Professional Documents
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All ER (EC) 1998
All ER (EC) 1998
All ER (EC) 1998
The plaintiff companies were subject to charges levied by the Danish authorities on the registration of new
public and private limited companies and on increases in their capital. The amounts charged consisted of
a fixed basic charge and a supplementary charge calculated in proportion to the nominal value of the
capital raised. When the Danish Court of Auditors found the charging system to be unlawful, the
supplementary charge was abolished and the plaintiffs requested a refund of the charges they had paid
between 1983 and 1992. The requests were rejected and the plaintiffs commenced proceedings against
the relevant authorities, contending inter alia that the supplementary charge was contrary to arts 10 1 and
122 of Council Directive (EEC) 69/335 concerning indirect taxes on the raising of capital, which
respectively prohibited the charging of any taxes in respect of registration or any other formality required
in order to set up a business and laid down a list of exempt taxes and duties which included duties paid
by way of fees or dues. The Danish court stayed the proceedings and referred to the Court of Justice of
the European Communities questions regarding the compatibility of the charges at issue with the
directive, the application of national rules on state liability and limitation periods to actions for the recovery
of charges imposed in contravention of Community law and whether arts 10 and 12 had direct effect.
1
Articles 10, so far as material, is set out at p 5 j, post
2
Article 12, so far as material, is set out at p 5 j, post
Held (1) For the purposes of art 12 of Directive 69/335, fees or dues charged on the registration of
public and private limited companies and on increases in their capital could not increase indefinitely in
proportion to the nominal value of the transaction in question but had to be calculated solely on the basis
of the costs of the formalities involved. Those costs could also include the proportion of overheads which
could be attributed to the effecting of registration and the costs of minor services performed without
charge. Moreover, member states could impose flat rate charges of a fixed amount for an indefinite period
provided that they checked at regular intervals that the charges did not exceed the average costs incurred
(see p 33 d to j and p 37 c d, post); Ponente Carni SpA v Amministrazione delle Finanze dello Stato
Joined cases C-71/91 and C-178/91 [1993] ECR I-1915 applied.
(2) The application of a general principle of national law under which the courts of a member state
should dismiss claims for the recovery of charges levied over a long period in breach of Community law
without either the authorities of that state or the persons liable to pay the charges having been aware that
they were unlawful would, in the circumstances, have made it excessively difficult to obtain recovery of
charges which were contrary to Community law. It would, moreover, have the effect of encouraging
infringements of Community law which had been committed over a long period. It followed that charges
levied in breach of the directive could not be justified on the ground that they had been imposed by a
member state over a long period without either that state or the persons liable to them having been aware
that they were unlawful (see p 34 h j and p 37 e, post); SCS Peterbroeck Van Campenhout & Cie v
Belgium Case C-312/93 [1996] All ER (EC) 242 applied.
(3) Community law did not prevent a member state which had not properly transposed a directive from
resisting an action for the repayment of charges levied in breach thereof by relying on a limitation period
under national law which ran from the date on which the charges in question became payable, provided
that such period was not less favourable for actions based on Community law than for actions based on
national law and did not render virtually impossible or excessively difficult the exercise of rights conferred
by Community law (see p 36 e and p 37 f, post); Comet BV v Produktschap voor Siergewassen Case
45/76 [1976] ECR 2043 and Johnson v Chief Adjudication Officer (No 2) Case 410/92 [1995] All ER (EC)
258 applied; Emmott v Minister for Social Welfare Case C-208/90 [1991] ECR I-4269 distinguished.
(4) The prohibition laid down in art 10 of the directive and the derogation from that prohibition in art
12(1)(e) were expressed in sufficiently precise and unconditional terms to be invoked by individuals in
their national courts in order to contest a provision of national law which infringed the directive (see p 36 j
and p 37 g, post); Comitato di Coordinamento per la Difesa della Cava v Regione Lombardia Case C-
236/92 [1994] ECR I-483 applied.
Notes
For an introduction to Community provisions on free movement of capital, see 52 Halsburys Laws (4th
edn) paras 17011702.
For private enforcement of Community law, see 51 Halsburys Laws (4th edn) paras 234235, 370.
Cases cited
Amministrazione delle Finanze dello Stato v Denkavit Italiana Srl Case 61/79 [1980] ECR 1205.
Amministrazione delle Finanze dello Stato v SpA San Giorgio Case 199/82 [1983] ECR 3595.
Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] ECR I-5311.
Bautiaa Srl v Directeur des Services Fiscaux, Socit Franaise Maritime SA v Directeur des Services
Fiscaux Joined cases C-197/94 and C-252/94 [1996] ECR I-505.
BP Supergas Anonimos Etaira Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece Case C-62/93
[1995] All ER (EC) 684, [1995] ECR I-1883, ECJ.
Brasserie du Pcheur SA v Germany, R v Secretary of State for Transport, ex p Factortame Ltd Joined
cases C-46/93 and C-48/93 [1996] All ER (EC) 301, [1996] ECR I-1029, ECJ.
Comateb (Socit) v Directeur Gnral des Douanes et Droits Indirects Joined cases C-192218/95
[1997] ECR I-165.
Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043.
Comitato di Coordinamento per la Difesa della Cava v Regione Lombardia Case C-236/92 [1994] ECR I-
483.
Conradsen (P) A/S (Advokatrdet as representative of) v Ministeriet for Skatter og Afgifter Case 161/78
[1979] ECR 2221.
Corbeau (Criminal proceedings against) Case C-320/91 [1993] ECR I-2533.
Denkavit Internationaal BV v Kamer van Koophandel en Fabrieken voor Midden-Gelderland Case C-2/94
[1996] ECR I-2827.
Elida Gibbs Ltd v Customs and Excise Comrs Case C-317/94 [1997] All ER (EC) 53, [1996] ECR I-5339,
ECJ.
Emmott v Minister for Social Welfare Case C-208/90 [1991] ECR I-4269.
Felicitas Rickmers-Linie KG & Co v Finanzamt fr Verkehrsteuern, Hamburg Case 270/81 [1982] ECR
2771.
FMC plc v Intervention Board for Agricultural Produce Case C-212/94 [1996] ECR I-389.
Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357.
Haahr Petroleum Ltd v benr Havn Case C-90/94 (1997) ECJ Transcript, 17 July.
Johnson v Chief Adjudication Officer (No 2) Case 410/92 [1995] All ER (EC) 258, [1994] ECR I-5483.
Marshall v Southampton and South West Hampshire Area Health Authority (No 2) Case C-271/91 [1993]
4 All ER 586, [1994] QB 126, [1993] 3 WLR 1054, [1993] ECR I-4367, ECJ.
Marshall v Southampton and South West Hampshire Health Authority (Teaching) Case 152/84 [1986] 2 All
ER 584, [1986] QB 401, [1986] 2 WLR 780, [1986] ECR 723, ECJ.
McDermott v Minister for Social Welfare Case 286/85 [1987] ECR 1453.
Ministeriet for Skatter og Afgifter v Investeringforeningen Dansk Sparinvest Case 36/86 [1988] ECR 409.
Palmisani v Istituto Nazionale della Previdenza Sociale (INPS) Case C-261/95 (1997) ECJ Transcript, 10
July 1997.
Peterbroeck Van Campenhout & Cie (SCS) v Belgium Case C-312/93 [1996] All ER (EC) 242, [1995]
ECR I-4599, ECJ.
Ponente Carni SpA v Amministrazione delle Finanze dello Stato Joined cases C-71/91 and C-178/91
[1993] ECR I-1915.
R v IRC, ex p Unilever plc [1996] STC 681, CA.
3
R v Secretary of State for Social Security, ex p Sutton Case C-66/95 [1997] All ER (EC) 497, ECJ.
Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989.
Steenhorst-Neerings v Bestuur van de Bedrijfsvereniging voor Detailhandel, Ambachten en Huisvrouwen
Case C-338/91 [1993] ECR I-5475.
Texaco A/S v Middelfart Havn, Olieselskabet Danmark amba v Trafikministeriet Joined cases C-114
115/95 (1997) ECJ Transcript, 7 July 1997.
Van Schijndel v Stichting Pensioenfonds voor Fysiotherapeuten Joined cases C-430431/93 [1996] All
ER (EC) 259, [1995] ECR I-4705, ECJ.
Waldrich Siegen Werkzeugmaschinen GmbH v Finanzamt Hagen Case C-38/88 [1990] ECR I-1447.
Reference
By order of 8 June 1995, the stre Landsret (the Eastern Regional Court) referred to the Court of Justice
of the European Communities for a preliminary ruling under art 177 of the EC Treaty eight questions (set
out at p 29 b to p 30 d, post) on the interpretation of Council Directive (EEC) 69/335 concerning indirect
taxes on the raising of capital, as amended. Those questions were raised in actions brought by Fantask
A/S and a number of other companies or groups of companies against the Industriministeriet
(Erhvervsministeriet) (the Danish Ministry of Trade and Industry) relating to charges levied on registration
of new public and private limited companies and on the capital of such companies being increased.
