Judgments - Three Rivers District Council and Others (Original Appellants and Cross-Respondents) v. Governor and Company of The Bank of England (Original Respondents and Cross-Appellants)

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    Clarke J. [1996] 3 All E.R. 558, 602A held, contrary to the submissions which Mr. Stadlen Q.C. for the Bank had made to him, that an important underlying purpose of the Banking Acts 1979 and 1987 was to protect savers, including both existing savers and future savers, and that the same was true of the Directive of 1977. But he went on to say at p. 602B that this was not enough to impose any obligation on the Bank which gave rise to a right in the savers to claim damages for a breach of it. Having examined the terms of the Directive, he held at p. 614J that it was not intended to confer rights upon savers, even although the underlying purpose of supervision of credit institutions was to be for their benefit. In the Court of Appeal [2000] 2 W.L.R. 15, 82F the majority understood the Bank's position to be that it did not dispute that one of the Directive's purposes was the protection of depositors. Auld L.J., at p. 110H, put the matter in this way:

    "It is plain that one of the purposes of the Directive was the protection of depositors. The plaintiffs say it was the main purpose. The Bank, to the extent that it recognises it as a purpose of the Directive at all, says it was subsidiary to that of beginning the process of harmonisation. As I have mentioned, the judge regarded it as an important underlying purpose."

    It was suggested by the appellants in the course of the hearing before your Lordships that the Bank had changed its position on this point having realised, as Lord Neill put it, that once the concession was made that one of the purposes of the Directive was the protection of depositors it was on a slippery slope from which it now wished to extricate itself. In my view however the position which the Bank has adopted both in its written case and in the oral argument advanced on its behalf by Mr. Lasok is based upon a more substantial argument than that which might be thought to have been suggested by that criticism. I am not convinced that there has been, in substance, any change of position on the part of the Bank from its position as Auld L.J. understood it to be. There is however a more important point. The appellants still rely, and take as their starting point on this whole issue, on the proposition that one of the purposes of the Directive was to protect depositors. This is a significant step in the argument which they then advance that the Directive also imposed obligations on the Bank which conferred corresponding rights upon which they are entitled to base their claim of damages. The question which the Bank has raised is not only as to the accuracy of the appellants' description of the purpose of the Directive but also as to its relevance as a starting point to an examination of the articles of the Directive in order to discover what rights, if any, they conferred on depositors.

    The appellants' submission is that it is evident from the legislative background to the Directive, its terms and cases decided by the European Court that a principal purpose of the Directive of 1977 was the protection of depositors. They rely on article 57(2) of the E.E.C. Treaty with reference to which the Directive of 1977 was enacted, on observations in the opinion of the Economic and Social Committee ("E.C.O.S.O.C.") mentioned in the preamble to the Directive, on recitals and articles set out in the Directive and on several decisions of the European Court of which the most important is Société Civile Immobilière Parodi v. Banque H. Albert de Bary et Cie (Case C-222/95) [1997] E.C.R. I-3899.

    I do not think that the appellants derive any assistance from article 57(2) of the E.C.C. Treaty (now, in a revised form, article 47 (2) E.C.). Its relevance is not in doubt. Article 253 E.C. (formerly article 190) requires Community instruments such as Directives to state the reasons on which they are based and to refer to any proposals or opinions which were required to be obtained pursuant to the Treaty. The duty to give reasons will normally require specification of the Treaty article on which the measure was based: Craig and de Búrca, E.U. Law 2nd ed. (1998), p. 120. In Commission of the European Communities v. Council of the European Communities (Case 45/86) [1987] E.C.R. 1493(the Tariff Preferences case) a Council measure was annulled in part by the European Court because the legal basis of the measure had not been specified. In this case the only article of the Treaty which is referred to by the Directive of 1977 is article 57. This is one of a group of articles which appear in Title III (Free Movement of Persons, Services and Capital), Chapter 2 (Right of Establishment) of the Treaty. Paragraphs (1) and (2) of article 57, in the terms which were in force in 1977, provided:

    "1. In order to make it easier for persons to take up and pursue activities as self-employed persons, the Council shall, on a proposal from the Commission and after consulting the Assembly, acting unanimously during the first stage and by a qualified majority thereafter, issue Directives for the mutual recognition of diplomas, certificates and other evidence of formal qualifications.

