The EFTA Court

[First published as a post on 19 April 2016]

In my last post, I described how, as a result of objections to an EEA Court by the ECJ, an EFTA Court was set up instead. A two pillar structure was established, with an EFTA Surveillance Authority being granted powers corresponding to those of the Commission in its surveillance role. The EFTA Court operates in parallel to the Court of Justice of the European Union (CJEU or more commonly, ECJ), and has jurisdiction with regard to the three EFTA-EEA states, but not to Switzerland.

Broadly speaking, the EEA Agreement was designed to allow the EFTA nations to participate in the Single Market without the loss of national sovereignty that was inherent in membership in the European Community. It was intended to be an inter-governmental treaty, not one that brought into being a supranational entity with powers over nation states. It has been observed, however, that since its inception, the EEA has developed in a supranational direction, owing primarily to a series of judgements from the EFTA Court, in several cases finding in favour of litigants against one of the EFTA states.

Professor Halvard Fredricksen, Faculty of Law, University of Bergen, wrote in 2010 that:

With respect to the legal effect of EEA Law at the national level, there is general consensus that the Agreement has developed in a ‘supranational’ direction during the course of the past 15 years, and that this can be primarily attributed to dynamic interpretation by the EFTA Court. 1



The question then arises as to whether, if we were to leave the EU and join EFTA and the EEA, we would be escaping from the grip of the ECJ only to fall into the hands of the EFTA Court. I am not a lawyer, so am hardly competent to handle the question fully, but on the other hand, I have not seen this matter raised in the discussions about the ‘Norway Option’ for Brexit, so that it may be helpful at least to flag up some of the concerns that have been raised about the EFTA Court in the academic literature. As a matter of fact, I have been quite surprised by how comprehensible some of the cases are to a layman, and how well and straightforwardly the Court’s judgements are argued and presented, with the result that one can at least gain some impression of what has been going on.

Perhaps the most startling case is that of Erla María Sveinbjörnsdóttir vs The Government of Iceland. Erla had been employed for a number of years at a machine workshop, but was then dismissed from her position with effect from 1 January 1995. She was given six months notice and not required to work during that period. However, the company was declared insolvent on the 22 March 1996, with Erla’s wages having stopped on the 12 March. She thereupon filed claims for unpaid wages against the Icelandic Wage Guarantee Fund, which would normally make up the employee’s losses when a company went bankrupt.

Erla, however, was the sister of the holder of 40% of the machine workshop’s shares and was therefore, according to Icelandic national law, excluded from benefiting from the state fund. Under EEA law, which derived from an EEC Directive, incorporated into an Annex of the EEA Agreement, siblings should not be excluded from this provision. The national law was therefore incompatible with EEA law. Protocol 35 of the EEA Agreement states that:

For cases of possible conflicts between implemented EEA rules and other statutory provisions, the EFTA States undertake to introduce, if necessary, a statutory provision to the effect that EEA rules prevail in these cases.

In other words, the EFTA-EEA states are obliged to change their national law to fit in with EEA law (which itself derives from EU law). So Iceland had failed to fulfil its obligations with regard to the regulations which apply in the case of an insolvency.

The surprising thing about this case was that the Advisory Opinion of the EFTA Court was that Iceland was obliged to pay damages to Erla Sveinbjörnsdóttir. The Court had accepted in para 46 of its opinion that:

there is no explicit provision in EEA law establishing a basis for State liability on account of incorrect adaptation of national legislation.

But they derived state liability from two principles, that of homogeneity, and that of individual rights, both of which were laid down in the preamble to the EEA Agreement, the 4th paragraph of which begins:

CONSIDERING the objective of establishing a dynamic and homogeneous European Economic Area, based on common rules and equal conditions of competition…

The 15th paragraph speaks of the ‘equal treatment of individuals and economic operators’, and the 8th reads in full:

CONVINCED of the important role that individuals will play in the European Economic Area through the exercise of the rights conferred on them by this Agreement and through the judicial defence of these rights;

Putting these principles together, the Court found that (section 60):

the homogeneity objective and the objective of establishing the right of individuals and economic operators to equal treatment and equal opportunities are so strongly expressed in the EEA Agreement that the EFTA States must be obliged to provide for compensation for loss and damage caused to an individual by incorrect implementation of a directive.

Finally, in section 63, the Court advised that:

the principle of State liability must be seen as an integral part of the EEA Agreement as such.

It admitted (as stated in Protocol 35) that the EEA Agreement does not entail a transfer of legislative powers. But the EEA Agreement had been incorporated into national legislation. So if the principle of state liability was in the EEA Agreement, then it was:

natural to interpret national legislation implementing the main part of the Agreement as also comprising the principle of State liability.

The Governments of Iceland, Sweden and Norway had made it clear in their submissions to the Court that they did not believe it was permissible to deduce this principle of state liability from the EEA Agreement. Presumably they had had no intention of incurring such liability when they entered into the agreement. But they were overruled by the Court.

Halvard Fredriksen comments that for the EFTA-EEA states:

State liability for loss and damage caused by incorrect implementation of EEA law obligations was a bitter pill. 2

A bitter pill indeed, and a hard one to swallow, but within a few years all the EFTA states had submitted and accepted the principle of state liability in the EEA Agreement. 3



  1. Halvard Fredricksen, ‘The EFTA Court 15 Years On’, International and Comparative Law Quarterly, Vol. 59, No. 3 (July 2010) pp 731-760. Free at JSTOR if you register.
  2. The EEA and the EFTA Court: Decentred Integration, ed. by the EFTA Court (Oxford: Hart, 2014) p. 317. Link.
  3. The EEA and the EFTA Court: Decentred Integration, ed. by the EFTA Court (Oxford: Hart, 2014) p. 319. Link.