Written observations were submitted on behalf of: Fantask A/S, by T Rrdam, of the Copenhagen Bar;
Norsk Hydro Danmark A/S, Tryg Forsikring skadesforsikringsselskab A/S and Tryg Forsikring
livsforsikringsselskab A/S, by K Michelsen, C Heg Madsen and H Aasmul-Olsen, of the Copenhagen
Bar; Aalborg Portland A/S, by K Dyekjr-Hansen, of the Copenhagen Bar; Forsikrings-Aktieselskabet
Alka, Robert Bosch A/S, Uponor A/S, Uponor Holding A/S and Pen-Sam ApS and others, by V Thorup, H
Stenbjerre, J Boe and L Normann Jrgensen, from the firm Kromann and Mnter, of the Copenhagen
Bar; the Danish government, by P Biering, Head of Division in the Ministry of Foreign Affairs, acting as
agent, assisted by K Hagel-Srensen, of the Copenhagen Bar; the French government, by C de Salins,
Assistant Director in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and F Pascal,
Administrative Attach in the same directorate, acting as agents; the Swedish government, by E
Brattgrd, Adviser in the Trade Department of the Ministry of Foreign Affairs, acting as agent; the UK
government, by J E Collins, Assistant Treasury Solicitor, acting as agent, assisted by E Sharpston,
Barrister; and the European Commission, by A C Jessen and E Traversa, of its Legal Service, acting as
agents, assisted by S Helsteen and J Rostock-Jensen, from the firm Reumert & Partnere, of the
Copenhagen Bar. Oral observations were submitted by: Fantask, represented by P Jker Thorsen, of the
Copenhagen Bar; Norsk Hydro Danmark, Tryg Forsikring skadesforsikringsselskab and Tryg Forsikring
livsforsikrings- selskab, represented by H Aasmul-Olsen; Aalborg Portland, represented by L Hennenberg,
of the Copenhagen Bar; Forsikrings-Aktieselskabet Alka, Robert Bosch, Uponor, Uponor Holding and
Pen-Sam and others, represented by H Peytz, of the Copenhagen Bar; the Industriministeriet
(Erhvervsministeriet), represented by K Hagel-Srensen; the Danish government, represented by P
Biering; the French government, represented by G Mignot, Foreign Affairs Secretary in the Legal Affairs
Directorate of the Ministry of Foreign Affairs, acting
4
as agent; the Italian government, represented by D Del Gaizo, Avvocato dello Stato; the UK government,
represented by J E Collins, assisted by E Sharpston; and the Commission, represented by A C Jessen
and E Traversa, assisted by J Rostock-Jensen and H Henrik Skjdt, of the Copenhagen Bar. The
language of the case was Danish. The facts are set out in the opinion of the Advocate General.
26 June 1997.
QUESTIONS 1 TO 5
23.
By its first five questions the national court requests guidance concerning the scope of the expression
fees or dues in art 12(1)(e) of the directive. It wishes to know whether member states are free to decide
the scope of the term themselves (Question 1), whether certain types of cost may be taken into account in
fixing the level of such fees or dues (Question 2) and whether fixed charges (including charges varying in
proportion to capital raised) not related to the actual cost of specific services may be imposed and the
extent to which they must be periodically reviewed (Questions 3 and 4). The national courts fifth question
concerns the calculation of sums to be reimbursed. It asks whether the calculation must be based on the
cost of the specific service at the time when the service is performed or whether it can be based on an
overall assessment over a longer period such as an accounting year or the period of the claim.
24.
The court has received written or oral argument on those questions from plaintiffs in the main
proceedings, the Danish Ministry of Trade and Industry, Danish and Swedish governments and the
European Commission.
25.
The plaintiffs in the main proceedings consider that the supplementary charge varying according to
nominal capital raised is prohibited by art 10 of the directive and does not fall within the concept of duties
paid by way of fees or dues permitted by art 12(1)(e). The charge bears no relation to the costs incurred
by the administration in effecting the registration. The plaintiffs in the main proceedings are supported by
the Commission. The latter considers that, while the basic charge appears to be a reasonable
remuneration for the registration services concerned, the supplementary ad valorem charge leads to large
surpluses and is unrelated to the specific service received by companies in connection with registration.
26.
The Danish government argues that the directive seeks to harmonise indirect taxes and not fees for
services provided in the general interest. Referring by analogy to the courts ruling on art 90 of the Treaty
in Criminal proceedings against Corbeau Case C-320/91 [1993] ECR I-2533, it argues that it is entitled to
fix fees at a level which is sufficient to cover the costs, both direct and indirect, not only of specific
registration services but of all the administrations activities in the field of company law. It is also entitled to
introduce a degree of solidarity in the charges by imposing a higher burden on larger companies. The
Danish government considers that its view is in accordance with the judgment in Ponente Carni and also
with the principle of subsidiarity, which the court must take into account even in interpreting legislation
existing prior to the entry into force of the Treaty on European Union (the TEU) (Maastricht, 7 February
1992; TS 12 (1994); Cmnd 2485; OJ 1992 C191). The Danish government is supported by the Danish
Ministry of Trade and Industry and by the Swedish government, which considers that the office was
entitled to take all the items of expenditure mentioned in the national courts second question into account
in fixing the amount of its charges.
27.
With reference to the national courts first question I accept the point made by the Danish ministry and
government that the directive does not as such harmonise fees and dues charged for services. It does not
specify what services may be supplied to companies in return for a remuneration or what the level of such
remuneration should be. It is nevertheless clear from the judgment in
10
Ponente Carni [1993] ECR I-1915 (esp para 30) that a charge connected with the registration of a
capital company falls within the prohibition laid down in art 10 of the directive and is lawful only if
permitted by art 12. It is also apparent from that judgment, that the directive imposes limits on what a
member state may lawfully charge by way of fees or dues under art 12(1)(e) (see [1993] ECR I-1915
(paras 4143)). The reason for that is plain. If it did not impose such limits the directive would be
ineffective since member states would be free to circumvent its provisions by imposing taxes other than
capital duty in the guise of fees or dues for supposed services.
28.
In that regard the Danish governments reference to the principle of subsidiarity in art 3b of the EC
Treaty, inserted by art G.5 of the TEU, is inapposite. Notwithstanding that provision, where the
Community has chosen to adopt a directive in an area not falling within its exclusive competence the
court must interpret it in accordance with its wording and aims and in a manner which will ensure that it is
effective.
29.
As regards the national courts second question concerning the costs which be taken into account in
fixing the charges in question, the following principles from the courts ruling in Ponente Carni [1993] ECR
I-1915: a member state may charge fees for certain individualised services which it performs for
companies; such services include a transaction such as the registration of capital companies which is
required by national law, in accordance with Community law, in the interest of both third parties and of the
companies themselves (see [1993] ECR I-1915 (paras 3738)); any fees or duties charged must be
calculated on the basis of the actual be fixed so high as cost of the specific services in question. They
may not to cover all the running and capital costs of the department responsible (see paras 4142);
where it is difficult to determine the cost of certain transactions, such costs may be assessed on a flat-rate
basis. Such assessment must be carried out on a reasonable basis, taking account of the number and
qualifications of the staff used, the time taken and the relevant material costs (see para 43). Different fees
may be fixed for private and public limited companies provided that none of the amounts required for any
of the companies exceeds the cost of the service.
30.
It seems to me that the present case raises two basic questions: first, for what activities may the office
charge fees or dues within the meaning of art 12(1)(e) and secondly, what limits does the directive place
on the manner in which such fees or dues are calculated?
QUESTIONS 6 AND 7
53.
By its sixth question the national court asks whether Community law precludes it from dismissing the
claims for reimbursement on the ground that the charges were levied in pursuance of rules which had
been in force for a long time and had been assumed by all concerned to be lawful. The national courts
seventh question is designed to establish whether the time limit for instituting proceedings could begin to
run before the directive was properly implemented.
54.
The latter question is prompted by the courts ruling in Emmott [1991] ECR I-4269, a case concerning
Council Directive (EEC) 79/7 on the progressive implementation of the principle of equal treatment for
men and women in matters of social security (the equal treatment directive; OJ 1979 L6 p 24). In that
case the Irish authorities failed to grant Mrs Emmott equal benefits pursuant to the directive until 28
January 1988, although the directive should have been implemented by 23 December 1984. Mrs Emmott
instituted judicial review proceedings with a view to obtaining equal benefits from 23 December 1984. The
Irish authorities objected that she had failed to make her application within the three-month period from
the date when the grounds arose as required by Irish law. However, the court held ([1991] ECR I-4269
(paras 2123)):
(21) So long as a directive has not been properly transposed into national law, individuals are
unable to ascertain the full extent of their rights. That state of uncertainty for individuals subsists
even after the Court has delivered a judgment finding that the Member State in question has not
fulfilled its obligations under the directive and even if the Court has held that a particular provision
or provisions of the directive are sufficiently precise and unconditional to be relied upon before a
national court.
(22) Only the proper transposition of the directive will bring that state of uncertainty to an end
and it is only upon that transposition that the legal certainty which must exist if individuals are to be
required to assert their rights is created.
(23) It follows that, until such time as a directive has been properly transposed, a defaulting
Member State may not rely on an individuals delay in initiating proceedings against it in order to
protect rights conferred upon him by the provisions of the directive and that a period laid down by
national law within which proceedings must be initiated cannot begin to run before that time.
55.
The Danish, French, Italian and UK governments consider that the principle as formulated above is too
broad inasmuch as it has the effect of imposing almost limitless retrospective liability on member states.
Norsk Hydro and Tryg-Baltica, Alka Forsikring and others and the Commission contend that
17
the court should adhere to its ruling in Emmott, so that the five-year limitation period did not begin to
run until 1 May 1992 when Denmark implemented the directive by abolishing the supplementary charge.