    "2. For the same purpose, the Council shall, before the end of the transitional period, acting on a proposal from the Commission and after consulting the Assembly, issue Directives for the co-ordination of the provisions laid down by law, regulation or administrative action in member states concerning the taking up and pursuit of activities as self-employed persons. Unanimity shall be required on matters which are the subject of legislation in at least one member state and measures concerned with the protection of savings, in particular the granting of credit and the exercise of the banking profession, and with the conditions governing the exercise of the medical and allied, and pharmaceutical professions in the various member states. In other cases, the Council shall act unanimously during the first stage and by a qualified majority thereafter."

    The purpose to which reference is made in the first line of article 57(2) is that of the mutual recognition of qualifications which is the subject of article 57(1). The appellants base their argument that a purpose of the Directive was to protect "savers" on the reference to the protection of "savings" in the second sentence of article 57(2). But this reference appears in provisions which laid down those matters in regard to which proposals were to be dealt with unanimously and those which could be dealt with by qualified majority. The granting of credit and the exercise of the banking profession are taken as two examples of "measures concerned with savings." This seems to me to be no more than a recognition that an ability to protect savings is one of the qualifications which member states will normally require those who wish to grant credit or exercise the banking profession to satisfy. Recognition that this was so, that such measures would need to be co-ordinated throughout member states and the making of provision for the voting formula to be adopted in regard to such matters is one thing. A purpose to direct that provision must be made for the protection of savers and depositors under Community law over and above the protections available under the national law of each member state is quite another. I do not find anything in the wording of the article as a whole to suggest that the protection of individual depositors and potential depositors against loss could be regarded as a purpose for which Directives were to be issued under it.

    In Federal Republic of Germany v. European Parliament and Council of the European Union (Case C-233/94) [1997] E.C.R. I-2405 the European Court made certain observations about article 57(2) of the Treaty. This was in the context of a challenge to the Deposit Guarantee Scheme Directive 94/19/E.E.C. by Germany on the ground that, contrary to its preamble, article 57 could not constitute the sole legal basis for the Directive as it did not merely regulate banking operations but was aimed at increasing protection for consumers. The fact that the court rejected this challenge might seem at first sight to provide support for the view that the protection of consumers was a purpose for which Directives could be issued under article 57. But the background to the Directive is important to a proper understanding of the reason why the challenge to its legal base did not succeed. The court had held in earlier cases that member states were entitled in certain circumstances to adopt or maintain measures which were justified on public interest grounds, such as the protection of consumers, which constituted an obstacle to free movement within the Community: p. I-2450, paras. 16 and 17. At p. I-2456, para. 41 the court said that article 57(2) of the Treaty authorised the Parliament and the Council to issue Directives with a view to abolishing obstacles of this kind. It was apparent that such an obstacle was to be found in the fundamental differences between the deposit-guarantee systems existing in the various member states, so the laws on those systems were to be harmonised in order to facilitate the activity of credit institutions at Community level. At p. I-2459, para. 48 the court held that there had to be a high level of consumer protection concomitantly with the right of establishment and the freedom to provide services which the Directive aimed to promote. It referred to "the general result" which the Directive sought to achieve, which was a considerable improvement in the protection of depositors within the Community. In that particular context it was legitimate for the Directive to adopt measures which would render the domestic measures for the protection of consumers otiose. The special circumstances which led to that decision are absent in this case.

