Constitutionalising the Market, Marketising the Constitution, and to Tell the Difference: On the Horizontal Application of the Free Movement Provisions in EU Law

• Published date: 01 March 2012
• DOI: http://doi.org/10.1111/j.1468-0386.2011.00593.x
• Author: Harm Schepel
• Date: 01 March 2012

eulj_593177..200

Constitutionalising the Market,

Marketising the Constitution, and to Tell

the Difference: On the Horizontal

Application of the Free Movement

Provisions in EU Law

Harm Schepel*

Abstract: Ever since the Court’s judgment in Walrave, there has been a concerted effort in

caselaw and doctrine to limit the horizontal direct effect of free movement provisions to

exceptional circumstances. This article suggests that this efforthas always been incoherent,

and is simply untenable after Viking and Laval. The implications are far reaching,

especially in the sphere of the free movement of capital and corporate governance where the

Court is well on its way of imposing a model of shareholder primacy on European company

law. Full direct horizontal effect will also have important repercussions for private law and

its ability to resolve conflicts between economic freedoms and fundamental rights. Given the

nature of the free movement provisions, their horizontal effect will sometimes lead to a

constitutionalised market and sometimes to a marketised constitution, without there being

any principled way of distinguishing between the two. In that light, horizontal direct effect

is very unlikely to enhance the effectiveness of internal market law—whichever model of the

social market economy it is thought to embody—and is best abandoned.

I Introduction

In constitutional scholarship, the issue of horizontal effect of fundamental rights is

usually thought to arise when market outcomes seem to conflict with constitutional

norms.1Put this way, it is easy to see the trouble the concept gets into when entitlements

to market outcomes are elevated to the status of fundamental rights. In a string of cases

starting with the 1974 decision in Walrave, the Court of Justice has held that the

* Professor of Economic Law, Kent Law School and Brussels School of International Studies, University

of Kent. I’m very grateful to Martijn Hesselink, Christian Joerges, Bilyana Petkova, Laura Pignataro and

Jacobien Rutgers for discussion and advice. The usual disclaimer applies.

1The formulation paraphrases M. Tushnet, ‘State Action, Social Welfare Rights, and the Judicial Role:

Some Comparative Observations’, (2002) 3 Chicago Journal of International Law 435, 438. See further, eg

A. Colombi Ciacchi, ‘The Constitutionalization of European Contract Law: Judicial Convergence and

Social Justice’, (2006) European Review of Contract Law 167 (arguing that horizontal effect of fundamen-

tal rights and constitutional principles is a pan European phenomenon spurred on by judicial concerns for

social justice).

European Law Journal, Vol. 18, No. 2, March 2012, pp. 177–200.

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economic freedom of private employers and other powerful organisations are limited

by the free movement provisions of the Treaty that protect individuals from discrimi-

nation on grounds of nationality.2In 2007, the Court held in Viking and Laval that the

fundamental right of collective action of trade unions is limited by the provisions of

the Treaty that guarantee employers the economic freedom to provide services and to

establish themselves in other Member States.3One could be forgiven for thinking that

these cases represent radically different conceptions of the internal market: the first as

the expression of the primacy of the polity over ‘the market’ through the imposition of

public law values on principles of private law,4the second as an act of neoliberal faith

in imposing economic freedom on constitutionally protected social rights.5Where the

former cases seem to foreshadow the ‘social market economy,’6the latter hark back to

the days when the Treaty could be described as the ‘most strongly free market-oriented

constitution in the world.’7And yet, the Court decided the latter cases largely on the

authority of the former under the same rubric of the ‘horizontal direct effect of the

fundamental freedoms.’

The topic seems worth revisiting now.8The general confusion and judicial ambiguity

surrounding the horizontal effect of the regimes on the free movement of goods, services

and workers are reason enough to make an attempt to provide some clarity. It seems,

moreover, but a matter of time before the Court will be forced to address the issue of the

horizontal effect of the free movement of capital as regards the rights of shareholders in

listed companies. In that ‘clash of capitalisms,’9the stakes are so high that the doctrine

2Case 36/74, Walrave [1974] ECR 1405, rapidly confirmed in Case 13/76, Donà [1976] ECR I-1333 and

Case 90/76, Van Ameyde [1977] ECR 1091.

3Case C-438/05, Viking [2007] ECR I-10779 and Case C-341/05, Laval [2007] ECR I-11767.

4It was accordingly condemned in certain circles as unwarranted ‘preoccupation with social equilibrium’

that threatened the liberal concept of the internal market. See W. Kluth, ‘Die Bindung privater Wirtschaft-

steilnehmer an die Grundfreiheiten des EG-Vertrages’, (1997) 122 Archiv des öffentlichen Rechts 227.

5See, eg L. Azoulai, ‘The Court of Justice and the Social Market Economy: The Emergence of an Ideal and

the Conditions for Its Realization’, (2008) 45 Common Market Law Review 1335, 1339 (a ‘reversal’ of the

sociallyprotective assumptions underlying earlier case-law), and C. Joerges and F. Rödl, ‘Informal Politics,

Formalised Law and the “Social Deficit” of European Integration: Reflections after the Judgments of the

ECJ in Viking and Laval’, (2009) 15 European Law Journal 1, fn 59 (a ‘complete turn-around’).

6The Union shall work for ‘a highly competitive social market economy, aiming at full employment and

social progress,’ according to Art 3 (3) TEU as per the Lisbon Treaty.

7C.-D. Ehlermann, ‘The Contribution of EC Competition Policy to the Single Market’, (1992) 29 Common

Market Law Review 257, 273.

8Useful overviews in English include S. Van den Bogaert, ‘Horizontality: The Court Attacks?’, in

C. Barnard and J. Scott (eds), The Law of the Single European Market: Unpacking the Premises (Hart

Publishing, 2002), at 123; J. Snell, ‘Private Parties and the Free Movement of Goods and Services’, in

M. Andenas and W.-H. Roth (eds), Services and Free Movement in EU Law (OUP, 2002), at 211; E. J.

Lohse, ‘Fundamental Freedoms and Private Actors—Towards an “Indirect Horizontal Effect” ’, (2007)

13 European Public Law 159. Post-Viking and Laval commentary includes A. Dashwood, ‘Viking and

Laval: Issues of Horizontal Direct Effect’, (2008) 10 Cambridge Yearbook of European Legal Studies 525;

D. Wyatt, ‘Horizontal Effect of Fundamental Freedoms and the Right to Equality after Viking and

Mangold, and the Implications for Community Competence’, (2008) 4 Croatian Yearbook of European

Law and Policy 1; A. Hartkamp, ‘The Effect of the EC Treaty in Private Law: On Direct and Indirect

Horizontal Effects of Primary Community Law’, (2010) European Review of Private Law 527.

9The term ‘clash of capitalisms’ has come up especially in the debates surrounding the Takeover Bid

Directive. See H. Callaghan and M. Höpner, ‘European Integration and the Clash of Capitalisms: Political

Cleavages of Takeover Liberalization’, (2005) 3 Comparative European Politics 307, and B. Clift, ‘The Sec-

ond Time as Farce? The EU Takeover Directive, the Clash of Capitalisms and the Hamstrung Harmoni-

zation of European (and French) Corporate Governance’, (2009) 47 Journal of Common Market Studies 55.

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