They argue that to allow a member state to rely on time limits in a case such as the present would permit
it to escape the consequences of its own unlawful conduct and discourage it from taking steps to remedy
the defects in its rules.
56.
In what follows I shall explain why I consider the governments criticisms of Emmott to be justified and
show that a broad view of Emmott cannot in any event be reconciled with the courts subsequent case
law. I shall however also show that, in the light of other developments in the courts case law on remedies
in the national courts, the concerns which led the Commission to favour a broad view of Emmott can be
accommodated in a coherent system of remedies allowing a proper balance to be struck between the
need for effective protection of Community rights, including those under directives, and the principles of
respect for national procedural autonomy and legal certainty. Against that background I shall, finally, turn
to the Danish rules in issue here.
66.
Moreover, the suggestion that in the absence of correct implementation an individual can never be
sure of the full extent of his rights is in my view difficult to reconcile with the conditions for the direct effect
of directives. The direct effect of a provision of a directive presupposes that the basic content of the right
conferred is sufficiently clear (or, at least, amenable to judicial determination) for it to be protected by the
national legal system. It is inconsistent to recognise that a provision is sufficiently clear to create remedies
for individuals in the national courts while at the same time exempting the individual, on the ground that
the rights conferred upon him are insufficiently clear, from the limits placed by national law on the exercise
of such remedies. The inevitable and wholly anomalous result is that already mentioned, namely to confer
privileged status on directives by comparison with other Community provisions, even those of superior
rank. The recognition of the direct effect of directives was surely intended to ensure that, notwithstanding
defective implementation, the rights which they were intended to confer enjoyed the same degree of
protection in the national courts as those arising from directly applicable Community law.
67.
In any event, I doubt whether an individual is more likely to be uncertain of his rights in the case of an
unimplemented directive than in the case of a Treaty provision. Although not requiring implementation in
national law, Treaty provisions, which by nature are broadly worded, often leave considerable scope for
uncertainty as to the extent of the rights, if any, which they confer on individuals.
68.
The governments arguments concerning the financial consequences of Emmott also raise an
important point of principle. As they correctly observe, the Emmott ruling, if read literally, would expose
member states to the risk of claims dating back to the final date for implementing a directive. For
example, it would permit claims based on Directive 69/335, which was to be implemented by 1 January
1972, to be brought in respect of the last 25 years notwithstanding national limitation periods.
69.
Moreover, such liability would arise even in the event of a minor or inadvertent breach. Such a result
wholly disregards the balance which must be
20
struck in every legal system between the rights of the individual and the collective interest in providing
a degree of legal certainty for the state. That applies particularly to matters of taxation and social security,
where the public authorities have the special responsibility of routinely applying tax and social security
legislation to vast numbers of cases.
70.
The scope for error in applying such legislation is considerable. Regrettably that is particularly so in
the case of Community legislation, which is often rather loosely drafted. For example, the provision in
issue in Ponente Carni and in the present case is hardly a model of clarity: the directive provides no
indication of the scope of the term fees or dues or how they are to be calculated. The recent cases of
Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] ECR I-5311 and Elida Gibbs
Ltd v Customs and Excise Comrs Case C-317/94 [1997] All ER (EC) 53, [1996] ECR I-5339 provide a
further example of how huge repayment claims can arise from a comparatively minor error 4 in
implementing a Community tax directive. In those cases the court found that the fiscal treatment accorded
by the United Kingdom to voucher transactionsused extensively in that member state as a business
promotion techniquewas not in accordance with Council Directive (EEC) 77/388 on the harmonisation
of the laws of the member states relating to turnover taxesCommon system of value added tax: uniform
basis of assessment (OJ 1977 L145 p 1). The resultant repayment claims are reported to be between
200m and 400m (see The Times, 25 October 1996).
4
It may be noted that in his opinions of 27 June 1996 in those two cases Advocate General Fennelly took a different view
from that taken by the court.
71.
It might be objected that it is not unreasonable to require member states to refund overpaid charges
given that they were not entitled to collect them in the first place. However, that view disregards the need
for states and public bodies to plan their income and expenditure and to ensure that their budgets are not
disrupted by huge unforeseen liabilities. That need was particularly clear in Denkavit Internationaal BV v
Kamer van Koophandel en Fabrieken voor Midden-Gelderland Case C-2/94 [1996] ECR I-2827 in which
repayment was sought of the annual levies imposed by the Netherlands Chambers of Trade and Industry
in order to finance their activities. As I noted in my opinion in that case, retrospective claims of up to 20
years would have had catastrophic effects on their finances (see [1996] ECR I-2827 (para 64)).
72.
In short, therefore, my main reservations about a broad view of the Emmott ruling are that it disregards
the need, recognised by all legal systems, for a degree of legal certainty for the state, particularly where
infringements are comparatively minor or inadvertent; it goes further than is necessary to give effective
protection to directives; and it places rights under directives in an unduly privileged position by
comparison with other Community rights. Moreover a broad view cannot be reconciled with the courts
subsequent case law on time limits.
83.
The existence of a wholly independent claim for damages, subject to longer time limits than the
comparatively short ones prescribed for restitutionary and entitlement claims in many member states, is
consistent with the different nature of the claim. Its basis is not merely the unjust enrichment of the state
resulting from simple error in the routine application of technical legislation but a serious violation of
individual rights, calling for a re-appraisal of the balance between such rights and the collective interest in
a measure of legal certainty for the state.
84.
Such an approach has a number of advantages. It provides comprehensive protection of individual
rights within the existing framework of remedies and time limits, making it unnecessary to set aside
national time limits for repayment or entitlement claims. It draws a proper balance between individual
rights and the collective interest in legal certainty; in particular it takes proper account of the degree of
culpability of the state in failing properly to implement a directive and ensures that claims are properly
categorised and brought in the appropriate courts in accordance with appropriate substantive and
procedural conditions, in particular time limits. Moreover, while not giving unduly privileged treatment to
rights under Community directives, such an approach will nevertheless provide a substantial incentive to
member states to implement directives on time and to make every effort to do so properly; it will also
encourage them to repair without delay any inadequacies that become apparent, for example because of
a ruling of the court.
88.
It seems to me that so understood the Emmott principle, although confined to very exceptional
circumstances, continues to provide an important safeguard notwithstanding the more recent
developments in the case law which I have discussed above. An individual must be allowed to make use
of all available remedies. The existence of another claim, for example a claim for damages in the
competent courts, cannot justify the obstruction of a repayment or entitlement claim which an individual
was seeking to exercise.
QUESTION 8
92.
The final question is whether art 10(c), in conjunction with art 12(1)(e), of Directive 69/335 confers
rights on which individuals can rely before the national courts. That question must clearly be given an
affirmative answer, the provisions in question being unconditional and sufficiently precise. That answer is
implicit in the judgment in Ponente Carni8.
8
See my opinion in Ponente Carni [1993] ECR I-1915 (para 38), and on art 4(2)(b) of the directive, see Waldrich Siegen
Werkzeugmaschinen GmbH v Finanzamt Hagen Case C-38/88 [1990] ECR I-1447.
CONCLUSION
93.
Accordingly, I am of the opinion that the questions referred by the stre Landsret should be answered
as follows:
(1) The expression fees or dues in art 12(1)(e) of Council Directive (EEC) 69/335 concerning
indirect taxes on the raising of capital, means fees or dues charged to defray the cost of specific
services supplied to companies by the public authorities of a member state, including certain
mandatory services performed in the public interest. Such services include maintenance of a file for
the company in the statutory companies register and verification of compliance with filing and
disclosure requirements laid down by Community and national law. As regards more particularly
examination of accounts and bookkeeping, a member state is entitled to impose charges for
verifying that the accounts filed comply with statutory or stock exchange requirements but is not
entitled to charge for further work duplicating that performed by the statutory auditor. The services
for which a charge may be made do not include more general activities, such as preparatory legal
work in the field of company law.
(2) In fixing the fees or dues to be charged for such services the member state is entitled to take
into account all costs, including overheads, that are directly related to the services. The allocation
of costs should be made in accordance with the normal principles of commercial cost and
management accounting. In particular, where costs relate only partly to the services in question, a
reasonable apportionment must be made on the basis of suitable criteria. Costs relating to interest
and depreciation, official journeys and external dissemination of information may be taken into
account only in so far as they are directly related to the above-mentioned services. A member
26
state is entitled to limit its charges to major transactions and pass on in those charges the cost
of comparatively minor services.
(3) A member state is entitled to fix standardised charges where individual costing of services is
not practicable. It must however periodically review its charges, whether fixed on a flat-rate basis or
containing a proportional element, in order to ensure that they do not exceed the average costs of
the services provided. A member state is not entitled to levy, in addition to a flat-rate basic charge,
a charge with no upper limit increasing in direct proportion to capital raised where that results in
total average charges which exceed the average cost of the services provided and in a
disproportionately high level of fees for certain companies.
(4) It is appropriate to leave it to the national court to arrive at the best estimate of any
repayment due in the light of the figures available to it. The national court could base its calculation
either on the actual cost to the registration authority of the specific services supplied to each
company or, if that is not possible, on the average cost of the services at or about the relevant time
or, if necessary, over a longer period. If the repayment is based on average costs, it may be
appropriate for the national court, if it is able to do so, to adjust the figures to take account of the
different costs of larger and smaller transactions.
(5) Community law precludes dismissal of an action for recovery of charges levied contrary to
Directive 69/335 on the ground that the charge was made in pursuance of rules which have been in
force over a long period without either the authorities or other parties having been aware that the
charge was unauthorised.
