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Cite as: [2013] IEHC 103
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Judgment Title: BUPA Ireland Ltd & Anor -v- The Health Insurance Authority & Ors Neutral Citation: [2013] IEHC 103 High Court Record Number: 2005 532 JR Date of Delivery: 07/03/2013 Court: High Court Composition of Court: Judgment by: Cooke J. Status of Judgment: Approved |
Neutral Citation [2013] IEHC 103 THE HIGH COURT COMPETITION [2005 No. 532 J.R.] BETWEEN BUPA IRELAND LIMITED AND BUPA INSURANCE APPLICANTS AND
THE HEALTH INSURANCE AUTHORITY, THE MINISTER FOR HEALTH AND CHILDREN, IRELAND AND THE ATTORNEY GENERAL RESPONDENTS JUDGMENT of Mr. Justice Cooke delivered the 7th day of March 2013 Introduction 2. The judgment and order of the Court were appealed by the applicants to the Supreme Court. No notice under Order 58 Rule 10 of the Rules of the Superior Courts was given by the respondents of an intention to contend that such of the findings in that judgment as might have been considered to have rejected positions adopted by them at the High Court hearing should be varied. (The references below to the “respondents” relate to the second and third named respondents, except where otherwise stated, as they alone are concerned in the claim for damages. The Voluntary Health Insurance Board (VHI) had been a party to the proceedings, but was discharged from them following the Supreme Court judgment.) 3. In the High Court proceedings, a series of declaratory reliefs had been claimed directed at the alleged illegality of the 2003 Scheme as thus introduced. In essence, the claims alleged that the scheme was unlawful in that, inter alia, it infringed: Articles 40.3 2° and 43 of the Constitution; the provisions of the Third Non-Life Directive; and Articles 43, 49, 82 and 86 EC of the European Treaties. 4. Although no order of certiorari to quash the statutory instruments in question was originally sought in the judicial review proceedings, a declaration had been claimed that they were ultra vires the relevant statutory provisions, together with (amongst other reliefs,) declarations that s. 12 of the Health Insurance Act of 1994 (the “1994 Act”) and the promulgation of the 2003 Scheme were invalid as unconstitutional. A major issue at the High Court hearing turned upon the validity of the particular risk equalisation scheme, as imposed by the statutory instruments on the basis of s. 12(10) of the 1994 Act (as amended by the Health Insurance Act of 2001), having regard to the definition of “community rating” contained at ss. 2 and 7 of the 1994 Act. 5. The 2003 Scheme, as adopted, had been based upon the concept of “community rating across the market”, in which so-called “inter-generational solidarity” was assessed and imposed by reference to the risk profiles of the entire community of holders of private health insurance policies. The applicants maintained that what was authorised by the 1994 Act (as amended) was something different, namely, inter-generational solidarity by reference to the risk profiles of policy holders when assessed in respect of each distinct category or type of insurance contract or plan, described as “community rating within the plan”. This dispute as to the correct construction of the relevant statutory provisions was thus central to the case and was the acknowledged starting point for the conclusions reached by McKechnie J. (see paragraph 32 of his judgment) on the above alleged infringements. The Legislative Context 7. Until 1996 The Voluntary Health Insurance Board, which had been established as a public body under the Voluntary Health Insurance Act, 1957, was the sole provider of private medical health insurance in the State. That monopoly was required to be abolished by the provisions of the Third Non-Life Directive and the Act of 1994 in its original form was enacted for that purpose. Section 12 of that Act conferred on the Minister a power to prescribe a “risk equalisation scheme” containing such terms and conditions of the type listed in the section as he considered necessary and expedient. Such a scheme was first promulgated in 1996, but never came into effect and was revoked in 1998. In 2003, following amendment of the Act of 1994 by the Health Insurance (Amendment ) Act 2001 (including amendments to the definition of “risk equalisation” and to sections 2, 7 and 12), a new scheme (the “2003 Scheme”) was introduced by S.I No 261 of 2003 as amended by S.I. No.710 of 2003. In April 2005 the first-named respondent recommended to the Minister that the scheme be implemented with effect from 1st July, 2005, but this was not acted upon at that time. The applicants commenced a first judicial review proceeding (the proceeding in the present title), challenging the validity of that recommendation, of the Scheme in question, and of s.12 of the Act of 1994, but this was not pursued at the time, following the Minister’s decision not to act on the recommendation. 8. On 27th October, 2005, the first-named respondent again recommended that the risk equalisation obligations be put into effect and on 23rd December, 2005, the Minister acted on that recommendation and directed commencement of the payment obligations with effect from 1st January, 2006. On 30th January, 2006, the applicants commenced a new judicial review proceeding (2006/112JR) and were granted leave to seek judicial review of the new recommendation and of the Minister’s decision of 23rd December, 2005. The two sets of proceedings were subsequently consolidated as the present proceeding by order of the Court (McKechnie J.) of 24th July, 2009. 9. Because the relevant Treaty articles have changed in numbering since the adoption of the Third Non-Life Directive in 1992 and once again since they were the subject of the analysis in the High Court and Supreme Court judgments; and because much of this judgment is concerned with the analysis of those decisions, the Treaty of Amsterdam numbering (from 1 May 1999) used in those judgments is retained here in order to avoid confusion. For ease of reference the evolution of the numbering of the articles principally concerned is as follows: Original From 1.5.1999 TFEU Art. 52 (Establishment) 43 49 Art. 57 (Council directives) 47 53 Art. 59 (Services) 49 56 Art. 66 (Services directives) 55 62 Arts 85&86 (Competition) 81 & 82 101 & 102 Art. 90 (Public undertakings) 86 106 Arts 92 – 94 (State Aid) 87-89 107-109 10. Article 43 gave effect to the right of establishment as one of the fundamental activities of the Community (as it then was) for the achievement of an internal market as envisaged in Article 3 EC. Article 49 EC similarly give effect to the freedom to provide services. Article 47.2 EC conferred legislative competence on the Council to issue the directives necessary for coordination of the provisions required to give effect to the right of establishment. Article 55 EC had the effect of conferring the same legislative power on the Council for the purpose of Article 49 EC. 11. The process of harmonisation or the coordination of laws, regulations and administrative provisions governing the exercise of these rights and freedoms, in relation to insurance services, was pursued in a number of directives in the distinct areas of direct life insurance and non-life insurance, which culminated in the adoption in 1992 of a third directive in each field being respectively Council Directive 92/96/EEC (the “Third Life Assurance Directive”) and Council Directive 92/49/EEC (the “Third Non-Life Insurance Directive” or the “Directive”). These third Council directives had the effect of completing the establishment of the single market in the insurance sector. (The Commission Interpretative Communication: “Freedom to provide services and general good in the insurance sector” (2000/C43/03), referred to in the judgment of McKechnie J. at para. 175, begins with the sentence: “The Third Council Directives 92/49/EEC and 92/96/EEC completed the establishment of the single market in the insurance sector.”) 12. The result of the harmonisation process which culminates, insofar as non-life insurance is concerned, in the Third Non-Life Directive, is that individuals and undertakings are conferred with rights which the Member States are bound to respect, by refraining from imposing on the conduct of non-life insurance business any incompatible requirements, controls or conditions, whether by means of national laws, regulations or administrative decisions. Thus, since 1st July, 1994, undertakings are entitled, in the territories of the Member States, to conduct business on an inter-state basis on foot simultaneously of the right of establishment and the freedom to provide services. In other words, an undertaking established in a home Member State can write policies for customers in a second Member State on the basis of the freedom to provide services and can also, if it chooses, do so by making use of one or more offices established in the second or host Member State for ancillary or support services such as claims assessment, legal services, actuarial services and so on. 13. Financial and prudential regulation is provided for on the basis of the single authorisation from, and supervision by, the competent authority of the Member State in which the undertaking has its head office. Thus, while the Directive contains, for example, notification requirements to the host member state when interstate business is to be conducted, those arrangements are purely for the purpose of exchange of supervisory information between the competent authorities and cannot be used by the host Member State to delay or obstruct the conduct of such business, nor does the entitlement of the host Member State to obtain such verification affect the legality of business written. The essential consequence of the completed establishment of the internal market in the non-life insurance sector, accordingly, is that a host Member State has no entitlement to impose on an undertaking established in a home Member State any additional national regulatory requirements or conditions for the conduct of non-life insurance business, whether undertaken by virtue of the right of establishment or on foot of the freedom to provide services, unless a derogation in that regard is permissible under the terms of the Third Non-Life Directive. This became the central issue between the parties in the hearing before McKechnie J.; namely, whether the restrictions and obligations of the 2003 Scheme came within what was permissible under the Directive and particularly under Article 54 thereof. The 2005-2008 Proceedings 15. The High Court further held that, although the 2003 Scheme in requiring health insurers in the market, notably the applicants, who had a below average risk profile “across the market” to make substantial compensatory payments to other health insurers with above average risk profiles (in effect to the VHI), had potentially market distorting and anti-competitive effects and could be taken as intruding upon constitutional rights of property, it was nevertheless “objectively justified” and did not therefore infringe the rights or protections invoked under European or constitutional law by exceeding what was justifiable in the interests of the common good. 16. The applicants’ appeal to the Supreme Court was successful, but solely on the definition issue and the competence of the Minister to impose the particular “across the market” scheme. The Court held that the 2003 Scheme in those terms was ultra vires the power of the Minister because the only scheme authorised to be imposed under the Act was a risk equalisation scheme based upon the “within the plan” concept of community rating, since that alone was the type of community rating defined for the purposes of the Act by virtue of the terms of ss. 2 and 7. 17. The judgment of the Supreme Court, given by Murray C.J., ended (at page 41) with the conclusion that:-
