eu.int/workingpapers/juri/pdf/103%5Fen.pdf>

84. One should not forget that the ECJ also plays a leading role in the interpretation of the Brussels Judgment Convention (Convention of 27 September 1968, OJ 1978 L 304, pp. 36 ff., as later amended). Although this is a treaty in the area of private international law, its interpretation frequently touches upon basic private law concepts. See, e.g., recently Richard Gaillard v. Alaya Chekeli (Case C-518/99) in which the concept of ‘right in rem’ (again) was analysed.

85. OJ 1993 L 95, pp. 29 ff.

86. Judgment of the Court, para. 29.

87. Cf. S. Weatherhill and P. Beaumont, EU law: The Essential Guide to the Legal Workings of the European Union (London: Penguin Books, 1999), p. 357 ff.; T. Tridimas, The General Principles of EC Law (Oxford: Oxford University Press, 1999), p. 313 ff.

88. See W. van Gerven, J. Lever and P. Larouche, Tort Law: Cases, Materials and Text on National, Supranational and International Tort Law (Oxford/Portland: Hart Publishing, 2000; Ius Commune Casebooks for the Common Law of Europe), pp. 889 ff., discussing among other topics the impact of the case law of the ECJ. Cf. also Laboratoires Pharmaceutiques Bergaderm SA v. Commission of the European Communities, Case C-352/98. The Court ruled as follows (para. 41 of its decision):

The Court has stated that the conditions under which the State may incur liability for damage caused to individuals by a breach of Community law cannot, in the absence of particular justification, differ from those governing liability of the Community in like circumstances. The protection of the rights which individuals derive from Community law cannot vary depending on whether a national authority or a Community authority is responsible for the damage.

The Court then referred to the Brasserie du Pêcheur and Factortame cases, which I will discuss below.

89. See his articles ‘The Case-Law of the European Court of Justice and National Courts as a Contribution to the Europeanisation of Private Law’, 3 European Review of Private Law (1995), 367; ‘European Court of Justice Case Law as a Means of Unification of Private Law?’, 20 Fordham International Law Journal (1997) 680; ‘The ECJ Case-Law as a Means of Unification of Private Law?’, in: Hartkamp et al., Towards a European Civil Code, pp. 91 ff. An early study as to the role of the ECJ’s case law in the political integration process is A.W. Green, Political Integration by Jurisprudence: The Work of the Court of Justice of the European Communities in European Political Integration (Leyden: Sijthoff, 1969).

90. Van Gerven, Case-Law of the European Court of Justice, p. 376.

91. U. Drobnig and J.H.M. van Erp, The Use of Comparative Law by Courts: XIVth International Congress of Comparative Law, Athens 1997 (The Hague/London/Boston: Kluwer Law International, 1999).

92. Article 81 (2) EC: ‘Any agreements or decisions prohibited pursuant to this Article shall be automatically void.’

93. For this topic I refer to a forthcoming article by W. van Gerven, presented at the European Competition Law workshop (European University Institute, 2001), entitled ‘Substantive Remedies for the Private Enforcement of EC Antitrust Rules before National Courts’. The author kindly gave me permission to use his article while I was writing this report.

In his article, Van Gerven refers to a case then pending before the ECJ (Courage v. Crehan, Case C-453/99), which should be mentioned here. This case raises the question whether a void exclusive dealing agreement (because of infringement of Article 81 EC) can lead to a claim for damages by the ‘innocent’ party (the party that had no alternative but to accept the agreement) against the imposing party. The Court decided this case on 20 September 2001. It stated:

1. A party to a contract liable to restrict or distort competition within the meaning of Article 85 of the EC Treaty (now Article 81 EC) can rely on the breach of that provision to obtain relief from the other contracting party.

2. Article 85 of the Treaty precludes a rule of national law under which a party to a contract liable to restrict or distort competition within the meaning of that provision is barred from claiming damages for loss caused by performance of that contract on the sole ground that the claimant is a party to that contract.

3. Community law does not preclude a rule of national law barring a party to a contract liable to restrict or distort competition from relying on his own unlawful actions to obtain damages where it is established that that party bears significant responsibility for the distortion of competition.

See also Van Gerven, ‘Case-Law of the European Court of Justice’, p. 369, and W. van Gerven, ‘European Court of Justice Case Law’, p. 689.