    Consultation with E.C.O.S.O.C. was required by the second paragraph of article 100 of the E.E.C. Treaty (now article 94 E.C.) prior to the issuing of the Directive. But the observations in its opinion on which the appellants rely do not seem to me to advance their argument. In paragraph 1.1.3 the point was made that "the lack of harmonisation of member states' legislation, whose main purpose in each country is to provide security for depositors and to protect savings, is liable to create serious disparities with regard to that objective, indeed even certain dangers." In paragraph 1.4.1 it was stated that the ultimate aim was to harmonise the authorisation requirements for financial institutions in all the member states. The appellants say, under reference to these and other passages in the opinion that the committee recognised that the main purpose of legislation concerning banking regulation was to provide security for depositors and to protect savings. I am willing to accept that this is so. No doubt the committee recognised that the protection of savings is a necessary part of every system at national level for the regulation of credit institutions whose business it is to receive from the public deposits and other forms of repayable funds. But the point to which it was drawing attention in its opinion was the need for the harmonisation of authorisation requirements, without which there would be likely to be serious disparities between the member states. The Community law purpose which was indicated by its observations was that of the harmonisation of regulatory measures affecting the right of establishment with a view to eliminating these disparities. I do not find any indication here that the committee saw the purpose of the Directive as being to confer Community law rights on individual depositors.

    In the Parodi case [1997] E.C.R. I-3899, p. I-3923, paras. 24-25 the European Court said that the Directive of 1977 was no more than a first step towards the mutual recognition by member states of authorisations issued by each of them to credit institutions, and that it confined itself to imposing a number of minimum conditions on member states. Member states were to be obliged to require authorisation of all credit institutions wishing to commence banking activity within their territory of origin, but this was to be subject to minimum requirements and without prejudice to other conditions of general application laid down by national laws. The question which was raised in that case was whether national legislation requiring authorisation in order to supply banking services was precluded by the Treaty where the bank concerned was already established and authorised in another member state. The court said at p. I-3922 in paragraphs 20-22 of the judgment that, in view of the special nature of certain provisions of services, specific requirements imposed on the provider that were attributable to the application of rules governing that type of activity could not be regarded as incompatible with the Treaty, and that the banking sector was a particularly sensitive area from the point of view of consumer protection. At p. I-3924, para. 26 the following observation was made:

    "It must therefore be accepted that, as Community law stood at the time of the facts in the main proceedings, there were within the banking sector imperative reasons relating to the public interest capable of justifying the imposition by the member state of destination of conditions regarding access to the activity of credit institutions and their supervision which could go beyond the minimum conditions required by the first banking Directive and already implemented in the member state of origin."

    The conclusion in the Parodi case was that member states were entitled to apply their own consumer protection measures in the banking sector, pending the entry into force of the measures in the Second Council Directive 89/646/E.E.C. on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending the Directive of 1977 which rendered the national measures otiose. The appellants rely on the observations in the judgment about the need to protect consumers in the banking sector in support of their argument as to the purpose of the Directive of 1977. But, as I read these observations, they were made, not with reference to the purpose of the Directive of 1977, but in order to justify the application of national measures by a member state during the period prior to the entry into force of the Directive of 1989. The purpose of the Directive of 1977 was to begin the process of harmonisation of national laws so as to remove barriers to the provision of banking services throughout the single market, but without weakening or impairing the protection of depositors. The protection of depositors was seen therefore not as a purpose of the Directive but as a constraint on the provision of banking services to the public which had to be recognised.

    In Criminal Proceedings against Romanellii (Case C-366/97) [1999] All E.R. (E.C.) 473, 479, para. 12. the Court said that it was clear from the Directive of 1977 and the Directive of 1989 that the protection of savings constituted one of the objectives of the measures taken to co-ordinate credit institutions. Here again, taken in its context, this observation seems to me to do no more than recognise the point already made in the Parodi case [1997] E.C.R. I- 3899, I-3922, para. 21 that, as a matter of fundamental principle, restrictions on the freedom to provide services under the Treaty must be justified by imperative reasons in the public interest which are objectively necessary to guarantee the protection of the recipient of services and which do not exceed what is necessary to attain these objectives. I do not find in these observations support for the argument that a purpose of the Directive of 1977 was to promote or protect the interests of individual depositors.

    In my opinion the question whether the Directive of 1977 granted rights to individual depositors and potential depositors must be answered by examining the recitals and the articles of the Directive itself without any pre-conception as to its purpose based upon these extrinsic materials.

