In a much anticipated judgment, the Irish High Court yesterday decided to ask the Court of Justice of the European Union (CJEU) to rule on the validity of Standard Contractual Clauses (SCCs).
What is at stake?
SCCs, also known as "Model Contracts", are contractual terms approved by the European Commission for validating transfers of personal data to countries outside the EEA region. SCCs are perhaps the most widely used legal instrument supporting EU-US data transfers. For many businesses, they are the only available means of lawfully transferring data to the US or other third countries.
If the SCCs are held to be invalid by the CJEU, many businesses operating from Europe will find themselves unable to lawfully transfer personal data to the US. This will in turn pose severe logistical and economic challenges to EU-US trade.
The legal challenge to the SCCs touches on the politically sensitive areas of data privacy and state surveillance. Therefore, a ruling that invalidates the SCCs will also present a fresh challenge for the EU and US authorities to negotiate a long lasting solution to transatlantic data transfers.
Pending the CJEU's ruling, businesses can continue to rely on the SCCs.
How did the case come about?
Back in 2013, Mr Schrems complained to the Irish Data Protection Commissioner (DPC) about the transfer of his personal data by Facebook in Ireland to its parent company in the US under the EU-US Safe Harbour mechanism.
That complaint resulted in the invalidation of the EU-US Safe Harbour mechanism by the CJEU (Schrems I). Following the CJEU decision, Facebook placed reliance on the SCCs for making legal transfers of data between Ireland and the US, and Mr Schrems decided to reformulate his complaint against Facebook.
In the course of carrying out the new investigation, the DPC determined that she had "well-founded" objections in relation to the validity of the SCCs. In particular, she was concerned that there was an absence of effective legal remedies for EU citizens whose data are transferred to the US, and she believed that the SCCs do not answer these concerns. Only the CJEU can decide on the validity of European Commission decisions such as the SCCs. Therefore, the DPC applied to the Irish High Court so that questions regarding the validity of the SCCs could be brought before the CJEU.
What did the Irish High Court say?
Ms Justice Costello delivered a wide-ranging 152 page judgement. Of particular note are the following:
The Court rejected the argument advanced by Facebook that the case is concerned with processing of data for "national security" purposes and that consequently it falls outside the scope of EU law by virtue of Article 4(2) of the Treaty on the European Union, which reserves competence over national security issues to Member States.
In particular, the Court held that this submission was inconsistent with the ruling of the High Court and the CJEU in Schrems I, where the court proceeded on the basis that it had jurisdiction to rule on the reference.
The Court also rejected the argument that that the EU-US Privacy Shield precludes the making of a reference to the CJEU. The Court held that the Privacy Shield is a decision that is confined to data transferred to US organisations that have self-certified as complying with the Privacy Shield principles, and that it is not an unconditional adequacy decision.
The Court agreed with the DPC that the SCCs alone cannot ensure an adequate level of protection in third countries for data protection rights. Even when data has been transferred to a third country under the SCCs, "the data is still entitled to a high level of protection" and "DPAs have an obligation to ensure that the data still receives a high level of protection and they are expressly granted powers to suspend or prohibit data transfers"(paragraph 153).
The terms of the SCCs do not themselves provide an answer to the concerns raised by the DPC and the Court focussed on the question of whether Article 4 of the SCCs and Article 28 of the Data Protection Directive (the Directive) alleviated those concerns – these provisions enable a national data protection authority to ban or suspend data transfers to third countries.
The Court ruled that a referral to the CJEU is necessary to determine whether the existence of the discretionary power conferred on the DPC by Article 4 of the SCCs and Article 28(3) of the Directive to suspend or ban data transfers to a non-EEA country, on the basis of the legal regime in that country, is sufficient to secure the validity of the SCCs.
Article 47/52 of the Charter
The Court held that the DPC had raised well-founded concerns that there is an absence of an effective remedy in US law compatible with the requirements of Article 47 of the Charter of Fundamental Rights, for an EU citizen whose data are transferred to the US.
The Court agreed with the DPC that there are well-founded concerns that the limitations on the Article 47 right, faced by EU data subjects in the US, are not proportionate or strictly necessary within the meaning of Article 52(1) of the Charter.
The Court noted the undesirability of having data transfers banned in one Member State under the SCCs on the basis of the inadequate laws of the third country, but without that ban impacting on transfers made to the same third country from other EU member states. The Court indicated that only a decision of the CJEU can resolve the potential for inconsistent applications of the Directive in this regard.
Privacy Shield Ombudsperson
The Court agreed with the DPC that there are well-founded concerns that the Privacy Shield Ombudsperson redress mechanism, which is available to data subjects whose data are transferred under SCCs (as well as the EU-US Privacy Shield), does not respect the essence of EU citizens' rights under Article 47 of the Charter.
The Court held that a decision of the CJEU is necessary to determine whether the mechanism amounts to a remedy satisfying the requirements of Article 47.
The Court has not yet framed the questions to be sent to the CJEU. The parties to the proceedings will be afforded an opportunity to make written submissions on the form of such questions to be referred to the CJEU, and the Court will then determine the exact questions to refer.
Once the reference is made, it will be for the CJEU to fix a hearing date. It usually takes an average of 1.5 years before the CJEU rules on a reference, although the CJEU may decide to prioritise the hearing of this case given its importance.