(6) Community law does not prevent a limitation period laid down by national law from beginning
to run before a directive has been properly implemented by a member state.
(7) Article 10(c), in conjunction with art 12(1)(e) of Directive 69/335, confers rights on which
individuals may rely before their national courts in the absence of proper implementation of the
directive.
2 December 1997.
Questions 1 to 5
19.
In its first five questions, which should be answered together, the national court essentially asks
whether, on a sound construction of art 12(1)(e) of the directive, in order for charges levied on registration
of public and private limited companies and on their capital being increased to be by way of fees or dues,
their amount must be calculated solely on the basis of the cost of the formalities in question, or whether it
may be set so as to cover the whole or part of the costs of the authority responsible for registrations.
20.
Since art 12 of the directive derogates, in particular, from the prohibitions laid down in art 10, it is
necessary to consider at the outset whether the charges at issue fall under any of those prohibitions.
21.
Article 10 of the directive, read in the light of the last recital in the preamble, prohibits in particular
indirect taxes with the same characteristics as capital duty. It thus applies, inter alia, to taxes in any form
which are payable in respect of the formation of a capital company or an increase in its capital (art 10(a)),
or in respect of registration or any other formality required before the commencement of business, to
which a company may be subject by reason of its legal form (art 10(c)). That latter prohibition is justified
by the fact that, even though the taxes in question are not imposed on capital contributions as such, they
are nevertheless imposed on account of formalities connected with the companys legal form, in other
words on account of the instrument employed for raising capital, so that their continued existence would
similarly risk frustrating the aims of the directive (see Denkavit Internationaal BV v Kamer van
Koophandel en Fabrieken voor Midden-Gelderland Case C-2/94 [1996] ECR I-2827 (para 23)).
22.
In this case, in so far as the basic charge and the supplementary charge are paid on the registration of
new public and private limited companies, they are directly referred to in the prohibition laid down by art
10(c) of the directive. A similar conclusion must also be reached where those charges are payable on the
registration of increases in the capital of such companies, since they too are imposed on account of an
essential formality connected with the legal form of the companies in question. While registration of an
increase in capital does not formally amount to a procedure which is required before a capital company
commences business, it is none the less necessary for the carrying on of that business.
23.
The Danish and Swedish governments maintain that the term duties paid by way of fees or dues in
art 12 of the directive also covers charges whose amount is calculated so as to offset not only the
registration costs directly at issue but also all the expenses of the charging authority which are linked, in
particular, to the drafting and application of legislation in the field of company law.
31
24.
The Danish government points out in particular that the directive did not harmonise the laws of the
member states concerning the duties paid by way of fees or dues referred to in art 12(1)(e) and that their
definition continues to be a matter for national law. However, the discretion granted to the member states
is not unlimited inasmuch as the assessment of the costs borne by the authority responsible for
registrations must, according to the judgment in Ponente Carni, be fixed in a reasonable manner. It
therefore considers that, unlike the position in that case, a member state may not, when calculating the
charges, take account of expenditure which has no link whatsoever with the administration of company
law.
25.
According to Fantask, the other applicants in the main proceedings which lodged observations and the
European Commission, it is, on the contrary, clear from Ponente Carni that the term duties paid by way of
fees or dues is one of Community law and that such charges must be calculated solely on the basis of
the cost of effecting the registration in respect of which they are paid. Thus, a charge set as a proportion
of the subscribed capital, such as the supplementary charge, cannot, by its very nature, fall within the
derogation provided for in art 12(1)(e) of the directive. While a member state is entitled to set charges
paid by way of fees or dues in advance, without limitation in time and on the basis of a flat-rate
assessment of the cost of effecting registrations, it must review them periodically, for example once a
year, so as to ensure that they continue not to exceed the costs incurred.
26.
It should be noted in that regard that the term duties paid by way of fees or dues is contained in a
provision of Community law which does not refer to the law of the member states in order to determine
the terms meaning and scope. Furthermore, the objectives of the directive would be undermined if the
member states were entirely free to retain taxes with the same characteristics as capital duty by
categorising them as duties paid by way of fees or dues. It follows that the interpretation of the term at
issue, considered in its entirety, cannot be left to the discretion of each member state (see Felicitas
Rickmers-Linie KG & Co v Finanzamt fr Verkehrsteuern, Hamburg Case 270/81 [1982] ECR 2771 (para
14)).
27.
Moreover, the court has already held, in its judgment in Ponente Carni [1993] ECR I-1915 (paras 41
42), that the distinction between taxes prohibited by art 10 of the directive and duties paid by way of fees
or dues implies that the latter cover only payments collected on registration whose amount is calculated
on the basis of the cost of the service rendered. A payment the amount of which had no link with the cost
of the particular service or was calculated not on the basis of the cost of the transaction for which it is
consideration but on the basis of all the running and capital costs of the department responsible for that
transaction would have to be regarded as a tax falling solely under the prohibition of art 10 of the
directive.
28.
It follows that charges levied on registration of public and private limited companies and on their
capital being increased cannot be by way of fees or dues within the meaning of art 12(1)(e) of the
directive if their amount is calculated so as to cover costs of the kind specified by the national court in the
first three indents of its second question. The costs in question are in fact unrelated to the registrations in
respect of which the contested charges are paid. However, for the reasons given by Advocate General
Jacobs in paras 37 and 45 of his opinion, above, a member state may impose charges for major
transactions only and pass on in those charges the costs of minor services performed without charge.
32
29.
As regards the setting of the amount of duties paid by way of fees or dues, the court stated in Ponente
Carni [1993] ECR I-1915 (para 43), that it may be difficult to determine the cost of certain transactions
such as the registration of a company. In such a case the assessment of the cost can only be on a flat-
rate basis and must be fixed in a reasonable manner, taking account, in particular, of the number and
qualification of the officials, the time taken by them and the various material costs necessary for carrying
out the transaction.
30.
It must be stated in that regard that, in calculating the amount of duties paid by way of fees or dues,
the member states are entitled to take account not only of the material and salary costs which are directly
related to the effecting of the registrations in respect of which they are incurred, but also, in the
circumstances indicated by Advocate General Jacobs in para 43 of his opinion, above, of the proportion of
the overheads of the competent authority which can be attributed to those registrations. To that extent
only, the costs specified by the national court in the first three indents of its second question may form
part of the basis for calculating the charges.
31.
Charges with no upper limit which increase directly in proportion to the nominal value of the capital
raised cannot, by their very nature, amount to duties paid by way of fees or dues within the meaning of
the directive. Even if there may be a link in some cases between the complexity of a registration and the
amount of capital raised, the amount of such charges will generally bear no relation to the costs actually
incurred by the authority on the registration formalities.
32.
Finally, as is evident from the judgment in Ponente Carni [1993] ECR I-1915 (para 43), the amount of
duties paid by way of fees or dues does not necessarily have to vary in accordance with the costs actually
incurred by the authority in effecting each registration and a member state is entitled to prescribe in
advance, on the basis of the projected average registration costs, standard charges for carrying out
registration formalities in relation to capital companies. Furthermore, there is nothing to prevent those
charges from being set for an indefinite period, provided that the member state checks at regular
intervals, for example once a year, that they continue not to exceed the registration costs.
33.
It is for the national court to review, on the basis of the above considerations, the extent to which the
charges at issue are paid by way of fees or dues and, where appropriate, to order a refund on that basis.
34.
The reply to the first five questions should therefore be that, on a sound construction of art 12(1)(e) of
the directive, in order for charges levied on registration of public and private limited companies and on
their capital being increased to be by way of fees or dues, their amount must be calculated solely on the
basis of the cost of the formalities in question. It may, however, also cover the costs of minor services
performed without charge. In calculating their amount, a member state is entitled to take account of all the
costs related to the effecting of registration, including the proportion of the overheads which may be
attributed thereto. Furthermore, a member state may impose flat-rate charges and fix their amount for an
indefinite period, provided that it checks at regular intervals that they continue not to exceed the average
cost of the registrations at issue.
Question 6
35.
By its sixth question, the national court seeks to ascertain whether Community law precludes actions
for the recovery of charges levied in breach of the directive from being dismissed on the ground that those
charges were
33
imposed as a result of an excusable error by the authorities of the member state inasmuch as they
were levied over a long period without either those authorities or the persons liable to them having been
aware that they were unlawful.
36.
It is settled case law that the interpretation which, in the exercise of the jurisdiction conferred upon it
by art 177 of the Treaty, the Court of Justice gives to a rule of Community law clarifies and defines where
necessary the meaning and scope of that rule as it must be or ought to have been understood and
applied from the time of its entry into force.
37.
It follows that the rule as so interpreted may, and must, be applied by the courts to legal relationships
arising and established before the judgment ruling on the request for interpretation, provided that in other
respects the conditions enabling an action relating to the application of that rule to be brought before the
courts having jurisdiction are satisfied (see the judgments in Amministrazione delle Finanze dello Stato v
Denkavit Italiana Srl Case 61/79 [1980] ECR 1205 (para 16) and Bautiaa Srl v Directeur des Services
Fiscaux, Socit Franaise Maritime SA v Directeur des Services Fiscaux Joined cases C-197/94 and C-
252/94 [1996] ECR I-505 (para 47)).
38.
