European Law

European Law is about: creating pieces of legislation, enforcement of the law by judges, tribunals
and countries, and substance which is the content of the law.

Introduction

The European Union is based on two treaties: the Treaty on European Union (TEU) which contains
the general provisions defining the Union, and the Treaty on the functioning of the European Union
(TFEU) which contains the specific provisions regarding the Union institutions and policies.

The EU Treaties are designed to be “framework treaties”, which means that they provide the
“framework” for subsequent secondary law.

The EU Treaties also provide some policy areas. To legislate within one of these policy areas, the
Union must have legislative competence.

European law establishes rights and obligations that directly or indirectly affect individuals.

Individuals can enforce their European rights through a dual enforcement machinery within the
Union legal order which are: national courts (for example the tribunal of Turin, or Rome) and
European courts (for example the Court of Justice of the European Union).

The heart of European law is the law governing the internal market and European competition law.
The central economic task of the European Union was the creation of a “common market”.

The Rome Treaty provided a common market for goods that abolish the obstacles to the free
movement of persons, services, and capital (called the four fundamental freedoms).

Union Institutions

They constitute the core “players” in the Union. Each of these is characterized by its distinct
composition and its decision-making mode.

The main Union institutions are the European Parliament, the Council of Ministers, and the
Commission.

There are two constitutional limits to Union legislation:

 Based on the principle of conferral, the Union must act within the scope of competencies
conferred upon it by the Member States

 The second limit is based on the European fundamental rights. These rights first emerged as
general principles of Union law but have now been codified in the Union's Charter of
Fundamental Rights. (They weren’t in written form, but they were contained in general
principles, now they are contained in the charter of fundamental rights)

The European Parliament

The Parliament constitutes a chamber of the Union legislature, and it is directly elected by European
citizens.

The Council of Ministers

The Council consist of a representative of each Member State at the ministerial level, and it is
characterized as the “federal” chamber within the Union legislature.
The Commission

The Commission has executive power and acts as the Union’s government. It consists of one national
of each Member State. Its members are chosen “on their competencies and commitment”.

The Commission is tasked to promote the general interest of the Union and acts as a motor of
European integration, it is given the right to formally propose legislative bills.

The Court of Justice of the European Union

The Court constitutes the judicial branch of the European Union (it is important in the enforcement
of the law). It is composed of various courts and includes the “Court of Justice” (which is the most
important), the “General Court” and “specialized courts”.

Union Legislation

The Treaties distinguish two types of legislative procedures: ordinary and special legislative
procedures. Ordinary legislation must be adopted following a complex procedure.

In the ordinary legislative procedure, the European Parliament and the Council act as co–legislators
with symmetric procedural rights. The legislation is therefore seen as the product of a “joint
adoption” by both institutions. The Commission enjoys the exclusive right to submit a legislative
proposal.

In the special legislative procedures, the acts are adopted by one of the two institutions: the
European Parliament and the Council. The TFEU recognizes two variants: when the European
Parliament acts as the dominant institution, with the mere “participation” of the Council in the form
of “consent” and when the Council is the dominant institution, with the Parliament either
participating through its “consent” or in the form of “consultation”.

The Union legislator is a subsidiary legislator. The exercise of its competencies is restricted by the
principle of subsidiarity. That means that only in some cases the Union Legislator is the executive
legislator.

Principle of subsidiarity: a constitutional principle that prevents the Union legislator from exercising
its competencies where the Member States would be able to achieve the desired social aim
themselves.

In Europe we have sources of law different from EU laws, so we must distinguish between unilateral
acts (which are acts of EU Institutions) and international agreements.

International agreements concluded by the Union constitute a rich source of European law.

The negotiation of international treaties is left in the hands of the Commission. The conclusion of the
agreement is the task of the Council. However, Parliament will need to give its consent on a wide
range of agreements.

Union Competences

The European Union can’t legislate in all the fields and is neither a “sovereign state” nor a
“federation of states”. Its powers must be conferred by its foundational charter: the European
Treaties through the principle of conferral.

The TEU says: the Union shall act only within the limits of the competencies conferred upon it by the
Member States. Competences not conferred must remain with the Member States.
The majority of the Union's competencies are spread across the Treaty on the Functioning of the
European Union.

The Union legal order recognizes various competence categories: exclusive, shared, coordinating and
complementary competencies. Within its exclusive competencies, the Union is exclusively
competent to legislate, whereas it shares this power with the Member States under its non-exclusive
powers.

The Treaties present limited competencies in distinct policy areas, but three legal developments
have posed serious threats to the principle of conferral. First, the rise of teleological interpretation:
the Union's competencies are interpreted in such a way that they potentially “spill over” into other
policy areas.

Second: the rise of the Union's general competencies. The Union may horizontally cut across the
various policy titles within the Treaties.

Third: the doctrine of implied external powers.

Enforcement

European norm is directly effective, it will also be “supreme” over national law. To enforce their
power, there is a dual enforcement machinery within the Union legal order.

