Case C-413/15, Farrell (No.2) – identifying an emanation of the state

Individuals wishing to rely on an EU Directive may be thwarted if the body they want to sue is not an ’emanation of the state’. The classic explanation to the phrase ’emanation of the state’ is laid out in the CJEU’s judgment in Foster v. British Gas. The problem is that on closer inspection the CJEU’s reasoning turns out to be unclear. Stymied, the Irish Supreme Court has now decided to ask the CJEU if the component parts of the Foster test for establishing ‘an emanation of the state’ are to be read cumulatively or disjunctively.

Twenty years ago, a van crashed into a wall. The accident was the fault of the driver. However, he was not the only one involved in the incident. There was a passenger in the back of the van, Elaine Farrell, and she had been hurt.

Besides recovering from her injuries, she then had to deal with a legal mess too. The driver of the van was uninsured in respect of Ms Farrell. She had been in the back of the van which had no seats.

The main reason why the driver was not insured in respect of Ms Farrell was Irish law. At the time of the accident, drivers were not legally required to have compulsory insurance. Despite the EU’s ‘Third Directive’ requiring compulsory insurance for all passengers in a vehicle, the Directive had not been transposed into Irish law in time. Consequently, the insurer relied on Irish law to claim that it was not legally obliged to compensate her for the harm she had suffered in the accident.

Undeterred, Ms Farrell sought redress from the MIBI, the Motor Insurers’ Bureau of Ireland. Fortunately for her, the MIBI had been set up particularly to deal with compensation claims where the driver of a vehicle was liable but uninsured and unable to pay compensation out of his own pocket. Furthermore, the MIBI also was created as part of Ireland’s imperfect implementation of the EU’s Third Directive.

Unfortunately, her claim sparked a legal dispute with the MIBI. The matter went to court. Because the Irish High Court did not know how to deal with the case, it made a preliminary reference to the CJEU.

The CJEU held that Ireland had failed to transpose the appropriate provisions of the Third Directive properly. However, the CJEU added that it was up to the national court to determine whether the Motor Insurers’ Bureau of Ireland (MIBI) was ‘an emanation of the state’ for the purposes of the Third Directive.

In 2008, the CJEU’s judgment (Case C-356/05) returned to the High Court in Ireland. The Irish court held the MIBI to be an emanation of the state. As a result, it would be the MIBI – and not the Irish State – which would be liable to compensate Ms Farrell for the injuries she had sustained in the van.

Although Ms Farrell was awarded some compensation, the 2008 judgment affected numerous other victims who were in a similar situation to her. Consequently, the High Court’s judgment was repeatedly appealed over a seven year period. The dispute eventually washed up at the Irish Supreme Court.

At the Irish Supreme Court
The key issue facing the Irish Supreme Court was whether it was legally right for the Irish High Court to have held the MIBI to be an emanation of the state. The main problem which the judges faced related to the criteria which are used to determine this.

The general difficulty was located in the CJEU’s classical test for an emanation of the state, Foster and Others v British Gas plc (Case C­188/89, ECR I­-03313). The particular difficulty was to be found in the CJEU’s reasoning in paragraphs 18, 19 and 20.

The MIBI was relying on an excerpt from paragraph 20 in order to resist the assertion that it was an emanation of the state. The MIBI recalled that the CJEU in Foster had reasoned:

20. It follows … that a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the State, for providing a public service under the control of the State and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals is included in any event among the bodies against which the provisions of a directive capable of having direct effect may be relied upon.

The MIBI took this passage to mean that there were three elements to establishing an emanation of the state. The test was cumulative so all three elements needed to be satisfied. That was not the case here. The MIBI was not under the control of the State and it did not have any special powers. Furthermore, and more fundamentally, the MIBI the State had no control over the MIBI, and there were no special powers beyond those applying to relations between individuals.

However, MIBI’s interpretation of Foster [20] was denied by the Irish State. The State claimed that the MIBI was an emanation of the state. The State’s opening gambit was to claim that the MIBI had misunderstood Foster [20]. The State pointed out that an emanation of the state applied irrespective of the statutory or contractual legal basis on which responsibility was imposed.