It is also settled case law that entitlement to the recovery of sums levied by a member state in breach
of Community law is a consequence of, and an adjunct to, the rights conferred on individuals by the
Community provisions as interpreted by the court (see the judgment in Amministrazione delle Finanze
dello Stato v SpA San Giorgio Case 199/82 [1983] ECR 3595 (para 12)). The member state is therefore in
principle required to repay charges levied in breach of Community law (see the judgment in Socit
Comateb v Directeur Gnral des Douanes et Droits Indirects Joined cases C-192218/95 [1997] ECR I-
165 (para 20)).
39.
Accordingly, while the recovery of such charges may, in the absence of Community rules governing
the matter, be sought only under the substantive and procedural conditions laid down by the national law
of the member states, those conditions must nevertheless be no less favourable than those governing
similar domestic claims nor render virtually impossible or excessively difficult the exercise of rights
conferred by Community law (see eg the judgment in SCS Peterbroeck Van Campenhout & Cie v
Belgium Case C-312/93 [1996] All ER (EC) 242, [1995] ECR I-4599 (para 12)).
40.
A general principle of national law under which the courts of a member state should dismiss claims for
the recovery of charges levied over a long period in breach of Community law without either the
authorities of that state or the persons liable to pay the charges having been aware that they were
unlawful, does not satisfy the above conditions. Application of such a principle in the circumstances
described would make it excessively difficult to obtain recovery of charges which are contrary to
Community law. It would, moreover, have the effect of encouraging infringements of Community law
which have been committed over a long period.
41.
The reply to the sixth question should therefore be that Community law precludes actions for the
recovery of charges levied in breach of the directive from being dismissed on the ground that those
charges were imposed as a result of an excusable error by the authorities of the member state inasmuch
as they were levied over a long period without either those authorities or the persons liable to them having
been aware that they were unlawful.
34
Question 7
42.
By its seventh question, the national court essentially asks whether Community law prevents a
member state from relying on a limitation period under national law to resist actions for the recovery of
charges levied in breach of the directive as long as that member state has not properly transposed the
directive.
43.
It is clear from the order for reference that under Danish law the right to recovery of a whole range of
debts becomes statute-barred after five years and that that period generally runs from the date on which
the debt became payable. On the expiry of that period the debt is normally no longer exigible, unless the
debtor has in the meantime acknowledged the debt or the creditor has commenced legal proceedings.
44.
When a number of the applicants in the main proceedings brought their applications for repayment,
the relevant time limit for at least some of their claims had expired.
45.
The applicants and the Commission consider, on the basis of Emmott v Minister for Social Welfare
Case C-208/90 [1991] ECR I-4269, that a member state may not rely on a limitation period under national
law as long as the directive, in breach of which charges have been wrongly levied, has not been properly
transposed into national law. According to them, until that date individuals are unable to ascertain the full
extent of their rights under the directive. A limitation period under national law thus does not begin to run
until the directive has been properly transposed.
46.
The Danish, French and UK governments consider that a member state is entitled to rely on a
limitation period under national law such as the period at issue, since it complies with the two conditions,
of equivalence and of effectiveness, laid down by the courts case law (see esp the judgments in San
Giorgio and Peterbroeck). In their view, the judgment in Emmott must be confined to the quite particular
circumstances of that case, as the court has, moreover, confirmed in its subsequent case law.
47.
As the court has pointed out in para 39 of this judgment, it is settled case law that, in the absence of
Community rules governing the matter, it is for the domestic legal system of each member state to lay
down the detailed procedural rules for actions seeking the recovery of sums wrongly paid, provided that
those rules are not less favourable than those governing similar domestic actions and do not render
virtually impossible or excessively difficult the exercise of rights conferred by Community law.
48.
The court has thus acknowledged, in the interests of legal certainty which protects both the taxpayer
and the authority concerned, that the setting of reasonable limitation periods for bringing proceedings is
compatible with Community law. Such periods cannot be regarded as rendering virtually impossible or
excessively difficult the exercise of rights conferred by Community law, even if the expiry of those periods
necessarily entails the dismissal, in whole or in part, of the action brought (see esp the judgments in
Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989 (para
5), Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043 (paras 1718) and
Palmisani v Istituto Nazionale della Previdenza Sociale (INPS) Case C-261/95 (1997) ECJ Transcript, 10
July 1997 (para 28)).
49.
The five-year limitation period under Danish law must be considered to be reasonable (see the
judgment in Haahr Petroleum Ltd v benr Havn Case C-90/94 (1997) ECJ Transcript, 17 July (para 49)).
Furthermore, it is apparent that that
35
period applies without distinction to actions based on Community law and those based on national law.
50.
It is true that the court held in Emmott [1991] ECR I-4269 (para 23), that until such time as a directive
has been properly transposed, a defaulting member state may not rely on an individuals delay in initiating
proceedings against it in order to protect rights conferred upon him by the provisions of the directive and
that a period laid down by national law within which proceedings must be initiated cannot begin to run
before that time.
51.
However, as was confirmed by the judgment in Johnson v Chief Adjudication Officer (No 2) Case
410/92 [1995] All ER (EC) 258, [1994] ECR I-5483 (para 26), it is clear from Steenhorst-Neerings v
Bestuur van de Bedrijfsvereniging voor Detailhandel, Ambachten en Huisvrouwen Case C-338/91 [1993]
ECR I-5475 that the solution adopted in Emmott was justified by the particular circumstances of that case,
in which the time-bar had the result of depriving the applicant of any opportunity whatever to rely on her
right to equal treatment under a Community directive (see also the judgments in Haahr Petroleum (1997)
ECJ Transcript, 17 July (para 52) and Texaco A/S v Middelfart Havn, Olieselskabet Danmark amba v
Trafikministeriet Joined cases C-114115/95 (1997) ECJ Transcript, 7 July 1997 (para 48)).
52.
The reply to the seventh question must therefore be that Community law, as it now stands, does not
prevent a member state which has not properly transposed the directive from resisting actions for the
repayment of charges levied in breach thereof by relying on a limitation period under national law which
runs from the date on which the charges in question became payable, provided that such a period is not
less favourable for actions based on Community law than for actions based on national law and does not
render virtually impossible or excessively difficult the exercise of rights conferred by Community law.
Question 8
53.
By its eighth question, the national court asks whether art 10 of the directive in conjunction with art
12(1)(e) thereof gives rise to rights on which individuals may rely before national courts.
54.
It is settled case law that where the provisions of a directive appear, as far as their subject matter is
concerned, to be unconditional and sufficiently precise, those provisions may be relied upon in national
courts by individuals against the state where the state fails to implement the directive in national law by
the end of the period prescribed or where it fails to implement the directive correctly (see esp the
judgment in Comitato di Coordinamento per la Difesa della Cava v Regione Lombardia Case C-236/92
[1994] ECR I-483 (para 8)).
55.
In this case, it is sufficient to observe that the prohibition laid down in art 10 of the directive and the
derogation from that prohibition in art 12(1)(e) are expressed in sufficiently precise and unconditional
terms to be invoked by individuals in their national courts in order to contest a provision of national law
which infringes the directive.
56.
The reply to the eighth question must therefore be that art 10 of the directive in conjunction with art
12(1)(e) thereof gives rise to rights on which individuals may rely before national courts.
36
Costs
57.
The costs incurred by the Danish, French, Italian, Swedish and UK governments and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the
national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the stre Landsret
by order of 8 June 1995, hereby rules: (1) On a sound construction of art 12(1)(e) of Council Directive
(EEC) 69/335 concerning indirect taxes on the raising of capital, as amended, in order for charges levied
on registration of public and private limited companies and on their capital being increased to be by way
of fees or dues, their amount must be calculated solely on the basis of the cost of the formalities in
question. It may, however, also cover the costs of minor services performed without charge. In calculating
their amount, a member state is entitled to take account of all the costs related to the effecting of
registration, including the proportion of the overheads which may be attributed thereto. Furthermore, a
member state may impose flat-rate charges and fix their amount for an indefinite period, provided that it
checks at regular intervals that they continue not to exceed the average cost of the registrations at issue.
(2) Community law precludes actions for the recovery of charges levied in breach of Directive 69/335,
from being dismissed on the ground that those charges were imposed as a result of an excusable error by
the authorities of the member state inasmuch as they were levied over a long period without either those
authorities or the persons liable to them having been aware that they were unlawful. (3) Community law,
as it now stands, does not prevent a member state which has not properly transposed Directive 69/335,
from resisting actions for the repayment of charges levied in breach thereof by relying on a limitation
period under national law which runs from the date on which the charges in question became payable,
provided that such a period is not less favourable for actions based on Community law than for actions
based on national law and does not render virtually impossible or excessively difficult the exercise of
rights conferred by Community law. (4) Article 10 of Directive 69/335, in conjunction with art 12(1)(e) gives
rise to rights on which individuals may rely before national courts.