National courts to provide effective remedies for the enforcement of European rights; to assist these
courts the Union envisages a preliminary reference procedure.

But there is also a direct enforcement of European law in the European Courts when there is a
conflict between EU laws and national laws (in these cases the Court of Justice will decide).

Direct Effects

The Treaty provisions would be self-executing in the national legal orders. The European Treaties are
framework treaties: they primarily envisage the adoption of European secondary law. To exercise
the Union's competencies, the institutions adopt regulations, directives, decisions (which are
binding), recommendations and opinions (which are not binding).

A regulation shall have a general application. It shall be binding in its entirety and directly applicable
in all Member States.

A directive shall be binding, as to the result to be achieved, upon each Member State to which it is
addressed, but shall leave to the national authorities the choice of form and methods.

A decision shall be binding in its entirety. A decision which specifies those to whom it is addressed
shall be binding only on them.

A provision has a direct effect, where it is “unconditional” and thus “sufficiently clear and precise”.

All sources of European law have been considered capable of producing law with direct effects. And
this applies vertically as well as horizontally. For directives, the Union legal order prefers their
indirect effects. The directive thus represents a form of “background” or “indirect” European law.

Directives

A directive shall be binding upon each Member State to which it is addressed but shall leave to the
national authorities the choice of form and methods. The directives were binding on States, and they
are not directly applicable, and would thus need to be “incorporated” or “implemented” through
national legislation. In general, they are not directly applicable and need to be “incorporated” or
“implemented” through national legislation.

The Court of Justice confirmed that directives could have a direct effect and thus entitle individuals
to have their European rights applied in national courts.

The Court found two limitations: one temporal (when the term of the implementation is expired)
and one normative (when the provision contained in the directive is not precise or unconditional).

(Legal) Supremacy

European law may have a direct effect, but it might come into conflict with national law in a specific
situation. Where two legislative will come into conflict, each legal order must determine how these
conflicts are to be resolved.

There are two perspectives on the supremacy: according to the European perspective, all Union law
prevails over all national law. According to the national perspective, the supremacy of European law
is relative: some national law is beyond the supremacy of European law.

The doctrine of direct effect demands that a national court applies European law. And the doctrine
of supremacy demands that a national court disapplies national law that conflicts with European
law. For the European legal order, the absolute supremacy of European law means that all Union law
prevails over all national law.

Ultra vires control: denying the Union an unlimited competence, European law cannot violate
national fundamental rights.

While Member States acknowledge the supremacy of European law, they insist on national
constitutional limits.

National Actions

National courts are the principal judicial enforcers of European law. Whenever European law is
directly effective, national courts must apply it.

The Union legal order insists that nothing must prevent national courts from exercising their
functions as “guardians” of the European judicial order. The direct effect of European law transforms
every single national court into a “European” court.

There is no compulsory appeal procedure from the national to the European Courts and the
relationship is based on their voluntary cooperation.

National courts are consequently only functionally Union courts. The core duty is rooted in TEU: the
duty of “sincere cooperation”.

The European Court has derived two concrete obligations on national courts: the principle of
equivalence (the European Court requests national courts to extend existing national remedies to
similar European actions) and the principle of effectiveness (National Courts demand that these
national remedies must not make the enforcement of European law “excessively difficult”).

Liability principle: establishes a European remedy: an individual could claim compensatory damages
resulting from a breach of European law.

The European Court is only indirectly involved in the judgment delivered by the national court.
The Treaties provide for a “preliminary reference procedure”. This allows national courts to ask
questions relating to the interpretation of European law.

European Actions

The European Treaties establish a dual enforcement mechanism for European Union law. There are
four judicial actions that can be brought directly before the Court of Justice of the European Union.

The Treaties distinguish between infringement actions against the Member States, and proceedings
against the Union for a failure to act.

The European Court is empowered to review the legality of European (secondary) law. The Union
legal order has opted for a “rule of law” version which allows the Court to review the formal and
substantive legality of European law.

The Lisbon Treaty (2007) has liberalized procedural restrictions for “regulatory” acts.

Internal Market

The Union aimed to create an area without internal frontiers to the free movement of goods,
persons, services, and capital. To guarantee these four fundamental freedoms, the EU Treaties
pursue a dual strategy: negative and positive integration. Negative integration refers to the removal
of illegal national barriers to trade, whereas positive integration means Union legislation that
“harmonizes” national laws.

Internal Market: Goods

The EU Treaties distinguish between fiscal and regulatory barriers; for fiscal barriers, the Treaties
further distinguish between customs charges and internal taxation. For customs charges, the Court
has confirmed a prohibition that applies to all charges between Member States. The prohibition of
discriminatory tax measures is still informed by a discrimination rationale. Express justifications only
exist with regard to regulatory barriers. These grounds have been enriched by implied justifications
called “mandatory requirements”.

What about positive integrations?

The Union harmonization must serve the establishment or functioning of the internal market
extremely widely. The Union's general harmonization competence is thereby not limited by specific
legislative competencies within the Treaties.