19. The order of 17th December, 2008, on foot to the Supreme Court judgment, made after detailed submissions for the purpose by the parties, provides (so far as relevant to present issues) that “the appeal be allowed and that the said order of the High Court be set aside save for so much thereof as awarded the first named respondent its costs against the applicants which order do stand and in lieu of the orders of the High Court hereby set aside
2. in lieu of directing that that an order of Certiorari do issue IT IS ORDERED that the aforesaid decisions and Statutory Instruments be quashed without further order [And] 3. that the issue of whether there is any liability by the second, third and fourth named respondents for damages and if so the quantification of any such damages be remitted to the High Court for determination …”. 20. Upon the remittal of the matter and after hearing the parties, the Court considered it prudent to attempt to focus the issues to be determined by trying a number of preliminary issues as follows:-
(1) Whether the finding that the introduction of the Risk Equalisation Scheme (“RES”) by the orders listed in the Schedule to the order of 17th December 2008 was unlawful as ultra vires has the effect of setting aside or otherwise negating the findings in the judgment of the High Court of 23rd December 2006 to the effect that the introduction of the scheme was objectively justified for the purpose of the claims of infringement of: (a) Articles 43 and 49 EC and the Third Non-Life Directive; (b) Article 82 EC in conjunction with Article 86 EC; and (c) Articles 40.3 2˚ and 43 of the Constitution. (2) If so, whether some or all of the claimants are entitled to recover damages in respect of losses, if any, incurred as a result of those infringements? (3) If so, what is the measure in law to be applied in assessing the quantum of damages?
(2) If so, what is the measure in law to be applied in assessing the quantum of such damages? (3) In the quantification of damages on either basis what effect, if any, is to be attributed to the fact that the business the subject of the R.E. scheme was disposed of in March 2007 prior to the date on which payments under the scheme became payable? 22. Clearly, the starting point for an examination of these issues is the conclusion reached by the Supreme Court at the end of the judgment of Murray C.J. and already quoted in part above, as follows:-
Therefore, it is in that sense that the best overall interest of health insurance consumers must be construed for the purposes of a risk equalisation scheme. Community rating within the plan means that such community rated contracts provide an element of intergenerational solidarity, not obviously to the ambit as would flow from community rating across the entire insured population, side by side with the other pillars to which the learned trial judge adverted to; namely, open enrolment, lifetime cover and minimum benefits which, as he pointed out, are provided for in sections 8, 9 and 10 of the Act respectively. It follows from all of the foregoing that the scheme of risk equalisation adopted by the Minister in 2003 was founded upon an erroneous interpretation of subsection 10(iii) in s. 12. That is to say the scheme was introduced on the basis that community rating meant community rating across the entire insured population and not as defined in the Act.” (Page 40) 24. As the proceedings stand following the remittal to the High Court, therefore, the applicants have a claim for damages following upon a finding that the measures and decisions which they challenged have been found to have been made or imposed without lawful authority. They also can and do point to findings made in their favour in the judgment of McKechnie J. as to the effects of the 2003 Scheme on their rights under the headings listed in para. 3 above; while the respondents claim that the outcome of that judgment has been that the 2003 Scheme was nevertheless found to be lawful and did not infringe the rights in question. 25. More specifically, the applicants argue that the High Court has found that the 2003 scheme distorted competition and would have resulted in BUPA making a loss by being forced to transfer to the VHI each year substantial sums greater than its annual profits. In the absence of an objective justification, therefore, there was finding of breach of the provisions in question and of unlawful interference with constitutional rights of property. The effect of the Supreme Court judgment, it was submitted, has been that the objective justification found by the Supreme Court has “fallen away” and BUPA is accordingly entitled to damages for those infringements. 26. The respondents, on the other hand, contend that the applicants are not entitled to relitigate entirely those findings made by the High Court and not reversed by the Supreme Court. They submit that it had been open to the applicants to invite the Supreme Court to rule upon the grounds of their appeal relating to the findings made by McKechnie J. as to the existence of objective justification, but they did not do so. They submit that the only issue arising on the remittal, therefore, is whether the applicants are entitled to damages by reason of the ultra vires adoption of the 2003 Scheme by mistake of law. The Pine Valley/Glencar Principle.
1. If it involves the commission of a recognised tort, such as trespass, false imprisonment or negligence. 2. If it is actuated by malice, e.g. personal spite or a desire to injure for improper reasons. 3. If the authority knows that it does not possess the power which it purports to exercise.” The learned Chief Justice then added: “I am satisfied that there would not be liability for damages arising under any other heading. It is, of course conceivable that proof of what has been submitted in this appeal as a gross abuse of the exercise of statutory power of decision, or proof of a wholly unreasonable exercise of that power, would be taken by a court to be evidence that the authority knew or must have known that it did not possess the power that it purported to exercise. I am quite satisfied, however, that the exercise by the defendant of this power in 1997, in the manner in which he did, and having regard to the legal advice which he sought and obtained prior to doing so, could not possibly constitute such a gross abuse of power or wholly unreasonable exercise of power as to lead to an inference that he was aware that he was exercising a power that he did not possess. [….] Not only am I satisfied that this is the true legal position with regard to a person exercising a power of decision under a public statutory duty, but it is clear that there are and have always been weighty considerations of the public interest that make it desirable that the law should be so. Were it not, then there would be an inevitable paralysis of capacity for decisive action in the administration of public affairs.”
30. In their points of claim delivered in respect of the present issues, the applicants seek to bring themselves within these criteria by asserting that the unlawful imposition of the 2003 Scheme involved actionable wrongs, in that the respondent infringed:-
(b) Article 86 EC in conjunction with Articles 10 and 82 EC; and (c) Infringement of the rights of the applicants under Articles 40.3 2˚ and 43 of the Constitution to carry on business and their rights of property. (For sake of brevity, these three heads of actionable wrong will be referred to collectively below as the “three alleged wrongs”.) The Findings in the High Court Judgment 33. In the lengthy judgment, having first set out in detail the relevant provisions of the domestic legislation, the provisions of the Constitution and of the EU Treaties and secondary legislation concerned, the learned High Court judge reviewed extensively a number of technical reports that had been commissioned by the Minister, a government White Paper and other technical papers which examined the implications of, and the problems involved in, restructuring the health insurance market following the removal of the VHI monopoly. He did so with particular reference to the analysis that had been done and the advices given on the importance of ensuring stability and competition in the health insurance market, and the resulting need to provide for risk equalisation between insurance undertakings. He then considered and determined the claims and issues made in the proceedings by approaching them under six headings as follows:
(2) The correct legal interpretation of “community rating”; (3) Unauthorised delegation of legislative power; (4) Breach of the Third Non-Life Directive; (5) Alleged breach of Articles 43 and 49 of the Treaty; (6) Alleged breach of Articles 86 and 82 of the Treaty; (7) Alleged breaches of Article 43 and Article 40.3 of the Constitution.