94. See Tridimas, General Principles of EC Law, pp. 279 ff.

95. [1976] ECR 1989 (especially para. 5).

96. [1976] ECR 2043 (especially paras. 12-16).

97. Joined Cases C-6/90 and 9/90, [1991] ECR I-5357.

98. Van Gend & Loos v. Nederlandse Administratie der Belastingen, Case 26/62 [1963] ECR 1.

99. Case 6/64 [1964] ECR 585.

100. Case C-91/92, [1994] ECR I-3325.

101. Marshall v. Southampton Area Health Authority, Case 152/84, [1986] ECR 723.

102. Joined Cases C-46/93 and C-48/93 [1996] ECR I-1029.

103. Rewe Zentrale AG v. Bundesmonopolverwaltung für Branntwein, Case 120/78 [1979] ECR 649.

104. Case C-192/94, [1996] ECR I-1281.

105. OJ 1987 L42, pp. 48 ff.

106. Case C-5/94, [1996] ECR I-2553.

107. In the Bergaderm case (Case C-352/98), the Court made clear (para. 46) that the ‘general or individual nature of a measure taken by an institution is not a decisive criterion for identifying the limits of the discretion enjoyed by the institution in question’.

108. Joined Cases C-178, 179, 188, 189 and C-190/94, [1996] ECR I-4845.

109. Case 199/82 [1983] ECR 3595.

110. San Giorgio, para. 12.

111. Ibid., para. 14.

112. Joined Cases C-192/95 to C-218/95) [1997] ECR I-165.

113. Comateb, para. 32.

114. Ibid., para. 33.

115. Case C-188/95, [1997] ECR I-6783.

116. Fantask, para. 40.

117. Fantask, para. 48, referring to earlier cases.

118. Case C-343/96, [1999] ECR I-579.

119. Joined Cases C-397/98 and C-410/98.

120. I will quote somewhat more extensively from this case, as the Court gave a clear and succinct summary of its case law as developed so far.

121. See Van Gend en Loos v. Nederlandse Administratie der Belastingen (Case 26/62) [1963] ECR 1; Costa v. ENEL (Case 6/64) [1964] ECR 585.

122. M.A. Field, ‘Sources of Law: The Scope of Federal Common Law’, 99 Harvard Law Review (1986), 881. See for a critical analysis of various attempts to rationalise the case law in this field Fallon, Meltzer and Shapiro, Hart & Wechsler’s The Federal Courts and the Federal System, pp. 752 ff. Such an attempt was also made by L. Weinberg, ‘Federal Common Law’, 83 Northwestern University Law Review (1989), 805, who argues in favour of balancing ‘carefully considered national substantive policy’ (p. 851) with state interests.

123. Field, ‘Sources of Law’, pp. 885 f.

124. 87 US (20 Wall) 590 (1874).

125. Field, ‘Sources of Law’, p. 928.

126. Field, ‘Sources of Law’, pp. 953 ff.

127. Field, ‘Sources of Law’, p. 958.

128. Cf. J. Mertens de Wilmars, ‘Le droit comparé dans la jurisprudence de la Cour de justice des Communautés européennes’, 110 Journal des Tribunaux no. 5575 (1991), 37. The Court is, however, extremely careful not to create European law where it feels that the laws of the Member States still differ too greatly. A good example is D. and Kingdom of Sweden v. Council of the European Union (Joined Staff Cases C-122/99 P and C-125/99 P), in which the Court decided that when interpreting staff regulations it could not rule that a registered partnership between partners of the same sex could be considered to be a ‘marriage’.

129. See on the ‘fiscal cohesion’ argument the opinion by Advocate General Fenelly in the Metallgesellschaft case, paras. 26 ff.; cf. also Bachmann v. Belgium, Case C-204/90 [1992] ECR I-249 and Jessica Safir v. Skattemyndigheten i Dalarnas Län, Case C-118/96, [1998] ECR I-1897.

130. Case C-222/97, [1999] ECR I-1661. The case concerned the question whether a national rule which did not allow creating a mortgage referring to non-national currency violated the EC Treaty. The Court decided that such a rule violated the freedom of capital.

131. Federal Republic of Germany v. European Parliament and Council of the European Union (the tobacco directive case), Case C-376/98, para. 83.