37
The applicants were female psychiatric nurses employed by a public-sector health board in Northern
Ireland who contributed to a voluntary contracted-out pension scheme. They started their careers working
full-time with the status of mental health officers, but when their family responsibilities increased they
began working part-time with the result that they lost that status along with the entitlement to additional
pension benefits which it conferred. Shortly before retiring, both applicants brought proceedings against
their employer, seeking equal treatment with persons having mental health officer status in the calculation
of their future pensions, in accordance with art 119 1 of the EC Treaty. They contended that they were
entitled to the additional benefits, the calculation of which should be based on their length of service since
8 April 1976, the date on which art 119 was first ruled to have direct effect, and that the two-year
restriction on entitlement imposed by reg 122 of the Occupational Pension Schemes (Equal Access to
Membership) Regulations (Northern Ireland) 1976 was incompatible with Community law. The national
court found that the exclusion of part-time nurses from mental health officer status constituted indirect
discrimination on grounds of sex, since considerably more women than men were affected, and that the
discrimination was unjustified. The court stayed the proceedings and referred to the Court of Justice of
the European Communities for a preliminary ruling questions concerning: (i) the date from which the
periods of service of part-time workers who had suffered indirect discrimination based on sex should be
taken into account for the purpose of calculating the additional benefits to which they were entitled; and
(ii) whether Community law precluded the application of a national rule to a successful art 119 claim under
which 38 entitlement was limited to a period which started to run two years prior to commencement of
proceedings.
1
Article 119, so far as material, is set out at p 41 e f, post
2
Regulation 12, so far as material, is set out at p 54 d, post
Held (1) The direct effect of art 119 could be relied on as from 8 April 1976 in order retroactively to claim
equal treatment in relation to the right to join an occupational pension scheme. Moreover, entitlement to a
retirement pension under an occupational scheme was indissolubly linked to the right to join such a
scheme, and the same was true where the discrimination suffered by part-time workers stemmed from
discrimination concerning access to a special scheme which conferred entitlement to additional benefits.
It followed that periods of service completed by part-time workers who had suffered indirect discrimination
based on sex had to be taken into account as from 8 April 1976 for the purposes of calculating the
additional pension benefits to which they were entitled (see p 58 c to h and p 60 h, post); Defrenne v
Sabena Case 43/75 [1981] 1 All ER 122 and Dietz v Stichting Thuiszorg Rotterdam Case C-435/93 [1996]
ECR I-5223 applied.
(2) The application in proceedings concerning access to membership of occupational pension
schemes of a national rule whereby the right to be admitted to a scheme, in the event of a successful art
119 claim, was linked to a period which started to run from a point in time two years prior to the institution
of proceedings would, in the instant case, prevent the applicants entire record of service after 8 April
1976 until 1990 from being taken into account for the purposes of calculating the additional benefits which
would be payable even after the date of the claim. Such a rule would render any action by individuals
relying on Community law impossible in practice. Moreover, the effect of that rule would be to limit in time
the direct effect of art 119 in cases in which no such limitation had been laid down either in the courts
case law or in EC Treaty Protocol No 2c. It followed that Community law precluded such a rule (see p 59
a to c g h and p 60 a b d h, post); Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland
Case 33/76 [1976] ECR 1989 applied; Steenhorst-Neerings v Bestuur van de Bedrijfsvereniging voor
Detailhandel, Ambachten en Huisvrouwen Case C-338/91 [1993] ECR I-5475 and Johnson v Chief
Adjudication Officer (No 2) Case 410/92 [1995] All ER (EC) 258 distinguished.
3
Protocol No 2, so far as material, is set out at p 57 h, post
Notes
For the principle of equal pay for equal work, see 52 Halsburys Laws (4th edn) paras 21112116. For
relevant cases see 21 Digest (2nd Reissue) 333, 342, 977, 989.
For the EC Treaty, art 119, see 50 Halsburys Statutes (4th edn) 306. For EC Treaty Protocol No 2
concerning art 119 (inserted by the Treaty on European Union), see ibid, Current Service, 142.
Cases cited
Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] QB
344, [1991] 2 WLR 72, [1990] ECR I-1889, ECJ.
Bestuur van het Algemeen Burgerlijk Pensioenfonds v Beune Case C-7/93 [1995] All ER (EC) 97, [1994]
ECR I-4471, ECJ.
Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607.
Coloroll Pension Trustees Ltd v Russell Case C-200/91 [1995] All ER (EC) 23, [1994] ECR I-4389, ECJ.
39
Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043.
Defrenne v Sabena Case 43/75 [1981] 1 All ER 122, [1976] ECR 455, ECJ.
Denkavit Internationaal BV v Kamer van Koophandel en Fabrieken voor Midden- Gelderland Case C-2/94
[1996] ECR I-2827.
Dietz v Stichting Thuiszorg Rotterdam Case C-435/93 [1996] ECR I-5223.
Draehmpaehl v Urania Immobilienservice ohG Case C-180/95 [1997] All ER (EC) 719, ECJ.
Emmott v Minister for Social Welfare Case C-208/90 [1991] ECR I-4269.
Fisscher v Voorhuis Hengelo BV Case C-128/93 [1995] All ER (EC) 193, [1994] ECR I-4583, ECJ.
Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972, [1981] ECR 911, ECJ.
Johnson v Chief Adjudication Officer (No 2) Case 410/92 [1995] All ER (EC) 258, [1994] ECR I-5483,
ECJ.
Marshall v Southampton and South West Hampshire Area Health Authority (No 2) Case C-271/91 [1993]
4 All ER 586, [1994] QB 126, [1993] 3 WLR 1054, [1993] ECR I-4367, ECJ.
Moroni v Firma Collo GmbH Case C-110/91 [1993] ECR I-6591.
Neath v Hugh Steeper Ltd Case C-152/91 [1994] 1 All ER 929, [1993] ECR I-6935, ECJ.
Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989.
Rinner-Khn v FWW Spezial Gebudereinigung GmbH Case 171/88 [1989] ECR 2743.
Steenhorst-Neerings v Bestuur van de Bedrijfsvereniging voor Detailhandel, Ambachten en Huisvrouwen
Case C-338/91 [1993] ECR I-5475.
Ten Oever v Stichting Bedrijfspensioenfonds voor het Glazenwassersen Schoonmaakbedrijf Case C-
109/91 [1993] ECR I-4879.
Vroege v NCIV Instituut voor Volkshuisvesting BV Case C-57/93 [1995] All ER (EC) 193, [1994] ECR I-
4551, ECJ.
Reference
By order of 9 July 1996, the Office of the Industrial Tribunals and the Fair Employment Tribunal, Belfast,
referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the
EC Treaty a number of questions (set out at p 56 b to g, post) on the interpretation of art 119 of the EC
Treaty and of Protocol No 2, concerning that provision. Those questions were raised in proceedings
between Mrs Magorrian and Mrs Cunningham and the Eastern Health and Social Services Board and the
Department of Health and Social Security in relation to certain additional benefits under a contracted-out
retirement pension scheme. Written observations were submitted on behalf of: Mrs Magorrian and Mrs
Cunningham, by J OHara, Barrister-at-law, and E McCaffrey, Solicitor; the UK government, by S Ridley,
of the Treasury Solicitors Department, acting as agent, and by R Weatherup QC, and N Paines, Barrister;
and the European Commission, by C Bury, M Wolfcarius and C Docksey, of its Legal Service, acting as
agents. Oral observations were made by Mrs Magorrian and Mrs Cunningham, the UK government and
the Commission. The language of the case was English. The facts of the case are set out in the opinion of
the Advocate General.
40
10 July 1997.
I LEGAL FRAMEWORK
4
That decision has since been reaffirmed in the judgments in Moroni v Firma Collo GmbH Case C-110/91 [1993] ECR I-
6591 (point 3, operative part) and Neath v Hugh Steeper Ltd Case C-152/91 [1994] 1 All ER 929, [1993] ECR I-
6935 (point 1, operative part).
6.
Elucidation of the temporal effects of the direct effect of art 119 in the field of benefits granted under
occupational pension schemes was also provided by Protocol No 2, incorporated in the EC Treaty with
effect from 1 November 1993. Protocol No 2 is as follows:
For the purposes of Article 119 of this Treaty, benefits under occupational social security
schemes shall not be considered as remuneration if and in so far as they are attributable to periods
of employment prior to 17 May 1990, except in the case of workers or those claiming under them
who have before that date initiated legal proceedings or introduced an equivalent claim under the
applicable national law.
7.
Thus, Protocol No 2 essentially adopted the same interpretation as the judgment in Barber. Indeed, as
regards its content, the court has repeatedly held:
It is clear that the Protocol is linked to the Barber judgment, since it refers to the date of that
judgment, 17 May 1990. That judgment declares unlawful discrimination as between men and
women resulting from an age condition that varies according to sex for the purposes of entitlement
to a retirement pension following dismissal for economic reasons. There have been divergent
interpretations of the Barber judgment which limits, with effect from the date of the judgment,
namely 17 May 1990, the effect of its interpretation of art 119 of the Treaty. Those divergences
were removed by the judgment in Ten Oever, which was delivered before the entry into force of the
[Treaty on European Union (the TEU) (Maastricht, 7 February 1992; TS 12 (1994); Cmnd 2485; OJ
1992 C191)]. While extending it to all benefits payable under social security schemes and
incorporating it in the Treaty, the Protocol essentially adopted the same interpretation of the Barber
judgment as did the Ten Oever judgment. It did not, on the other hand, any more than the Barber
judgment, deal with or make any provision for, the conditions of membership of such occupational
schemes. (See the judgment in Beune [1995] All ER (EC) 97, [1994] ECR I-4471 (para 61).)
And it was made clear that that continued to be governed by the judgment in Bilka, which does not limit in
time the validity of the interpretation which it gives to art 119 of the Treaty 5.
5
See the three judgments in Bestuur van het Algemeen Burgerlijk Pensioenfonds v Beune Case C-7/93 [1995] All ER
(EC) 97, [1994] ECR I-4471 (paras 6162), Vroege v NCIV Instituut voor Volkshuisvesting BV Case C-57/93 [1995]
All ER (EC) 193, [1994] ECR I-4551 (paras 4142) and Fisscher v Voorhuis Hengelo BV Case C-128/93 [1995] All
ER (EC), [1994] ECR I-4583 (paras 4950).