The recitals and articles of the Directive of 1977

    The Directive of 1977 contains fifteen recitals and fifteen articles. The appellants rely in particular on the third, fourth, fifth and twelfth recitals and on articles 3, 6, 7 and 8. Article 3 is relevant to their allegation that the Bank acted contrary to the Directive when it granted a full licence to B.C.C.I. S.A. to carry on business as a deposit-taker. Articles 6 and 7 are relevant to their allegation that it failed in its duty under the Directive to supervise B.C.C.I. S.A. and B.C.C.I. Overseas. Article 8 is relevant to their allegation that it had a duty under the Directive to revoke the licence which it had granted to B.C.C.I. S.A. But it is necessary to have regard to some of the other recitals and articles in order to understand the overall effect of the Directive. The question in the case of each of the allegations against the Bank is whether, in terms of the conditions for Becker-type liability which were applied to Francovich-type liability in paragraph 22 of the Dillenkoffer case [1997] Q.B. 259, 292:

    "the result prescribed by the Directive entails the grant of rights to individuals, the content of those rights is identifiable on the basis of the provisions of the Directive and a causal link exists between the breach of the state's obligation and the loss and damage suffered by the injured parties."

    As Lord Neill pointed out, the appellants do not need to show that depositors were the only persons in whose favour obligations were imposed or on whom rights were conferred by the Directive. But in order to satisfy the Dillenkoffer conditions they must be able to demonstrate that the result to be achieved by the Directive entailed the grant of rights to depositors and potential depositors as well as to the credit institutions operating in several member states whose activities were to be authorised and supervised by the competent authorities. A triangular or tripartite relationship is implied by this argument, between the competent authorities and the credit institutions on the one hand and the competent authorities and the depositors on the other. It is not too difficult to see, as the majority in the Court of Appeal observed [2000] 2 W.L.R. 15, 84G that the Directive conferred rights on the credit institutions which were affected by it. What the appellants have to do is to show that third parties to these arrangements, depositors and potential depositors, were also granted rights by the Directive on the application to its terms of the Dillenkoffer test.

    The first two recitals record the fact that the Treaty prohibited any discriminatory treatment from the end of the transitional period and that, in order to make it easier to take up and pursue the business of credit institutions, it was necessary to eliminate the most obstructive differences between the laws of the member states as to the rules to which these institutions were subject. The third, fourth and fifth recitals are in these terms:

    "Whereas, however, given the extent of these differences, the conditions required for a common market for credit institutions cannot be created by means of a single Directive; whereas it is therefore necessary to proceed by successive stages; whereas the result of this process should be to provide for overall supervision of a credit institution operating in several member states by the competent authorities in the member state where it has its head office, in consultation, as appropriate, with the competent authorities of the other member states concerned;

    "Whereas measures to co-ordinate credit institutions must, both in order to protect savings and to create equal conditions of competition between these institutions, apply to all of them; whereas due regard must be had, where applicable, to the objective differences in their statutes and their proper aims as laid down by national law;

    "Whereas the scope of these measures should therefore be as broad as possible, covering all institutions whose business is to receive repayable funds from the public whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities and to grant credits for their own account; whereas exceptions must be provided for in the case of certain credit institutions to which this Directive cannot apply."

    The appellants rely upon the reference to the overall supervision of credit institutions in the third recital, upon the phrase "in order to protect savings" in the fourth recital and the reference in the fifth recital to the receipt of repayable funds from the public as indications that it was a purpose of the Directive to protect depositors. Taken in their context however these recitals seem to me to show that the Directive had a quite different purpose. This was, as the first step in a process which would have to proceed by successive stages, to co-ordinate the conditions for the supervision of all institutions of the kind mentioned in the fifth recital operating in several member states, bearing in mind the need for the co-ordinating measures to protect savings on the one hand and for them to create equal conditions of competition on the other.

