Alcohol Pricing, EU Law and the Court of Session
This post may not be competition law sensu stricto, but it does highlight interaction between wider state regulation and the market place. It also highlights the interrelation between the EU free movement provisions, in Arts 34-36 TFEU, and competition law. Where the activities of the State, acting as the State, impact on the market the free movement provision apply. Where the market is effected by non-state actors the competition law rules apply.
This post 1st appeared on the excellent EUtopia Law blog on 31 May 2013.
There has been debate about the legality of minimum per-unit (MPU) alcohol pricing in the UK, since the SNP-led Scottish Government first suggested adopting such a measure back in 2009. I contributed to the debate on several previous occasions, but now there is a little more substance to be discussed after the Outer House of the Court of Session, on 3 May 2013, handed down its judgment in The Scotch Whisky Association and Ors, Re Judicial Review of the Alcohol (Minimum Pricing)(Scotland) Act 2012  CSOH 70. The judgment answers some of the questions posed, but, sadly, it leaves yet more unanswered. I doubt this will be the last that we see of minimum alcohol pricing before the courts.
The SWA petitioned the court challenging the legality of the Alcohol (Minimum Pricing)(Scotland) Act 2012 and a proposed Order under that Act which would have set the minimum price at 50p per unit. Under that Order the minimum price for a product would be set using the formula: MPU x strength x volume in litres x 100. For one of my favourite red wines this would mean a minimum price of £5.62 per bottle (£0.50 x 15% x 0.75 x 100). For a can of Stella Artois the minimum price would be £1.14 (£0.50 x 5.2% x 0.44 x 100).
The Petitioners advanced three lines of argument: 1) that the provisions were in breach of the Acts of Union, 2) that the Act was outside the devolved legislative competence of the Scottish Parliament, and 3) that the Act was outside the competence of the Scottish Parliament as it was incompatible with EU Law. In this post I shall be concentrating on the EU law arguments.
Before delving onto Lord Doherty’s judgment there is one point of interest that is worthy of mention. Although they are not named as a party the European Commission was a significant player in this case. The Scottish Govt, as part of their obligations under the Technical Standards Directive 98/34/EC, notified the Draft Order to the Commission. Several Member States responded to that draft Order and the Commission delivered to the UK Govt and other interested parties a detailed Opinion. That Opinion has not been made public, and I have not had the benefit of having sight of it, but the judgment sets out, at , that the Commission:
noted that national legislation imposing minimum pricing falls within the ambit of Article 34 TFEU; that the draft Order was capable of having an adverse effect on the marketing of imported goods, and was a measure having an effect equivalent to a quantitative restriction in so far as it prevented their lower cost price from being reflected in the retail selling price.
Lord Doherty was clear, at , that the Opinion of the Commission was of interest, but was not binding on the court. However, its position was accepted by both the Petitioner and the Lord Advocate and there was no argument as to the compatibility of a MPU with Art 34 TFEU. That itself is disappointing from a wider EU law perspective. There is a clear argument that a minimum selling price is a ‘selling arrangement’, within the terms of Cases C-267 & 268/91 Keck, and therefore could fall outside the prohibition in Art 34 TFEU. The parties may have been convinced by the Commission’s reasoning why Keck did not apply in this case, or they may have decided that the matter was not worth developing before the court, but I would have been very interested to hear argument on that point. I still cannot see how a minimum price can be anything other than a selling arrangement; therefore, the only issue can be that the Commission perceives it to be a ‘dynamic’ selling arrangement which has differential impacts, in fact, on imported and domestic products. Is this because domestic production normally retails at a price above the minimum and the Commission fears that cheaper imported alcohol is likely to be affected more dramatically by losing its competitive advantage? Until these matters are discussed in a more public forum we will have to continue to speculate; although  strongly suggests that this was the decisive issue.
The rest of the discussion was on the justification of the breach of Art 34 TFEU in relation to public health and whether the measure was proportionate. The petitioners argued, at , that raising the price of alcohol which is cheap relative to its strength would be effective in targeting hazardous and harmful drinkers, and in any event there were less restrictive measures which could be used to achieve the legislative aims – namely an increase in general excise duty. They also suggested that the intensity of review in these cases, those involving price-fixing, should be high and that the Scottish Parliament should not be accorded any margin of appreciation or discretion.
The approach to this issue which was adopted by Lord Doherty is an interesting one when considered from the more general EU law perspective. The first point of interest is in the first paragraph of the judgment looking at the ‘correct approach to justification’ . Here he adopts the form of language preferred in the Case C-110/05 Trailers judgment:
‘The crucial question is whether there is an objective justification for the measures which are under attack’.
