If Not EEA State Liability, Then What? Reflections Ten Years after the EFTA Court's Sveinbjörnsdóttir Ruling*

I. INTRODUCTION On 10 December 1998, the European Free Trade Association ("EFTA") Court held in its landmark ruling in Case E-9/97 Sveinbjornsdottir that State liability was part of European Economic Area ("EEA") law. With this, the EFTA Court decided one of the most controversial questions of EEA law. The present article first discusses the scope and aim of die EEA Agreement and the recognition of State liability in Community law. It then analyzes the case law of the EFTA Court and its acceptance by die Court of Justice of the European Communities ("ECJ") and the Supreme Courts and governments of the EFTA States. It concludes that had the EFTA Court not taken that step ten years ago, the EEA Agreement would have become one-sided, with unequal protection of individual rights in the European Community ("EC") and the EFTA pillar. The author has served as a judge of die EFTA Court since 1 995 and as its president since 2003. He has participated in Sveinbjornsdottir as well as in all die following State liability cases the EFTA Court has decided. In October 1991, the negotiations on die EEA Agreement between the then twelve member states of the EC and the then seven EFTA states were informally concluded. The aim of the Agreement was to extend the EC single market to the EFTA States. According to this first draft, the EEA was to be based on a two-pillar system with the law of both pillars, EC and EFTA, being identical in substance but each having its own enforcement institutions. The ECJ was to govern the EC pillar. The EFTA pillar would be governed by a common EEA Court, consisting of five ECJ judges and three judges from EFTA countries, and a common EEA Court of First Instance made up of two ECJ judges and three judges from EFTA countries. The main function of the EEA courts was to ensure that the case law in the EFTA pillar developed homogeneously with the practice of the ECJ. However, the ECJ later declared the proposed EEA judicial system incompatible with Community law.1 Comparing the aims and the context of the EEA Agreement with those of Community law, the ECJ found that the objectives of the Community legal order went beyond the objectives of the Agreement and that the context also differed. According to the ECJ, the EEA was to be established on the basis of an international treaty which merely created rights and obligations between the contracting parties.2 The ECJ held that the EC Treaty, by contrast, established a new legal order for the benefit of which the States have limited their sovereignty rights, and that die subjects of the new legal order comprise not only the States, but also their nationals, with the essential features being direct effect and primacy. Direct effect means that citizens and economic operators are able to invoke provisions of an international treaty before a court of a Member State if certain conditions are fulfilled. Such provisions take primacy over conflicting provisions of the domestic law of the Member States. These two principles had been recognized by the ECJ as early as 19633 and 1964.4 On the basis of this comparison, the ECJ concluded that identical wording of EC and EEA law was no guarantee of homogeneity. Since there were no other mechanisms that would secure homogeneity, the ECJ did not consider the fundamental principles of direct effect and primacy to be safeguarded.5 On the contrary, it assumed that these principles were "irreconcilable with the characteristics of the [EEA] agreement."6 The final conclusion was therefore that "the divergences which exist between the aims and context of the agreement, on the one hand, and die aims and context of Community law, on die other, stand in the way of the achievement of the objective of homogeneity in the interpretation and application of the law in the EEA."7 As a consequence of ECJ Opinion 1/91, a new version of the institutional chapter of the EEA Agreement was negotiated, which provided for the establishment of a structurally independent EFTA Court. …