42
B. National legislation
8.
Regulation 3 of the Health and Personal Social Services (Superannuation) Regulations (Northern
Ireland) 1984, SI 1984/3366 defines a mental health officer (MHO) as a whole-time officer on the medical
or nursing staff of a hospital used wholly or partly for the treatment of persons suffering from mental
disorder who devotes the whole or substantially the whole of his time to the treatment of such persons 7.
6
The 1984 regulations were issued on 18 September 1984 and their commencement date was 29 October 1984.
7
Moreover, the same provision of reg 3 of the 1984 regulations defines an MHO as a specialist who devotes nearly all his
time to the cure and care of mentally disturbed persons and, if the ministry so approves in a given case, any other
health officer who, having continued as an MHO without interruption in service and without acquiring the right to any
benefit under the 1984 regulations, subsequently works reduced hours in any of the above occupations, and such other
category of health workers employed in hospitals as above as the ministry may determine.
9.
As provided for in reg 50(2) of the 1984 regulations, any person who has worked as an MHO for a total
period of at least 20 years (a) obtains the right to retire at the age of 55 years instead of 60 years and (b)
every year of service as an MHO after the age of 50 years, or after completion of 20 years service as an
MHO, whichever shall be the later, is reckoned at twice its length (double-time service).
10.
Under s 2(4) of the Equal Pay Act (Northern Ireland) 1970, claims concerning the application of the
equal pay clause in connection with the employment of a woman must be brought before the competent
industrial tribunal within six months of the end of the relevant period of employment. Section 2(5) of the
1970 Act provides that in proceedings brought in respect of a failure to comply with an equal pay clause a
woman shall not be entitled to be awarded any payment by way of arrears of remuneration or damages in
respect of a time earlier than two years before the date on which the proceedings were instituted.
11.
Regulation 12 of the Occupational Pension Schemes (Equal Access to Membership) Regulations
(Northern Ireland) 1976, SI 1976/2388, amending the 1970 Act9, provides that in proceedings concerning
access to membership of occupational pension schemes the right to be admitted to the scheme, in
accordance with equal access requirements, is to have effect from a date no earlier than two years before
the institution of proceedings.
8
The 1976 regulations were issued on 9 August 1976 and their commencement date was 6 April 1978.
9
Regulation 12 concerns the power of the ordinary courts or of the Industrial Tribunal to uphold the fight to be admitted to
the occupational pension scheme and to require the employer to make additional contributions.
II FACTS
12.
Mrs Magorrian and Mrs Cunningham, the applicants in the main proceedings, were employed as
qualified nurses in the mental health sector by a public sector health board. They began their careers
working full-time with MHO status. When their family responsibilities increased, they began working part-
time10 and lost that status.
10
As is apparent from the order for reference, when the applicants in the main proceedings began working part-time, they
worked for 27 hours and 25 minutes per week. On reorganisation of the shift patterns in 1981, the part-time hours were
increased by the employer to 31 hours and five minutes per week. At the same time full-time nursing officers hours were
reduced from 40 hours to 37 hours and 30 minutes per week. Each applicant worked night shifts, which was better
suited to their domestic arrangements. Both applicants had been in charge of wards and of full-time nurses who had
MHO status.
13.
Both of the applicants in the main proceedings were affiliated to the Health and Personal Social
Services Scheme, a voluntary contracted-out scheme to 43 which both employer and employee
contribute. That scheme was open to part-time workers working a specified number of hours.
14.
The applicants in the main proceedings paid contributions to the scheme in order to qualify for
benefits, including a lump-sum payment on retirement and monthly payments thereafter.
15.
Mrs Magorrian retired on 18 October 1992, having completed 9 years and 111 days of full-time work as
an MHO between 1951 and 1963, and the equivalent of 11 years and 25 days of full-time service as a
part-time worker between 1979 and 1992. She also worked part-time between 1969 and 1979 but for
hours not reckonable for pension purposes.
16.
Mrs Cunningham retired in April 1994, having completed 15 years and 175 days of full-time service as
an MHO between 1956 and 1974, and the equivalent of 11 years and 105 days full-time service as a part-
time worker between 1980 and 1994. Between 1974 and 1980 she also worked part-time on a non-
superannuable basis and she elected not to make pension contributions during that period.
17.
When the applicants in the main proceedings retired, they received the lump sums to which they were
entitled, together with their basic retirement pensions, but not the additional benefits to which they would
have been entitled, if they had had MHO status at the time of their retirement.
18.
The applicants in the main proceedings emphasise that they had already initiated proceedings before
ceasing to be employed. Their claims against the Eastern Health and Social Services Board and the
Department of Health and Social Services (respondents in the main proceedings) were lodged on 22
September 1992. Mrs Magorrian retired on 18 October 1992, whilst Mrs Cunningham retired on 31 March
1994.
19.
The applicants in the main proceedings sought equal treatment with persons having MHO status in the
calculation of the amounts of their future pensions. Specifically, they argued that they were entitled to the
additional benefits and that the calculation thereof should be based on their length of service starting
either on 8 April 1976, the date of the judgment in Defrenne, or on 13 May 1986, the date of the judgment
in Bilka. Finally, it is contended on their behalf, there is no justification for applying the two-year restriction
laid down in the 1970 Act in calculating their length of service, or for applying the cut-off date of 17 May
1990, the date of the judgment in Barber since to do so would be to deprive them of an effective legal
remedy.
20.
The respondents in the main proceedings acknowledged a limited right on the part of the applicants to
the additional benefits, in accordance with the provisions concerning MHO status. In their view, it would
be necessary to take account of periods of service subsequent either to 22 September 1990, that is to say
two years prior to lodgement of their claim, as provided for by the 1970 Act, or to 17 May 1990, the date of
the judgment in Barber and the date referred to in Protocol No 2, until the date when they retired from the
service.
21.
The national court, in its order for reference dated 12 September 1995, found that it was common
ground between the parties to the main proceedings 44 that the payment of such benefits constitutes
pay within the meaning of art 119 of the EC Treaty and of Council Directive (EEC) 75/117 on the
approximation of the laws of the member states relating to the application of the principle of equal pay for
men and women (OJ 1975 L45 p 19). The national court also found that a considerably smaller proportion
of women than men employed in the mental health sector in Northern Ireland could comply with the
requirement of full-time working as MHOs, and accepted that the exclusion of the applicants in the main
proceedings from MHO status discriminates against them on the ground of sex and is not justified.
29.
In particular, as regards the right of membership of an occupational scheme, the court found that
there is no reason to suppose that the professional groups concerned could have been mistaken about
the applicability of art 119 (see Vroege [1995] All ER (EC) 193, [1994] ECR I-4551 (para 28)).
30.
Moreover, in Barber [1990] 2 All ER 660, [1990] ECR I-1889 (para 28), the court held that a pension
paid under a contracted-out scheme constitutes consideration paid by the employer to the worker in
respect of his employment and consequently falls within the scope of art 119.
31.
Yet, in Barber, the court, adjudicating for the first time on the question whether the determination of a
different pensionable age depending on sex constitutes, in the context of occupational pension schemes,
unlawful discrimination13, and answering that question in the affirmative, deemed it necessary to limit in
time the effects of its judgment. It based that limitation, on the one hand, on the fact that the member
states and the parties concerned were reasonably entitled, in light of the derogations provided for in art
7(1)(a) of Council Directive (EEC) 79/7 on the progressive application of equal treatment for men and
women in matters of social security (OJ 1979 L6 p 24) and art 9(a) of Council Directive (EEC) 86/378 on
the implementation of the principle of equal treatment for men and women in occupational social security
schemes (OJ 1986 L283 p 27), with regard to pensionable age, to take for granted that the principle of
equality as between male and female employees did not apply to the case in question and, on the other
hand, on the finding that the retroactive validity of the judgment would risk disturbing the financial
equilibrium of many occupational pension schemes.
13
See eg the judgment in Moroni [1993] ECR I-6591 (para 16).
32.
Consequently, the temporal limitation of the possibility of reliance on the direct effect of art 119 of the
Treaty concerns solely discrimination which might be justified on the basis of exceptions provided for in
Community provisions14, such as art 9 of Directive 86/37815. The court has repeatedly held that
14
I emphasised that in my opinion in Dietz v Stichting Thuiszorg Rotterdam Case C-435/93 [1996] ECR I-5223 (para 23).
Judgment was given in that case on 24 October 1996.
15
The exceptions provided for in that article concern (a) determination of a different retirement age for men and women,
(b) survivors pensions and (c) determination of different levels of contributions by workers.
the limitation of the effects in time of the Barber judgment concerned only those kinds of
discrimination which employers and pension schemes could reasonably have considered to be
permissible owing to the transitional derogations for which Community law provided and which
were capable of 47 being applied to occupational pensions (See the judgment in Dietz [1996]
ECR I-5223 (para 19).)16
16
See also the judgments in Vroege [1995] All ER (EC) 193, [1994] ECR I-4551 (paras 2027) and Fisscher [1995]
All ER (EC) 193, [1994] ECR I-4583 (paras 1724) and my opinion in Dietz [1996] ECR I-5223 (paras 2829).