    The sixth to ninth recitals declare that the eventual aim of the harmonisation process was to introduce uniform authorisation requirements throughout the Community for comparable types of credit institution and that, while at the initial stage it was necessary to specify only certain minimum requirements to be imposed by all member states, the eventual aim could be achieved only if the particularly wide discretionary powers which certain supervisory authorities had for authorising credit establishments were progressively reduced. The tenth and eleventh recitals state that the purpose of co-ordination was to achieve a system whereby credit institutions having their head office in one of the member states were exempt from any national authorisation requirement when setting up branches in other member states, but that a measure of flexibility might nonetheless be possible in the initial stage. The twelfth recital, which explains the means by which the gradual approximation of the systems for the monitoring of solvency and liquidity of credit institutions established by the member states was to be brought about, begins with this proposition on which the appellants rely:

    "Whereas equivalent financial requirements for credit institutions will be necessary to ensure similar safeguards for savers and fair conditions of competition between comparable groups of credit institutions; …"

Here again however the point being made with regard to safeguards for savers and fair conditions of competition between institutions seems to me to be directed to the two requirements which the measures of co-ordination which the Directive was to lay down would have to satisfy, bearing in mind the fact that these measures would to some degree restrict the fundamental principle of freedom of establishment. Nothing turns on the wording of the remaining three recitals.

    The first two articles of the Directive are comprised in Title I which deals with definitions and the scope of the Directive. Article 1 contains a number of definitions, including those of the expressions "credit institution" and "branch". It is worth noting that there is no definition of any expression referring to individuals in whose favour rights might be said to have been intended to be created by the Directive. If the result to be achieved was to entail the granting of rights to individuals such as savers or depositors, I would have expected a definition such as that included in article 2 of the Directive (90/314/E.E.C.) concerning package travel, package holidays and package tours which defines the expression "consumer." The meaning and effect of this Directive was considered in the Dillenkoffer case [1997] Q.B. 259, in Verein fur Konsumenteninformation v. Österreichische Kreditversicherungs A.G. (Case C-364/96) [1998] E.C.R. I-2949 and in Rechberger and others v. Republic of Austria (Case-140/97) (unreported), 15 June 1999. In each of these cases the European Court held that article 7 of the Directive gave "consumers" a right to be reimbursed or repatriated in the event of the insolvency of the tour operator. The absence of a definition of that kind from the Directive of 1977 suggests that it was not the intention when the Directive was being drafted to grant rights under the Directive in favour of individuals or any group or class of individuals.

    In a series of cases, referred to as "the German environmental cases," claims were brought by the Commission against Germany for its failure to implement Directives which laid down various requirements to be observed by member states in relation to water and air quality: e.g. Commission of the European Communities v. Federal Republic of Germany (Case C-131-88) [1991] E.C.R. I-825; Commission of the European Communities v. Federal Republic of Germany (Case C-298/95) [1996] E.C.R. I-6747. As Auld L.J. noted [2000] 2 W.L.R. 15, 133A, each of these Directives required member states to take specific measures to ensure that water or air was of the quality prescribed by the Directive, but they said nothing about the conferment of rights on individuals. Nevertheless the European Court held that the purpose of certain of the provision of these Directives was to create rights and obligations for individuals. In Case 131/88 [1991] E.C.R. I-825, 867 in para. 7 the Court said:

    "The Directive at issue in the present case seeks to protect the Community's groundwater in an effective manner by laying down specific and detailed provisions requiring the member states to adopt a series of prohibitions, authorisation schemes and monitoring procedures in order to prevent or limit discharges of certain substances. The purpose of those provisions of the Directive is thus to create rights and obligations for individuals."

    I agree with the appellants that these cases demonstrate that the potential width of the class of persons granted rights does not militate against the conclusion that the relevant provisions of these Directives were intended to create rights. This does not in itself mean that the persons intended to be granted rights are not sufficiently identifiable. But the cases also demonstrate that the question whether provisions in a Directive create rights and obligations for individuals depends in each case on the subject matter of the Directive, on the context and on the nature and purpose of the provisions which are in issue. The environmental cases were concerned with the protection of human health. This is a matter of concern to everybody, as we all share the environment in which we live. So the absence of a definition of the individuals who were granted rights by the Directives was of no importance. As the court said in Case C-298/95 [1996] E.C.R. I-6747, 6760:

    "15. As the Commission points out, one of the purposes of the Directives at issue is to protect human health through the monitoring of the quality of waters which support, or could support, fish suitable for human consumption…

    "16. In those circumstances, it is particularly important that Directives should be transposed by measures which are indisputably binding. In all cases where non-implementation of the measures required by a Directive could endanger human health, the persons concerned must be in a position to rely on mandatory rules in order to assert their rights. . . "

 
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