36. In the judgment, McKechnie J. had dealt separately with issue No. 3 “Breach of the Third Non-Life Directive” (paras. 162/193) and the issue of the “Breach of Articles 43 and 49 of the Treaty” (paras. 194/200). At para. 199, he concluded in respect of the latter issue that the question was determined by his decision on issue No. 3, with the result that no separate ground of challenge could arise based upon the alleged infringement of those Treaty articles. In the absence of any doubt being cast upon that approach by the Supreme Court, it is not open to this Court to be other than satisfied that the conclusion thus reached by McKechnie J. was correct. As he pointed out, BUPA had not in fact been obstructed in exercising its Treaty rights to establish a branch in the State or to provide services. What was at issue was the entitlement of the State to change the conditions under which the business in question was already being carried on by private health insurance undertakings (including BUPA) and that was clearly a matter to be determined by reference to the limitations and obligations of the Third Non-Life Directive. 37. That this is the correct approach to reliance upon Treaty articles, in circumstances where secondary legislation has implemented the Treaty objectives in question, is also supported by the case law of the Court of Justice. The general rule is that where a particular commercial activity, coming within the scope of the Community policies on free movement of goods, persons and services has been the subject of harmonising secondary legislation, usually by directive, then the secondary legislation supersedes the general provisions of the Treaty Articles. The rule originates in the judgment of the Court of Justice in the Tedeschi v. Denkavit Commerciale Srl (Case 5/77) [1977] E.C.R. 1555 and has been reaffirmed in many later cases (see for example Bristol-Myers Squib v. Paranova A/S (Case C-427/93) [1996] ECR I-3457; and Pytheron International SA v. Jean Bourdon SA (Case C-352/95) [1997] E.C.R. 1-172 at para. 17). 38. The rationale of the principle is that the provisions of the harmonising secondary legislation have as their purpose the achievement of the internal market and must therefore be regarded as giving effect, in the particular area of activity, to both the principles of freedom of movement and to the limitations of the principle contained in articles such as Article 45 of the Treaty on activities connected with the exercise of official authority. The European Commission in its “Guide to the application of Treaty Provisions Governing the Free Movement of Goods” (2010) put the point as follows at para. 3.1.1:-
40. The key finding of the High Court judgment, accordingly, was that contained in the consideration of issue no. (3): “Breach of The Third Non-Life Directive”. The learned judge first points to the overall objective of the Directive (and its predecessors in the field) in seeking to complete the internal market in non-life insurance by requiring the Member States by 1st July, 1994, to abolish any existing monopolies and to install a system of financial and prudential oversight based upon authorisation and regulation by the authority of the home Member State in which an insurer has its head office. He points out that, under that system of single authorisation and supervision by the competent authority of the home Member State, the authorities of other Member States are precluded from impeding the inter-state provision of the relevant insurance services by imposing additional controls or requirements, save to the extent that derogation is permitted by the terms of the Directive. 41. Thus, the issue before the High Court turned effectively upon Article 54 of the Directive and the question as to whether the 2003 Scheme, as introduced by the Minister, came within the scope of the derogation permissible under that Article. At para. 164 of his judgment, the text of Article 54 is cited and McKechnie J. then proceeds to consider its correct construction in the light of the submissions made and having regard especially to the recitals to the Directive which he cites at para. 166. In particular, the submissions made by BUPA challenging the compatibility of the 2003 Scheme with what was permitted under Article 54 focused on the issue as to whether, in Ireland, the insurance contracts covering the risks identified in Article 54.1 served “as a partial or complete alternative to health cover provided by the statutory social security system” and whether the Minister’s Scheme obligations could be said to be necessary “to protect the general good in that class of insurance”. BUPA’s case had been that, for the series of reasons summarised by the judge, the Scheme was incompatible with the Directive and was not saved by the terms of derogation permitted under Article 54. 42. In addressing these submissions, McKechnie J. had regard to information and material as to the types of social security system operated in various other Member States in assessing whether the system for private medical insurance in Ireland was to be characterised as a substitute for, or an alternative to, the cover provided by the State social security system, as opposed to be being a supplementary system. He also had regard to “the general background”, described in paras. 177/178, in endeavouring to discern what the legislator (the Council) had in mind, as an aid to determining the correct meaning of the Directive. McKechnie J. also took into account the fact that, in advance of the enactment of the Health Act 1994, the European Commission had considered and assessed a draft equalisation scheme as then envisaged and had expressed the view that, in Irish circumstances, a private health insurance plan did constitute an “alternative”, where it provided for at least the same type of benefit as that available under social security. 43. It was the possibility for derogation in this regard provided by Article 54 of the Directive which was the principal focus of the submissions made in the High Court and which forms the basis of the analysis set out at paras. 165 – 193 of the judgment of McKechnie J. Paragraph 1 of that Article provided that, for insurance contracts covering the risks identified in class 2 of point A of the Annex to Directive 73/239/EEC, a Member State in which such contracts “may serve as a partial or complete alternative to health cover provided by the statutory social security system” might require that the contracts comply with “the specific legal provisions adopted by that Member State to protect the general good in that class of insurance”. This part of the judgment was therefore, concerned with a detailed analysis of the essential elements upon which that possibility for derogation was formulated, including in particular the scope and effect of the notion that such contracts serve as a partial or complete alternative to the social security system cover, and the requirement that the specific legal provisions of the host Member State had as their purpose “to protect the general good” in the class of insurance concerned. 44. Having examined the basis upon which the public health sector is operated in the State and taking into account the equivalent systems in a variety of other Member States, he concluded at para. 184 that: “the Irish PMI system acts as an alternative, either partially or completely, to the public health system operating in this country”. There is, accordingly, a clear finding on the mixed issue of fact and of interpretation of Article 54 made on foot of the detailed analysis of the provisions and in the light to extensive evidence put before the Court at the hearing. 45. From para. 190 onwards, McKechnie J. then considered the element of “general good” as a requirement to be met if the specific national legal provisions were to be permissible on the basis of Article 54. For this purpose, the judge had regard to consideration given to the concept of “general good” in the jurisprudence of the Court of Justice as distilled by way of summary in the interpretative communication already mentioned above, and set out in para. 190 of the judgment. He thus held that, in order for the specific legal provisions adopted in the form of the Risk Equalisation Scheme to be deemed necessary “to protect the general good”, they had to be shown to meet the requirements that they: come within a field which has not been harmonised; must pursue an objective of the general good; must be non discriminatory; must be objectively necessary; must be proportionate to the objective pursued; and the objective must not be one which is already safeguarded by rules to which the undertaking is already subject in the Member State of establishment. 46. Taking into account various policy documents, including the Government White Paper as quoted in the judgment, McKechnie J. concluded that a risk equalisation scheme for the purpose of supporting the particular form of community rating - that is, community rating across the market - was sought to be introduced by the Minster in order to protect the general good for the purposes of Article 54.1. 47. The other requirements of protection of the general good were then separately examined from the point of view of objective justification and proportionality as part of the assessment of the issues raised under Articles 43 and 40 of the Constitution and Articles 86 and 82 EC. 48. It is important, of course, to bear in mind that while the Third Non-Life Directive completed the attainment of the internal market for non-life insurance services by coordinating the laws, regulations and administrative provisions applicable to such business, it did so in respect of some aspects of the activities concerned only at the level of minimum standards. In those areas where the coordination was at that level, the Member States remained entitled to define stricter standards when exercising their authorisation powers for the setting up of an insurance undertaking in the home Member State as described in recital (8). McKechnie J. had therefore to consider whether the introduction of the 2003 Scheme by statutory instrument in this case constituted “specific legal provisions” of the kind envisaged in Article 54.1. He concluded that it did, by reference to the explanatory terms of recitals 22 – 24 of the Directive and particularly to that part of recital (24) which described such measures as potentially including provision for:
Articles 86 and 82 EC 51. In analysing these claims McKechnie J. had particular regard to the opposing evidence on the part of the experts called by the parties as to whether the scheme distorted competition. At para. 230 he concluded that “this scheme involved some elements of anti competitive behaviour in that the pricing structure of the market is interfered with and entry is less attractive . . . Therefore competition is distorted”. He declined, however, to accept the characterisation of the financial transfers under the scheme as amounting to expropriation or confiscation. They were designed to compensate for a loss of disadvantage and to restore the profile balance between the undertakings. On that basis he reasoned (para. 231) that it fell to the State to prove the existence of an objective justification for this impact on competition or to satisfy the Court that the State could rely upon para. 2 of Article 86. He identified five factors as requiring to be satisfied if there was to be an “objective necessity defence”:-