The CJEU’s adoption of the ‘objective justification’ approach in Trailers has led to speculation that it might herald a move away from the more traditional ‘necessity’ test used in relation to the Case 120/78 Cassis ‘mandatory requirements’. Lord Doherty does seem to rely more heavily on Trailers, it being quoted at length, via Sinclair Collis v Lord Advocate  CSIN 80, at . I could certainly be accused of reading too much into this distinction as the Trailers approach is conflated with the mandatory requirements at , but nonetheless I find it interesting that the concept of ‘objective justification’ has quickly been adopted on the ground. It is certainly arguable that as a test it affords a greater ‘margin of appreciation’ to the Member States where they seek merely to prove that their measures are justified, rather than strictly ‘necessary’. Lord Doherty’s acceptance of this level of margin of appreciation or discretion , taken from Trailers as explained by the Inner House in Sinclair Collis, certainly accords with a somewhat less ‘strict’ application of proportionality that we may have seen in previous CJEU cases examining Cassis style product requirement cases.
Lord Doherty went on to examine the purpose of the measures adopted and looked at the preparatory material in relation to the Bill and its Impact Assessment. He went on to find that the measure was aimed at ‘alcohol misuse and over consumption’  pointing out the level was chosen to ‘strike a reasonable balance’ between public health and intervention. He then went on to split the discussion of proportionality in to three parts: ‘legitimate aims’, ‘appropriate to achieve those aims’, and ‘necessary’. It was clearly accepted that alcohol consumption is a health problem in Scotland. Lord Doherty rejected the argument the measures were not an appropriate way to address the problems identified. The main body of discussion then fell to whether the measures were ‘necessary’ in the sense that, ‘the legitimate aims of the measures are capable of being achieved equally effectively by other measures which create less of an obstacle to intra-Community free movement’ .
Lord Doherty held that the evidential onus was on the petitioners to show that their suggested alternative measures would be as effective as minimum pricing and then for the respondents to show that the alternate measures would not be less of an obstacle to free movement. He then found that the respondents had not discharged the second burden and therefore the only question to be decided what whether the alternate measures would be as effective as minimum pricing. After reviewing the evidence presented in in the Impact Assessment he noted that general excise duties are constrained by EU law to have single rates for beverages with a range of alcohol content – this makes is impossible to have rates that change directly in relation to alcohol content; many of the lesser strength products would have higher prices than under minimum pricing. He concluded, at , that:
A system which results in higher prices for higher strength alcohol appears to be more consistent with the legitimate aims than one which will tend to result in similar prices for alcohol of significantly different strengths … Under minimum pricing alcohol which is cheap relative to strength can be targeted. The directives preclude excise duty being used in that way.
The ability of MPU to target lower priced alcohol was central to the rest of this discussion. General duty increases would have an impact on general alcohol consumption; Lord Doherty took the intention of the measures not to be to lower general consumption, but to target the harms of lower priced alcohol :
In my opinion there is inherent in the Act and the proposed Order a judgment as to the level of protection of health and life the measures are designed to achieve. There is also a judgment that the best way of maximising reductions in sales, consumption and harm is to focus price increases on cheaper alcohol.
He also went on to the role of other considerations when the Scottish Govt decided what level of health protection they wanted to adopt:
Socio-economic considerations, such as concerns for the on-trade or for moderate drinkers, could not be used to justify measures which were more restrictive of free movement than alternative measures which were equally effective in providing the desired degree of protection of health and life. However, they are matters which may legitimately be taken into account in deciding the level of protection of health and life the Parliament and the Ministers wish to secure. The decision as to how far to go in protecting health and life inevitably involved striking a balance between health benefits and other interests. It was open to the Parliament and the Ministers to take into account likely impacts on moderate drinkers and the on-trade when deciding on an appropriate and proportionate level of protection of health and life.
This line of argument is potentially controversial – conflating the health and socio-economic rationales which may, or may not, fall outside the ‘mandatory requirements’. This brings to mind the debate surrounding the much stricter application of the proportionality test in Case 302/86 Danish Bottles where the level of environmental protection selected by Denmark was deemed disproportionately high by the CJEU. Can the reason the Scottish Govt decided to target lower priced alcohol be taken into account alongside its health impact when considering proportionality? Is this what the CJEU has in mind when they talked about a ‘margin of appreciation’ in Trailers? The Outer House has adopted a formulation in this case where proportionality tests the effectiveness of the measure adopted according to the purpose set out by the Member State; but gives the State a real ‘margin of appreciation’ determining what the specific purpose of that measure should be – as long as it is appropriate to meet a legitimate aim in either Art 36 TFEU or one of the ‘mandatory requirements’.
This, I think, is where the decision is potentially problematic. The EU Case law does not make it clear that proportionality has no role to play in deciding the level of health protection that is suitable, the debate surrounding Danish Bottles and the other 80s environmental cases being good examples, but in this case the analysis of whether the measure was ‘necessary’ only took place after the ‘appropriate’ level of protection was decided. I’m not sure that the CJEU would always allow a MS such a wide margin of appreciation in that regard if it could, in effect, side-line the operation of the proportionality test.
If the Scottish Govt now goes ahead with the Order it will no doubt generate further challenges. If there are such cases it will be an interesting opportunity to see what connections and contradictions exist between the different lines of thinking in the Cassis, Keck, and Trailers lines of case-law.