Once harmonization has occurred, the Member States are obliged to follow the Union standard; yet
the Union legal order has also recognized a limited number of derogations. These derogations
exceptionally allow a Member State to maintain or introduce a higher national standard.

On the other side, The Union's tax harmonization powers are here still subject to a “fiscal veto” by
each Member State.

Internal Market: Persons

The free movement of persons comprises the free movement of workers, the freedom of
establishment, as well as companies, but the European Treaties also grant a (limited) movement
right to all citizens of the Union.
EUROPEAN COMPANY LAW

TFEU Provisions on Company Law

European company law is a cornerstone of the internal market. It facilitates freedom of

In Italy the company law is contained in the civil code and applied to Italian companies or in
branches of foreign companies and in subsidiaries of foreign companies.

Subsidiary: autonomous company owned by another company.

The scope of EU company law covers some field of company law (for example the protection of
shareholders, the maintenance of the capital of public limited liability companies, branch disclosure,
mergers and divisions, legal entities such as the European Company (SE), the European Economic
Interest Grouping (EEIG) and the European Cooperative Society (SCE).

The Directive 1132 on EU Company Law sets the following objective: safeguards for the formation of
public limited liability companies and the maintenance and alteration of their capital, for the
protection of the interests of members and third parties.

ECL is not comparative company law.

Companies incorporated in operating in any of the Member States of the European Union are
regulated by the company laws of the Member States.

However:

 The company laws of the Member States must comply with some rules and principles that
derive from the body of a supranational set of laws created by the EU institutions.

 EU institutions may issue acts that are directly binding on all citizens and companies that are
established and/or operating in the EU, prevailing over the company laws of the Member
States.

Definition of Company

Two definitions: one is provided by the Court of Justice of the European Union:

 Companies are creatures of the law and creatures of national law. They exist only by virtue
of the varying national legislation which determines their incorporation and functioning.
Companies are creatures of rules, among them there are also laws and enterprises of
persons and assets organized by rules. Business corporations have similar set of legal
characteristics in all jurisdictions, for example:

o legal personality: entity different from shareholders

o limited liability: they do not respond with their patrimony, maximum loss is the price of the
shares

o transferable shares: shares are fully transferable

o delegated management under a board structure: delegated to a board of directors

o investor ownership: that shareholders substantially own the company with the shares
  A corporation is a profit-seeking enterprise of persons and assets organized by rules. Most of
these rules are determined by the unilateral actions, by market forces, by contract or other
forms of agreement or by law.

Corporate law responds to three principal sources of opportunism (Agency Problems):

 conflicts between managers and shareholders,

 conflicts among shareholders,

 conflicts between shareholders and the corporation’s other constituencies, including

Each of the 50 US States has its own company law:

24 States have adopted the Model Business Corporation Act, other States, including Delaware, have
drafted their own company laws.

Delaware is the State of incorporation of the majority of publicly traded corporations listed in the
New York Stock Exchange (NYSE) and the NASDAQ: hence, Delaware company law.

EU vs USA similarities:

 Companies are regulated by national laws

 There are some uniform acts, in EU regulations, related to listed companies

In USA each state is free to choose a model.

However, the company laws of the Member States must comply with the rules and principles that
constitute the body of ECL.

Therefore, the expression “European Company Law” refers to the legal rules and principles of
company law enshrined in the sources of law of the EU.

Freedom of Establishment and Freedom to Provide Services

Freedom of Establishment enables an economic operator to carry on an economic activity in a stable

Freedom to Provide Services enables an economic operator providing services in one Member State
to offer services on a temporary basis in another Member State, without having to be established.

Two fundamental rules shall be considered:

Article 49 TFEU: Restrictions on the freedom of establishment of nationals of a Member State in the
territory of another Member State shall be prohibited.

Article 56 TFEU: Restrictions on freedom to provide services within the Union shall be prohibited in
respect of nationals of Member States.

Companies and Firms

Article 54(2) TFEU: ‘Companies or firms’: constituted under civil or commercial law, including
cooperative societies, and other legal persons governed by public or private law, save for those
which are non-profitmaking (non-profit making entities do not enjoy the 2 freedoms).
Non-profit-making entities do not benefit from the right of establishment because they do not
engage in economic activity.

EU Member States may have:

 a civil and a commercial code

 only a civil code

 a civil code and a company code

 common law and special acts for partnerships and companies

European ‘Citizenship’ for Companies and Firms

Common Law Member States rely on the domicile.

There are three forms of domicile for individuals:

a) domicile of origin, acquired at birth

b) domicile of dependence, conferred on legally dependent persons by operation of law

c) domicile of choice, acquired by an independent person residing in a country with the intention to
settle indefinitely.

Citizenship is related to nationality: it depends on the place of birth.

Legal entities are essentially treated in the same manner:

• Common law EU Member States, along with some others (such as the Netherlands and, basically,
Italy) adopt the incorporation theory, similar to the place of birth;

• Civil law Member States (such as Germany, France, and Hungary) generally adopt the real seat
theory, similar to the domicile of choice