2. The aim of the measure must be defined; 3. The chosen means must be suitable to achieve the aim; 4. The measure must be indispensable to the aim in the sense that the result cannot be achieved by any alternative measure which is less anti competitive or of shorter duration; 5, The measure must constitute an appropriate response in the context of Article 82. 52. McKechnie J. then dealt with the reliance placed by the State on Article 86(2). It was not seriously disputed, he considered, that the provision of private medical insurance within a statutory scheme is both a service and a service of economic nature and was both directed at the general population and availed of by a large section of it. He concluded that “community rating, open enrolment and lifetime cover could not operate in this country, in economically acceptable conditions, without the presence of a Risk Equalisation Scheme” with the result that the restrictions by way of impact on competition were necessary in order to ensure that the services in question could be carried out in economically viable conditions. At para 234, he said: “So long as there is a fundamental State commitment to community rating across the market, no sustainable case exists, or has been made out, even by BUPA that such a system can survive without some form of Risk Equalisation Scheme”. He added:
. . . Rather the question is, given the established and preferred state method of providing private cover, enjoying as it does a margin of appreciation in this regard, are the resulting restrictions proportionate to the aims. In my view they are, because if one were to apply the Treaty Rules on Competition, the provision of such a service could only take place and certainly could not take place in conditions of economic acceptability. Accordingly I believe that Article 86(2) is available in this case.” 54. As already indicated, the question of “objective justification”, both in the context of compatibility with the Third Non-Life Directive and for the purpose of the arguments based on Articles 86 and 82, was dealt with in the judgment under the heading of the claims made of interference with constitutional rights under Article 43 and Article 40.3 of the Constitution. 55. Central to the issue as to the compatibility of the Scheme with the limitations imposed by the Articles of the Constitution on encroachment on property rights was a question of the proportionality of the apparent impact which the scheme would have. The respondents had argued that, if the 2003 Scheme and s. 12 of the Act of 1994 (which was impugned as invalid) were held to be compatible with the Third Non-Life Directive, and therefore held to represent permissible conditions on the applicants’ entitlement to conduct non-life insurance business in the State, it could not be said that there had been any unlawful interference with their property rights. McKechnie J. declined, however, to accept the respondents’ submission that the financial effect of the 2003 Scheme on BUPA was to be ignored for this purpose. At para. 249, he cited the evidence that had been given as to the projected liability which BUPA would incur and concluded:-
57. This includes a detailed consideration of the expert actuarial, economic and accountancy evidence given on either side as to the alleged deficiencies and detrimental effects of the scheme and the responses given to those criticisms. (See paras. 264/278). As a significant and important part of the evidence relied upon by BUPA was that given by the economist Dr. Koboldt, it is relevant to note an observation made upon it in this context by McKechnie J. at para. 279:-
59. In this part of the judgment, McKechnie J. considers also the evidence of the expert witnesses called on behalf of the respondents and particularly that of the two economists, Dr. Walker and Dr. O’Toole, which he preferred and accepted. In the concluding passages of the judgment, from para. 290 onwards, McKechnie J. sets out his essential conclusions on these issues. He held that, on the basis of the economic evidence which he accepted, the market in question is potentially unstable without risk equalisation in the Irish system, and that the 2003 Scheme was therefore “absolutely necessary to support the present system”. He held that, moreover, “it is fair, reasonable and proportionate and the respondents (recte the applicants’) evidence has not undermined this view”. 60. He then dealt with further issues that had been raised, such as whether BUPA had followed a policy of “shadow pricing” since entering to the market and whether it had earned “super profits” in it by doing so. As regards the former, he expressed the view that the evidence suggested that, at least on some occasions, BUPA had adopted a practice very close to shadow pricing, as it indicated that the level of price increases was significant and appeared to be inconsistent with BUPA’s claim that the parity of increases with VHI increases was largely due to similarity of input cost. In regard to the latter issue, he found that BUPA appeared on the evidence to have earned percentage profits which were substantially in excess of any other relative indicator in the sector. 61. Finally, at para. 295, McKechnie J. referred again to the decision of the European Commission of 13th May, 2003, under the State aid provisions of Article 87 EC, following the State’s notification of the 2003 Scheme under that provision. He described the decision as “highly relevant for [the Commission’s] views on the necessity and proportionality of the Risk Equalisation Scheme”. (He referred particularly to paras. 50-59 of the decision). He concluded by saying that he respectfully agreed with the Commission’s decision that the 2003 Scheme had passed both the necessity and the proportionality test and in the final paragraph of the judgment concluded:-
The Supreme Court Judgment 64. As already indicated in para 16 in this judgment, the applicants’ appeal against the High Court judgment was successful, but upon the sole ground that the interpretation of the definition of community rating by reference to ss. 2, 7 and 12 of the Act of 1994 was mistaken, such that the 2003 scheme was ultra vires the powers of the Minister to make the statutory instruments. Nevertheless, in assessing the effect of the Supreme Court order to remit the question as to liability of the respondents for damages in these circumstances for consideration by this Court, regard must be had to the implications of observations made in the judgment of Murray C.J. on some of the above findings of McKechnie J. in relation the evidence given and the analysis made in the High Court. 65. Under the heading of “Impact of the Risk Equalisation Scheme” Murray C.J. said:
67. The Supreme Court judgment continues with some comments on the findings made in the High Court in relation to the important implications for BUPA’s trading position and profitability of the 2003 scheme once it came to be applied. It notes that McKechnie J. did not accept the applicants’ claim that the required payments would have made it unprofitable for BUPA to remain in the market. Murray C.J. observes:-
69. Later in the judgment Murray C.J. refers again to the impact of the 2003 Scheme, with its concomitant component of community rating, and to the argument that the learned trial judge had underestimated the effects, pointing out that: “the respondents did not challenge those findings although they argued against some of their implications and said they were in any event objectively justified”. He then adds the comment: “Justified or not, from any point of view a scheme based on community rating across the entire market has actual and potentially serious implications for undertakings in the market”. In the judgment of this Court, these passages can only be read as an affirmation on the part of the Supreme Court that the evidence before the High Court and the assessment made of it by McKechnie J. was at least capable of supporting his findings as to the seriousness of the adverse impact of the 2003 Scheme upon the commercial position of BUPA, and as to its anti-competitive implications and effects. It was only in respect of the issue as to whether such consequences could be excused and rendered lawful as objectively justified that the Supreme Court judgment stops short of expressing any view on the High Court judgment. In reaching the conclusion on the definition issue, the judgment also made this observation:-
71. The outcome of the cumulative effect of the High Court and the Supreme Court judgments so far as concerns the position of this Court on the issues now before it, appears to be as follows. The High Court has made a series of clear findings on issues of fact and of mixed fact and law in relation to the detrimental effects contended for by the applicants as to the impact of the 2003 Scheme on BUPA’s commercial position, viability and profitability and as to its distorting effects on competition. These have not been set aside or put in doubt by the judgment of the Supreme Court and, indeed, as indicated above, might be considered to have been in some respects impliedly affirmed. On the other hand, the Supreme Court has expressly refrained from making any finding or giving any view on the findings made by McKechnie J. to the effect that the introduction of the 2003 Scheme was nevertheless not unlawful because, for the purposes of issues Nos. 3, 4 and 5 above, the restrictions and burdens which the scheme brought about for undertakings, including BUPA, were considered necessary, proportionate and objectively justified for the protection of the general good. Res Judicata 73. The elements necessary in order to successfully plead issue estoppel are not in doubt. They were summarised by O’Neill J. in Sweeney v. Bus Atha Cliath [2004] 1 I.E. 576 at 581. He said:
‘While the doctrine of what has come to be called ‘issue estoppel’ has been the subject of explanation and analysis in many modern decisions, its essential features were helpfully summarized as follows by Lord Guest in Carl Zeiss Stiftung v. Rayner and Keeler Limited [1967] 1 A.C. 853 at p. 935A: The requirements of issue estoppel still remain 1. That the same question has been decided; 2. That the judicial decision which is said create the estoppel was final; and 3. That the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.’” 74. There is no doubt that, in the situation now before this Court, these same questions have been considered and have been the subject of the judicial decision of McKechnie J., and that the parties are the same persons. The issue, accordingly, is whether, in these particular circumstances, the decisions of McKechnie J. are properly characterised as final decisions in the above sense. The respondents point to the fact that the findings of objective justification were the subject of grounds of appeal before the Supreme Court, but, obviously, the Supreme Court expressly refrained from making any ruling upon them and the applicants did not seek to invite the Supreme Court to rule upon those grounds. (They refer in this regard to the approach that had been adopted by appellants in the case if Dellway Investments Limited v. National Asset Management Agency [2011] IESC 3.) 75. Although the situation is unusual, the Court is satisfied that it would be a questionable extension of the concept of issue estoppel to treat these particular issues as having been the subject of final judicial decision in this litigation. In the first place, that does not appear to have been the intended consequence of the Supreme Court determination of the ultra vires issue, for example, in the passages quoted in paras. 64 to 68 above, where Murray C.J. expressly refrains from making any comment upon the questions of objective justification and as to whether the limitation on constitutional rights would be justified. 76. More importantly, however, it is clear, as already adverted to in the above review of the judgment of McKechnie J., that his findings were explicitly predicated on his view of the correct interpretation of the definition of “community rating”. As already pointed out, he acknowledged that his conclusion had “considerable significance for several other major issues” and he felt obliged to discount important parts of the applicants’ expert evidence as a result. (See paras. 34 and 35 above). A further crucial element in the conclusion reached by McKechnie J. was that adverted to in para. 52 above; namely, his understanding that “there is a fundamental State commitment to community rating across the market”. However, it is now clear from the judgment of the Supreme Court that, while there may well have been a fundamental commitment to community rating across the market on the part of the Minister and her advisers, it was based upon a mistaken view of the type of community rating which the Oireachtas had authorised in the Act of 1994. The observation by McKechnie J. to the effect that there was a fundamental commitment of the State is clearly vitiated by the construction given to the Act by the Supreme Court. Insofar as the commitment evinced by the State is that legislated for by the Oireachtas in ss. 2 and 7 of the Act of 1994, it is a commitment to community rating “within the plan”. Clearly, therefore, there was a crucial connection between the finding of objective justification in the High Court judgment and the understanding that there was a “fundamental State commitment” to community rating across the market on the basis that such a risk equalisation scheme was essential to the operation in economically acceptable conditions of a system of community rating based upon open enrolment and lifetime cover. As pointed out in para. 52 above, the finding in favour of the respondents that “Article 86(2) is available in this case” was thus bound up with the acceptance of the proposition that the 2003 Scheme was necessary in order to give effect to the State commitment to community rating across the market. 77. Furthermore, as pointed out in paras. 54 – 58 above, this view of the definition of community rating and of the commitment to community rating across the market as fundamental to the sustainability of the system sought to be achieved, was also considered by McKechnie J. to underpin the conclusion reached that the respondents had discharged the objective justification test for the purposes of the applicants’ reliance upon their constitutional rights of property and that, of course, formed a part of his rulings under the other headings also. 78. The Supreme Court, in finding that the 2003 Scheme was ultra vires the 1994 Act, clearly envisaged, depending upon the terms in which the Oireachtas might ultimately legislate to provide for the introduction of a scheme based on community rating across the market, that such a scheme might well be shown to be capable of objective justification notwithstanding the obvious impact which it would have on competition and on the commercial positions of other insurers in the market. Obviously, issues as to the reasonableness, proportionality and objective justification of any scheme will be dependent upon or influenced by the nature and extent of the impact of a scheme on competition in the market and on the interests and rights of other undertakings. 79. Furthermore, in refraining from expressing any view on the issue of objective justification, the Supreme Court was clearly alive to the possibility that amending legislation, designed to cure the flaw in the Minister’s power to introduce community rating across the market, might not necessarily result in a scheme being introduced which fully replicated the 2003 Scheme, so that considerations of reasonableness, proportionality, objective justification and impact on other undertakings would fall then to be assessed according to the nature and effect of the actual scheme and the market conditions prevailing at the time. That however is not a relevant factor here because the applicants’ claim for damages is directed at the 2003 Scheme as provided for under S.I. 260 of 2003 and as purported to be put into practical effect by the Minister’s decision of 23rd December, 2005, to require commencement of the payment obligations on 1st January, 2006. It was only as and from the latter date that BUPA began to incur a need to make accounting provision for a prospective liability. 80. In remitting the issue of liability to the High Court, in circumstances where the Supreme Court acknowledged the findings made by McKechnie J. as to the distorting effect of the 2003 Scheme on competition and its adverse impact on BUPA’s commercial position, while refraining from expressing any view on the issues of objective justification, the Supreme Court must be taken as having intended the High Court to examine the liability issue by reassessing the question as to the objective justification of the 2003 Scheme in the light of the impact of the finding as to the correct interpretation of the statutory definition on the conclusions previously reached on those questions. 81. Given the importance attached by McKechnie J. to what he considered to be the fundamental commitment of the State to community rating in the s. 12 form, it must follow that the effect of the Supreme Court judgment has been to require the High Court in determining the issue of liability to reassess the questions as to whether the 2003 Scheme was capable of objective justification, had it been competently adopted. That however, must in turn necessarily involve, should the applicants so require, the reopening of the findings made by McKechnie J. as to the nature and extent of the adverse, detrimental and distorting effects of the 2003 Scheme. BUPA had contended before the Supreme Court that the High Court had underestimated these effects, and would presumably argue that the more serious the effects are found to be, the greater is the difficulty in demonstrating that the Scheme could be objectively justified. If the applicants are not estopped from reopening the issue of objective justification, there does not appear to be any basis for holding that the respondents are estopped from reopening the related findings of prima facie infringement or incompatibility at which the objective justification question was addressed. Issue estoppel cannot, in the view of the Court, operate on a piecemeal basis by application to the constituent findings within the issue which has been determined. In this instance, the High Court determined the three issues as to infringement of the Directive, of Articles 86 and 82 and of the constitutional rights. Each of those determinations involved two or more constituent findings. For example, the issue as to the infringement of the Directive involved a series of findings as to the characterisation of private health insurance in the State as alternative to health cover provided by the social security system; as to whether the 2003 scheme was a “specific legal provision” of the kind envisaged by Article 54.1 and as to whether the scheme was necessary “to protect the general good”. (See above paras. 41 – 49). 82. In the view of the Court, it is impossible, for the purpose of applying the principle of issue estoppel, to subdivide such findings within the determination of a given issue. It is the determination of the substantive issue as a whole to which the principle can apply. 83. This situation is further complicated by the fact that the issue of liability now falls to be determined by this Court and not by McKechnie J., as might otherwise have been the case. It seems to the Court that had the issue fallen to be determined by the trial judge he would have been entitled to reassess the issues on the basis of the evidence as originally presented to him, without retrial, and in the light of the Supreme Court ruling on the definition of “community rating”. Not having heard that evidence, this Court cannot adopt that approach – at least in the absence of the agreement of the parties – without resorting to a potentially unfair procedure. By the same token, however, if it is correct to regard the findings on the objective justification questions as no longer tenable, it would appear equally unacceptable that the applicants should be deprived of the opportunity of having those questions re-determined on the basis of the evidence they rely upon as to the disproportionate and excessive effects and impact of the 2003 Scheme and in support of their contentions that it was incapable of being saved by considerations of necessity, justification and pursuit of the common good. 84. Accordingly, in the judgment of the Court, the effect of the Supreme Court judgment in this regard is that, should it be necessary to do so, the determination of the issue of the respondents’ liability for damages, if any, will necessarily involve a re-examination of those claims of infringement, and, in the changed circumstances that now exist, to a rehearing of the relevant evidence, unless the parties agree otherwise. The Alleged Wrongs 86. There is no doubt that, as a matter of both Irish law in relation to infringement of constitutional property rights and of European Union law in relation to the infringement of rights conferred by that law which Member States are bound to respect, an entitlement to compensation by way of damages for losses incurred may arise and that the High Court is competent in both cases to award them, provided that the essential criteria of liability are proven to exist. (See, for example, Emerald Meats Limited v. Minister for