The State also believed that the focus of Foster [20] should really be on MIBI’s exclusive ‘special’ position: after all, the MIBI was and is the only body in Ireland which can be sued in the event of a claim being made in respect of an uninsured or unidentified driver.

In addition, the State emphasised that the MIBI’s legal position was not akin to that of a private body. This was because all insurers must enter agreements with the MIBI, and those agreements implement existing agreements which have already been made between the MIBI and the Minister of State. This regulatory set-up, the State contended, satisfied the requirement of the State having a ‘sufficiency’ of control over the MIBI and its members.

Admittedly, these were discrete points but that did not matter to the Irish State. It took the view that the test for determining an emanation of the state in Foster was not a cumulative test as the MIBI were claiming but rather it was a disjunctive test.

To bolster its assertion, the State viewed Foster [20] in light of the paragraphs which preceded it. That is to say, at paragraph 19 the CJEU had talked about bodies which were to be regarded as emanations of the State and those bodies included local or regional authorities, constitutionally independent authorities responsible for the maintenance of public order and safety, and public authorities providing health services.

Furthermore, the disjunctive ‘or’ nature of paragraph 19 was reflected in paragraph 18, which provides:

On the basis of those considerations, the Court has held in a series of cases that unconditional and sufficiently precise provisions of a directive could be relied on against organizations or bodies which were subject to the authority or control of the State or had special powers beyond those which result from the normal rules applicable to relations between individuals.

Thus, in light of the disjunctive nature of paragraphs 18 and 19, the Irish State contended that Foster [20] should be understood in a disjunctive fashion too. As a result, if any of its discrete points would be satisfied, then that would suffice to establish that the MIBI was indeed an emanation of the state.

The three judges in the Irish Supreme Court which heard these submissions decided to make a preliminary reference to the CJEU.

Questions Referred
According to the Curia website, the Irish Supreme Court has asked:

1. Is the test in Foster and Others v British Gas plc (Case C-188/89) as set out at para. 20 on the question of what is an emanation of a member state to be read on the basis that the elements of the test are to be applied
(a) conjunctively, or
(b) disjunctively?

2. To the extent that separate matters referred to in Foster and Others v British Gas plc (Case C-188/89) may, alternatively, be considered to be factors which should properly be taken into account in reaching an overall assessment, is there a fundamental principle underlying the separate factors identified in that decision which a court should apply in reasoning an assessment as to whether a specified body is an emanation of the State?

3. Is it sufficient that a broad measure of responsibility has been transferred to a body by a member state for the ostensible purpose of meeting obligations under European law for that body to be an emanation of the member state or is it necessary, in addition, that such a body additionally have (a) special powers or (b) operate under direct control or supervision of the member state?

The CJEU’s judgment in Foster was raised and discussed briefly in the context of whether a collecting society was an emanation of the state; see further, Case C-351/12, OSA – EU copyright law checks in for a long stay at a health spa.

The Foster judgment was also raised in a recent labour law reference from the Court of Appeal of England and Wales but it was not dealt with by the CJEU; see further, Case C-80/14, USDAW and Wilson – objecting to salami slicing the protection against collective redundancies.

Update – 3 April 2016
There is now a case at the CJEU about an accident between a bus and a taxi but it is in the area of data processing law; see further, Case C-13/16, Rīgas satiksme – our police data request is necessary for our legitimate interest.

Update – 16 June 2016
The Grand Chamber is due to hear the parties in Farrell on 5 July.

Update – 5 December 2016
Car insurance is now at stake in two preliminary references from Portugal; Case C-503/16, Luis Isidro Delgado Mendes and Case C-506/16, José Joaquim Neto de Sousa.

Update – 22 January 2017
There is another ’emanation of the state’ problem in a new reference from a German court; see further, Case C-569/16, Bauer – an heir’s accrued leave rights post-Bollacke but contra legem.