Agriculture & Ors. [1997] 1 I.R. 1 and Maxwell v. Minister for Agriculture, Food and Forestry [1999] 2 IR 474) 87. The question therefore arises as to whether, in the particular circumstances of this case, those criteria would be established if it is assumed that, on any re-examination and/or rehearing of evidence (should such be necessary) as to the three alleged wrongs, it was determined that the 2003 Scheme had adverse effects on BUPA’s commercial position, on property rights and on competition, as least as detrimental and distorting as that previously determined by McKechnie J., and that the defence of objective justification failed to save it from being unlawful? This question arises because of two particular factors which are peculiar to the situation of the parties. These are, first, the fact that the effect of the Supreme Court order has been to quash the statutory instruments upon which the legal and practical impact of the 2003 Scheme depended, thereby rendering them void ab initio. Secondly, BUPA never actually made any transfers on foot of the payment obligations of the Scheme prior to its being quashed, although, of course, it claims to have sustained loss in having been compelled to mitigate its prospective future loss by disposing of the business for a value less than that it would have had in the absence of the purported imposition of the 2003 Scheme. If the 2003 Scheme never had effect in law, because it was void ab initio as the applicants had contended from the outset, and if the stage was never reached at which actual transfers were compelled to be made, such that the distorting effect on competition of the transfers never occurred, has any justiciable wrong in the senses of the necessary ingredients of the three alleged wrongs actually been committed? Even if it is shown, for example, that the 2003 Scheme would have been unjust if implemented, has any actual attack on property rights taken place if the payments were never made? It is necessary, therefore, to consider the essential elements which must be established in order to maintain a claim for damages under each of the headings of the three alleged wrongs. 88. Because of the relationship, as explained below, between the institutions of the European Union and the Member States, so far as concerns non contractual liability for losses caused through infringement of rights protected or afforded by European law or the provisions of European Treaties and legislation, it is appropriate to consider first the position in Irish law in relation to claims of tortious infringement of constitutional rights. The Constitutional Wrong 90. Furthermore, it is settled law that in the case of alleged infringements of the rights of property, the protection of Articles 43 and 40.3 2° extends to artificial entities such as limited companies. (See the judgment of Keane J. in Iarnród Éireann v. Ireland [1996] 3 I.R. 321). Next, it is also well settled that not every encroachment by the State upon private property amounts to an “unjust attack” in the sense of Article 40.3 2° of the Constitution. That article falls to be read in conjunction with Article 43, and particularly para. 2 of the latter, which recognises that the State “may as occasion requires delimit by law the exercise of the said rights with the view to reconciling their exercise with the exigencies of the common good”. In Dreher v. Irish Land Commission [1984] I.L.R.M. 94, Walsh J. said: “I think it is clear that any State action that is authorised by Article 43 and conforms to that Article cannot by definition be unjust for the purposes of article 40.3 2°”. This approach has been followed in several subsequent cases including by Murphy J. in Lawlor v. Minister for Agriculture [1990] 1 I.R.356 and by the Supreme Court in O’Callaghan v. Commissioners for Public Works [1985] I.L.R.M. 364. 91. It is to be noted, however, that in all of those cases and in others where legislative provisions or administrative decisions have been challenged as unlawfully encroaching on the property rights protected by Article 40.3 2°, the Courts have been considering instances in which the impugned provisions have had actual effect, such that there had been, or there was liable to have been, an actual encroachment upon the property rights in question. In the judgment of the Court that is not the case here. As already alluded to above, the 2003 Scheme was originally promulgated in June 2003, and signed by the Minister on the 26th of that month. It had been notified to the European Commission under the State aid provisions of the Treaty and been approved by a decision of the Commission on the 13th May, 2003, as not constituting State aid. The Scheme had been opposed from the outset by the applicants, who brought an action for annulment of that decision before the Court of First Instance of the EC under the title of British United Provident Association Limited and Others v. Commission (Case T-289/03). Their application was ultimately, on 12th February, 2008, refused by that Court. 92. Under the provisions of the 2003 Scheme, health insurers were required to submit periodic returns of quarterly data to the first named respondent, and on the basis of that information the first named respondent was empowered to make a recommendation to the Minister as to whether the obligation to commence payment of Risk Equalisation transfers should be commenced. When the present proceeding was originally initiated in 2005, a stay was obtained upon the implementation of payments under the scheme by the Minister, but that relief became moot when the Minister decided not to implement the recommendation at that point. It was only, accordingly, on 1st January, 2006, that the payment obligations came into effect. No payments in fact came to be made by the applicants, and when the High Court judgment was given on 23rd November, 2006, further implementation of the 2003 Scheme was stayed by McKechnie J. pending the filing of a notice of appeal. That stay was subsequently continued by the Supreme Court pending the determination of the appeal. In the meantime, the applicants had announced their decision to leave the Irish market on 14th December, 2006, and they subsequently disposed of their business in the State in March 2007. In these circumstances, in the judgment of the Court, the combined effect of the quashing of the 2003 scheme as ultra vires and the fact that no actual payments came to be made has the result that no actual attack upon property rights of the applicants or the right to carry on business has in fact occurred. To the extent that the applicants’ claims from the outset have been based upon their constitutional entitlement to protection of those rights, their claims have been vindicated by the relief obtained from the Supreme Court. 93. Claims for damages analogous to the present claim have been considered by the Courts in a number of cases in different circumstances. Two of them have already been referred to above. In Pine Valley Developments v. Minister for Environment [1987] I.R. 23, concerned an ultra vires decision of the respondent to grant permission for a development of the plaintiff’s lands, in which it was accepted that it had probably contributed to the diminution in value of the land in question. The claim for damages was rejected, however, by the Supreme Court, Finlay C.J. saying (at page 38):-
98. In other words, where the exercise of a delegated statutory power, whether to take an administrative decision or adopt and implement a statutory instrument, is found to be ultra vires the public authority in question, there is no automatic entitlement to damages on the part of a person affected, unless the act in question involves some identifiable civil wrong such as breach of contract or a tort, and resulting loss is thereby caused to the person concerned. Otherwise the remedy for a person affected by the ultra vires act is an order of certiorari or equivalent relief. 99. Accordingly, in so far as reliance is placed upon the third of the alleged wrongs; namely, the alleged unlawful infringement of the applicants’ right of property and of the right to conduct a business, no liability on the part of the respondent could in any event arise, in the view of the Court, unless it was established that the adoption of the 2003 Scheme, either as such or in combination with the decision of 23rd December, 2005, to commence the payment obligations, involved also one or other of the two remaining alleged wrongs. The EU Law Infringements 101. It is not in dispute that, as a matter of Irish law, such infringements can give rise to claims for damages by an injured party and that such infringements fall to be considered as equivalent to a civil wrong or tort in domestic law. It is necessary, however, to outline briefly the legal context which forms the basis of this position, because the evolution of European law in the area has brought about a situation in which the conditions or criteria for liability on the part of the Union for infringement of rights of individuals under that law have been assimilated to the criteria and conditions applicable to the liability of Member States. 102. Under the constitutional structure of the European Union and the prior European Communities, the Union (as the legal entity) and the Member States share responsibility for ensuring the proper implementation and enforcement of European law. Under Article 288 EC (now Article 340 TFEU) the Treaties had provided that the Union would be non-contractually liable for damage caused by the institutions or their servants in the performance of their duties “in accordance with the general principles common to the laws of the Member States”. Article 235 EC (now Article 268 TFEU) conferred exclusive jurisdiction upon the Court of Justice to determine such claims. 103. Because the Member States contribute extensively to the implementation of European Union law, they too are answerable for compensation if they act unlawfully when doing so and cause damage or loss to injured parties. Under Article 10 EC (now Article 4.3 TEU), the Member States are required to take all appropriate measures, whether general or particular, “to ensure fulfilment of the obligations arising out of (the) Treaty or resulting from action taken by the institutions of the Community. They shall facilitate the achievement of the Community’s tasks. They shall abstain from any measure which could jeopardise the attainment of the objectives of this Treaty”. These obligations include the obligation to make good the unlawful consequences of a breach of Community law. (See for example Asia Motor France v. Commission (Case C-72/90) [1990] E.C.R. 1-2181, paras. 14-15). 104. In the leading case of Francovich and Others v. Italian Republic (Joined Cases C-6 and C-9/90) [1991] E.C.R. 2-5357, the Court of Justice explained the rationale as being based upon the fact that the Treaty had created a legal system which is integrated into the legal systems of the Member States, to be applied by their Courts. The subjects of the legal system include the nationals of the Member States, who have rights conferred by Community law. As a result, “it has been consistently held that the national Courts whose task it is to apply the provisions of community law in areas within their jurisdiction must ensure that those rules take full effect and must protect the rights which they confer on individuals”. (Para. 32) 105. The full effectiveness of Community rules would be impaired and the protection of the rights which they confer would be weakened if individuals were unable to obtain redress when their rights are infringed by a breach of community law for which a Member State can be held responsible. (Para. 33) “It follows that the principle whereby a State must be liable for loss and damage caused to individuals as a result of breaches of Community law, for which the State can be held responsible, is inherent in the system of the Treaty”. (Para. 35) 106. The Francovich case is also the leading authority for the proposition that, while the right of the injured party to reparation derives directly from Union law, it is by reference to the rules of national law that the liability is to be determined and assessed, but:-
107. While the terms in which the conditions of liability of the Union for damages for infringement of Union law, and those in which the conditions applicable to the liability of Member States might be said to have been expressed differently in the earlier case law, it has been clear since at least the judgment of the Court of Justice in Bergaderm and Groupil v. Commission (Case C-352/98P) [2000] E.C.R 1-5291, that the conditions have now been brought into alignment, so that they are the same whether the rights of the injured party have been infringed by an act or conduct of the Union institutions, or of authorities or agencies for which a Member State is responsible. At para. 41 of that judgment, the Court said:-
109. In the context of the present case, therefore, it is clear that, when the provisions of the 2003 Scheme are considered, the provisions of the Third Non-Life Directive must be taken as containing a superior rule of law, in that it is a measure of secondary legislation at Union level which has as its objective the attainment of the Treaty right of establishment and the freedom to provide services. Similarly, Article 86, when taken in conjunction with the prohibition of Article 82, must also be regarded as containing a superior rule of law intended to confer rights on individuals. Its explicit purpose is to protect undertakings against anti competitive behaviour, including anti competitive behaviour rendered possible by State measures. 110. The second condition is that the impugned act or conduct must be sufficiently serious. The purpose of this condition is to draw a distinction between loss or damage which flows from the mere exercise of policy choices on the part of Union institutions or State authorities and loss or damage resulting from a manifest and grave disregard by the institution or authority on the limits of exercise of its powers. (See for example H.N.L. and Others v. Council and Commission (Joined Cases 83 and 94/76, 4, 15 and 40/77) [1978] E.C.R. 1209, para. 6 and the Bergaderm case at para. 43). One of the factors to be taken into account in determining whether there has been such a manifest and grave disregard of the limits on the exercise of an institution’s powers is whether the institution was acting in circumstances where it had a wide degree of discretion, as opposed to a very reduced or even no discretion. A further element which is of relevance in assessing this aspect of the condition is whether the irregularity identified in the act or conduct of the institution or State authority is one which, in comparable circumstances, would not have been committed by a normally prudent and diligent administration. Such a finding may lead to the conclusion that the conduct concerned was of sufficiently serious illegality to give rise to liability. (See for example Medici Grimm v. Council (Case C-36403) [2006] E.C.R. 2-81 at para. 79). It is relevant, also, to take into account the complexity of the situation with which the institution or authority was dealing, and any difficulties in the application or interpretation of legislation. In the last mentioned case, the Court was concerned with a claim that a failure of the Council to provide for retroactive effect of a regulation imposing an anti dumping duty on a specific product constituted a sufficiently serious breach of the Basic Anti-Dumping Regulation (Council Regulation (EC) No. 905/98). At para. 87 of the judgment, the Court ruled:
112. The distinction between recoverable losses caused directly by the unlawful act on the one hand, and losses which are not eligible for compensation for lack of a direct causal link is well illustrated by the differing outcomes in the cases of Dumortier Frères v. Council (Joined cases 64, 113/76, 167, 293/78, 27, 28 and 45/79) [1979] ECR 3091. 113. In an earlier proceeding before the Court as an application for preliminary ruling, the Court of Justice had annulled as unlawful a Council Regulation concerning certain production refunds under the Common Agricultural Policy, for infringement of the principle of equality or non discrimination. The provision in question had unlawfully discriminated between maize gritz for the brewing industry and maize starch. Affected producers then brought actions for damages against the Council. The gritz producers who had not received refunds, instead of increasing their prices to make up for the shortfall, took a commercial decision to sell at a loss in order to retain their markets rather than risk losing markets to the maize starch producers who were in receipt of the refunds. 114. The applicants were held to be entitled to damages equivalent to the production refunds they would have received, had they been entitled to the same payments as the maize starch producers during the relevant period. Certain of the applicants had made additional compensation claims based upon losses sustained due to a fall in sales and operating deficits. The Court rejected those claims on the grounds that those losses were not caused by the unlawful discriminatory treatment of the products in question. At para. 20 of the judgment, the Court said:-
117. This is accordingly, the context in which it is necessary to consider whether the above conditions could be shown to be met in the alleged infringements of the Third Non-Life Directive and Articles 86 and 82 EC, if it is assumed that the findings made by McKechnie J. as to the adverse and distorting affects of the 2003 Scheme were at least reconfirmed, and that the effects of incompatibility and distortion of competition were held not to be justifiable as having been necessary in pursuit of the common good. Serious Breach of a Superior Rule of Law 119. Secondly, it is abundantly clear not only from the advices, reports and material made available to the Minister over the years in question, but also from the extensive expressions of opinion by experts and the expert evidence given before the High Court, together with the opposing legal submissions and the detailed legal analysis to be found in the judgments of McKechnie J. and the Supreme Court, that the matters with which the Minister was dealing were of very considerable complexity, from the point of view of the technicalities of insurance underwriting, the equilibrium of the private health insurance market and the interpretation of both the Directive and national law. In addition, the draft scheme had been notified to the European Commission under the State aid rules as mentioned above, and, while the applicants dispute the relevance of the Commission decision and the subsequent ruling of the Court of First Instance to the compatibility and competition issues upon which this claim for damages is based, the very fact that the Minister did so notify, and had the benefit of the analysis and approval of the Commission, must weigh heavily in negating any possible finding that there has been a manifest and grave disregard on her part, in the way in which the power to introduce such a scheme was exercised. While it is true that there was ultimately a mistake of national law in the construction of the domestic legislation concerned, it could not, in the judgment of the Court, be said that the manner in which the Scheme was prepared, formulated, reconsidered, postponed and ultimately commenced, was action or conduct which a normally prudent and diligent administration would not have undertaken. 120. Finally, in this regard, it is relevant when assessing the gravity of the alleged infringement, to take into account the nature, extent and gravity of the loss or damage caused. When the 2003 Scheme was promulgated and then implemented, what was clearly foreseeable on the part of the respondents as a consequence of the impact of the Scheme on undertakings such as the applicants, was the making of very substantial transfers of funds to the first named respondent for the ultimate benefit of the VHI. As already mentioned, that consequence did not actually materialise. No such transfers ultimately came to be made. It is true that the applicants may be in a position to claim and to prove that a loss was incurred in the disposal of the Irish business in January, 2007, as compared with the value the business would have had in the absence of the threatened imposition of the 2003 Scheme. Nevertheless, had the applicants waited until the outcome of the Supreme Court appeal and the vindication of their challenge to the Scheme that loss would not have occurred. 121. In the judgment of the Court, the intervention of the applicants’ voluntary decision, however commercially justified and prudent it might have appeared to have been, had the effect of breaking the link of causation between the 2003 Scheme as an infringement of the two alleged wrongs one the one hand and any such loss on the other. 122. As illustrated by the circumstances of the Dumortier cases referred to above at para. 112, an intervening decision taken by a claimant for its own commercial reasons may have the effect of breaking the causal link between the wrongful act and the loss sustained. Although the High Court judgment resulted in the dismissal of the applicants claim, it had also established important findings in their favour as to the detrimental impact of the 2003 Scheme in distorting competition and in altering their commercial position. By deciding to dispose of the business in March 2007, and in so doing deciding the amount of the alleged loss they were prepared to accept, the applicants were taking a risk by not awaiting the outcome of the appeal. It was that choice of risk that caused the alleged lost value of the business, and, in the judgment of the Court, that is something that cannot be laid at the door of the respondents as the basis of a claim for compensation. It is possibly correct, as the applicants have submitted, that it must have been foreseeable to the respondents that the substantial transfers to the HIA which the 2003 Scheme would have required them to make would have an impact upon their commercial position and profitability, at least in the immediate and possibly medium term. It may also be true that the applicants had warned the Minister that they would exit the market rather than risk a further trading loss. It does not follow, however, in the judgment of the Court, that this has the necessary consequence of making the capital loss which the applicants claim to have sustained on the sale of the business a reasonably foreseeable consequence of the introduction of the 2003 Scheme, or the commencement of the payment obligations. 123. It follows, in the judgment of the Court, that neither the second condition as to a sufficiently serious breach, nor the third condition as to the direct causal link between the breach and the damage sustained, could be said to be satisfied in this case. The Article 86/82 Infringement 125. For that purpose, he considered whether the VHI was an undertaking which had been “entrusted with the operation of services of general economic interest”. He considered (para 233) that the provision of private medical insurance within a statutory scheme is a “service” and one of an “economic nature”. At para. 234, he found that because community rating, open enrolment and lifetime cover could not operate in economically acceptable conditions without recourse to a risk equalisation scheme, the application of Article 82 would “obstruct” the performance by the VHI of the task assigned to it. 126. The Court has already indicated that it would be inappropriate in this judgment to embark upon any reassessment of issues that are dependent upon the evidence given before McKechnie J. as to the severity or otherwise of the impact of the 2003 Scheme upon the commercial position of BUPA or on competition in the relevant market. The issue that now arises, however, as to the applicability of Article 86.2, is not such an issue because it turns upon the construction of that paragraph in the light of the status and function of the VHI as established under the Health Acts. While it may not be strictly necessary to decide this issue for the purpose of considering the question as to the entitlement to claim damages for an infringement of these Articles, in view of the reasons given below, the Court considers that, for the sake of completeness and in case the issue should be taken further on appeal, the Court should express its view on this aspect of the case. 127. While it is undoubtedly true, as was found in para. 233 of the High Court judgment, that the provision of private medical insurance is both a service and an activity of an economic nature, it appears to this Court that it is not necessarily a “service of general economic interest” in the sense of Article 86.2. As adverted to by McKechnie J. in the cited authorities (including the Commission’s Communication on Services of General Interest in Europe (2001)), the services which qualify for this characterisation are essentially ones which are provided for the benefit of economic activities generally. In particular, the services are frequently those of utilities or distribution networks, which are used or accessed by undertakings in a wide range of industrial or commercial activities. This characteristic can be illustrated by various cases in which the concept has been found to apply:
- Distribution of electricity – Case C-393/92 [1994] 1ECR 1520; - Operations of a cargo port – Case 10/71 Port of Mertert [1971] 739 - Employment recruitment services – Case C-41/90 Hofner [1991] ECR 1-2017. 129. It follows that if it is assumed correct, if not inevitable, to find that the 2003 Scheme, if actually in operation, would have the effect identified in the High Court judgment; namely, the transfer of substantial payments by minority undertakings, (including the applicants) to the dominant undertaking, with concomitant deterrent effects on market entry, the Scheme must constitute a measure incompatible with the obligations of the State under Article 86.1, because it strengthens the market position of the public undertaking at the expense of competing non-public undertakings. 130. It does not necessarily follow, however, that an entitlement to damages would thereby result. The infringement of Article 86.1 on the part of a Member State is the enactment or maintenance in force of an incompatible statutory or administrative measure. While it may well be correct in these circumstances to say that the 2003 Scheme was “enacted” in the sense that the two statutory instruments were signed and that the payment obligations were directed to commence on 1st January, 2006, notwithstanding the subsequent declaration that they were void ab initio; the measures were nevertheless quashed and rendered void, and could not therefore be said to have been “maintained in force” as measures which had actual binding effect in national law. Strictly speaking, as a matter of national law, they were never ‘in force’. Furthermore, the benefit to the VHI which would have distorted competition never actually accrued. Accordingly, for the reasons already expressed above in respect of the alleged infringement of the Directive, the Court is satisfied that any technical infringement of Article 86.1 could not be characterised as such a manifest and grave disregard of the State’s margin of regulatory intervention in the area as to constitute a serious act of infringement which would attract a liability in damages. 131. It is true that in Union law the Bergaderm criteria constitute minimum conditions for liability and do not preclude national rules which impose liability upon the State under less strict conditions. (See, for example, the judgments in Brasserie du Pêcheur and Factortame at para. 66 and in Köbler v. Republik Österreich (Case C-224/01) [2003] ECR 1-10239 at para. 57). Nevertheless, for the reasons already given above in relation to the alleged constitutional wrong (paras. 89-99) it is clear, in the judgment of the Court, that no liability on that basis on the part of the State could arise in the circumstances of this case. 132. It follows that, in the judgment of the Court, the questions posed in the preliminary issues at para. A(2) and B(1) must be answered to the effect that the applicants are not entitled to recover damages in respect of the infringements identified at para. (1) (a), (b) and (c) of those issues. 133. As a consequence it is unnecessary to rule on the issue as to the measure to be applied in assessing damages. Summary Conclusion
(2) Although the Supreme Court refrained from expressing any view on other findings contained in the High Court judgment, this has had the result that the findings of McKechnie J., to the effect that the 2003 Scheme was in its objective and effects proportionate, reasonable and objectively justified as made in pursuit of the public interest in the common good, cannot be regarded as tenable. (3) This is so because those findings as made in the High Court judgment were expressly predicated on the ruling as to the interpretation of the definition of “community rating” in the Act of 1994, as the s.12 definition “community rating across the market”, an interpretation which has been adjudged mistaken by the Supreme Court. (4) Because, in the view of the Court, the setting aside of the High Court’s dismissal of the proceedings by the Supreme Court order has the result that there has been no final determination between the parties of the substantive issues raised as to the lawfulness of the 2003 Scheme, independently of the ultra vires ground, the principle of issue estoppel cannot apply. (5) Furthermore, because (a) the findings made in the High Court judgment on the substantive issues as to the nature, extent and gravity of the impact of the 2003 Scheme on the applicants’ commercial position and on competition in the market were based upon evidence and expert opinion heard by the High Court; and (b) those issues would now fall to be reassessed by a Court differently composed, it would be necessary, unless the parties otherwise agree, for this Court to hear such evidence de novo if those issues are required to be determined anew. (6) Nevertheless, the Court is satisfied that even if on such a rehearing, the Court was to reach conclusions as to the detrimental impact of the 2003 Scheme at least equivalent to those reached by McKechnie J. and was also to decide that the 2003 Scheme was not saved from illegality as objectively justified, it would not result in the applicants establishing an entitlement to damages. (7) This is because, as a matter of both national law and European Union law, the mere fact that the State has, as a result of a mistake of national law in adopting a legislative measure or administrative decision, infringed a right conferred by either law, does not give rise to an entitlement to compensation in addition to the remedy of annulment of the measure in question. (8) So far as concerns the reliance placed upon the constitutional rights of property and the right to carry on a business, the principle in the cases of Pine Valley Developments and Glencar Explorations applies, and the Court is satisfied that in the particular circumstances of this case no “unjust attack” upon the rights of the applicants actually occurred, because the applicants were never in fact compelled to make the transfer payments which would have arisen under the 2003 Scheme, prior to their deciding to dispose of the Irish business. (9) So far as concerns the claims based upon alleged infringement of the provisions of the Third Non-Life Directive and Articles 10, 86 and 82 EC, the Court is satisfied that the conditions applicable to liability of a Member State to make reparation for infringement are not met. First, having regard to the legislative and regulatory history of the 2003 Scheme and the consultation, research and deliberation that went into its preparation and implementation in the years prior to 2005, and to the technical complexity and legal uncertainty which surrounded the introduction of such a scheme, it could not be held that there has been a manifest and grave disregard on the part of the Minister or the State of the limitations on the State’s margin of regulatory discretion in this particular area. Secondly, the condition as to the existence of a direct casual link between the infringement alleged and the loss said to have been sustained is not met in this instance. The loss relied upon is the diminished value at which the applicants claim to have disposed of the Irish business in March 2007, but this voluntary decision had the effect of breaking the causal link between the alleged breach and the loss claimed. (10) Because, in the judgment of the Court, the claim for damages cannot be maintained, it is unnecessary to address the issue as to how damages might fall to be quantified. |