It further held that the limitation of the effects in time of the Barber judgment did not apply to the right
to join an occupational pension scheme, inasmuch as the judgment in Bilka did not provide for any such
limitation (see Dietz v Stichting Thuiszorg Rotterdam Case C-435/93 [1996] ECR I-5223 (para 22),
Vroege [1995] All ER (EC) 193, [1994] ECR I-4551 (para 32) and Fisscher [1995] All ER (EC) 193, [1994]
ECR I-4583 (para 28)).
33.
According to the UK government, in order for the applicants in the main proceedings to be entitled to
the additional benefits provided for in the case of MHOs, they need to rely on art 119 of the Treaty at two
different stages. First, they have to rely on it in order to have their part-time service recognised as
satisfying the 20-year requirement, and secondly, to have their subsequent service counted double in
order to acquire the right to a pension at 55 years of age instead of 60. Particularly in regard to
recognition in the case of the two applicants of the whole or part of their period of service for the purposes
of completion of the 20-year period, the UK government maintains that to take into account any periods
prior to 17 May 1990 would run counter to Protocol No 2.
34.
In the present case, it appears from the pleadings that the contracted-out occupational pension
scheme in the main proceedings is essentially a twofold scheme. On the one hand, it makes provision for
persons merely having the duties of psychiatric nurses (mental health officers), but not MHO status and,
consequently, not having the right to additional benefits because they were part-time workers. On the
other hand, it contains provisions concerning persons having MHO status and the right to additional
benefits because they were full-time employees.
35.
It is thus clear from the pleadings that, under the national legislation, the discrimination is directed
essentially against part-time employees to whom the more favourable provisions in favour of MHOs do
not apply.
36.
In accordance with the settled case law of the court 17, I do not consider that any provision of Directive
86/378 entitled the parties concerned reasonably to regard as permissible, owing to the transitional
derogations contained in that directive, the kind of discrimination, such as that in the present case,
directed against part-time workers depriving them on retirement of the additional benefits to which MHOs
are entitled. Thus, a person may very well invoke with retroactive effect rights in his favour which are not
covered by the exceptions contained in art 9(a) of the directive.
17
See eg the judgments in Barber [1990] 2 All ER 660, [1990] ECR I-1889 (paras 4243), Vroege [1995] All ER (EC)
193, [1994] ECR I-4551 (paras 2027), Fisscher [1995] All ER (EC) 193, [1994] ECR I-4583 (paras 1734) and
Dietz [1996] ECR I-5223 (para 19). See also the judgment in Coloroll Pension Trustees Ltd v Russell Case C-200/91
[1995] All ER (EC) 23, [1994] ECR I-4389 (para 53).
37.
Accordingly, there can be retroactive reliance on the direct effect of art 119 of the Treaty by the
applicants in the main proceedings who suffered discrimination, so that the additional benefits provided
for in the case of MHOs under the existing scheme may be made available to them, with effect from 8
April 1976, the date of the judgment in Defrenne.
48
38.
I now come to an examination of the question whether the present dispute concerns admission to a
pension scheme in which case, following the judgment in Bilka, the temporal limitation imposed by the
court in Barber and adopted in Protocol No 2 does not apply or, conversely, whether it concerns the
calculation of benefits granted under such a scheme in which case the temporal limitation does apply.
39.
Certainly, inasmuch as this case involves discrimination not covered by the Barber judgment and
Protocol No 2, it would be possible to avoid the distinction between the right to membership of an
occupational pension scheme and the right to receive benefits under that scheme. Thus, in the present
case, it would be possible to obviate the need for examination of the question whether the discrimination
suffered by the applicants constitutes discrimination in regard to membership of an occupational pension
scheme and not simply in regard to the claim of entitlement to certain benefits.
40.
Nevertheless, for the sake of completeness in the analysis of the issue raised in the first preliminary
question and in view of the issue arising in the second preliminary question, I would add the following
considerations. On the basis of the foregoing analysis, according to which the discrimination against the
applicants in the main proceedings could not reasonably be regarded by the parties concerned as
permissible, I consider that, as a condition precedent to a successful claim to additional benefits provided
for by the national legislation in the case of MHOs, retroactive admission to the status of MHO, of which
the two applicants were deprived, would be necessary and, with it, recognition of entitlement in that
connection to those benefits. Thus, in my opinion, the fact that account was not taken of the period of
part-time service in calculating the period of service as MHOs of the two applicants in the main
proceedings constitutes unfair treatment in connection with admission to the special MHO status which
provides for the grant of additional benefits, and not in connection with the calculation in itself of the
benefits, which would result in the application of the temporal limitation of the effects of the Barber
judgment. Consequently, it will be necessary to apply the solution adopted in Bilka, in connection with the
right of admission to an occupational pension scheme, and to exclude the possibility of a temporal
limitation pursuant to the Barber judgment18.
18
Consequently, the solution adopted in Beune [1995] All ER (EC) 97, [1994] ECR I-4471, cannot be applied,
contrary to the assertions of the United Kingdom. That is because in that case the national legislation at issue laid down
a rule for calculating the amount of the civil service pension for male married former civil servants which was different
from that applicable to female married former civil servants. The court held, first, that art 119 precluded such a national
provision, and that married men placed at a disadvantage by discrimination must be treated in the same way and have
the same rules applied to them as married women and, secondly, that the temporal limitation under Protocol No 2
applies in the case of the persons who may rely on the direct effect of art 119 in order to claim equal treatment as
regards the payment of benefits under a pension scheme, such as the scheme in the main proceedings in that case
(see [1995] All ER (EC) 97, [1994] ECR I-4471 (points 23, operative part)).
41.
That solution is warranted by the case law of the court. In its judgment in Dietz [1996] ECR I-5223
(paras 23ff)19, which concerned the old-age pension entitlement under an occupational scheme of a part-
time worker who was originally excluded from her pension scheme, it was held that the preconditions
which led to the temporal limitation in Barber are not fulfilled in the case of discrimination against part-time
workers. The court stressed that
19
See also my opinion in Dietz [1996] ECR I-5223 (paras 27ff).
49
Entitlement to a retirement pension under an occupational scheme is indissolubly linked to the
right to join such a scheme. Membership would be of no interest to employees if it did not confer
entitlement to the benefits provided for by the scheme. (See the judgment in Dietz [1996] ECR I-
5223 (para 23).)
It was further held that
it should be noted that since the judgment in Bilka imposed no time restriction the direct effect
of Article 119 may be relied upon retroactively as from 8 April 1976, the date of the Defrenne
judgment, by victims of discrimination regarding the right to join an occupational pension scheme
who seek payment of benefits under that scheme. (See [1996] ECR I-5223 (para 27).)
And the judgment concluded (point 2, operative part):
The limitation of the effects in time of the Barber judgment does not apply to the right to join
an occupational pension scheme, such as that at issue in the main proceedings, or to the right to
payment of a retirement pension where the worker was excluded from membership of the scheme
in breach of Article 119 of the Treaty.
42.
In light of the foregoing analysis, I consider that art 119 of the Treaty and related Protocol No 2 are to
be interpreted as meaning that in the case of discrimination against part-time workers, as described in the
order for reference, their period of work, for the purpose of conferring entitlement to benefits under an
occupational pension scheme, must be calculated as a matter of principle as from 8 April 1976, the date
of delivery of the judgment in Defrenne.
44.
More specifically, the question raised here concerns the case where the national legislation applied
imposes a limitation, if a claim is successful, on the right to have years of service taken into account, to
the two-year period preceding commencement of proceedings. When the question is asked whether the
limitation imposed in this case by national law on the right of the persons concerned to receive the
additional benefits provided for in the case of MHOs, a right conferred by Community law, leads to a
denial of effective protection, national courts are obliged to disregard that provision of national law, if they
deem it necessary.
45.
The applicants in the main proceedings maintain that such a limitation rule in national law may not be
applied by the national court. For, as they also pointed out at the hearing, if it were otherwise, the
paradoxical result would be a 50 finding of unequal treatment contrary to art 119 of the Treaty, as the
national court has already found, yet nevertheless that finding of unequal treatment would have no
practical consequence owing to the application of the national rule in question. Moreover, they
maintained, the removal of that discriminatory treatment would cost the civil service scheme very little 21.
21
According to the applicants in the main proceedings, payment of the additional benefits provided for in the case of
MHOs would cost the civil service scheme about 70,000 to 100,000 pa, as opposed to an annual budget amounting
to 355m.
46.
The UK government submits that a national rule which limits to two years prior to commencement of
proceedings the period in respect of which the additional benefits awarded in the case of MHOs may be
backdated is perfectly compatible with Community law. Relying on the case law of the court 22, it considers
that a reasonable time limit may be applied in respect of claims based on art 119 in the context of
occupational schemes. Time restrictions on the retroactive effect of a judicial decision do not render
impossible the enforcement of rights under Community law but contribute to legal certainty by
encouraging the persons concerned to show due diligence.
22
See the judgments in Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989,
Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043, Fisscher [1995] All ER (EC), [1994] ECR
I-4583 (para 40) and Johnson v Chief Adjudication Officer (No 2) Case 410/92 [1995] All ER (EC) 258, [1994] ECR
I-5483.
47.
It should first of all be remembered that, as the court has consistently held 23, in the absence of
Community rules in the matter, the national rules relating to time limits for bringing actions are also
applicable to actions based on Community law, provided that they satisfy two requirements. First, they
must be no less favourable for such actions than for similar actions of a domestic nature, that is to say
claims brought under national law and, secondly, they must not render the exercise of rights conferred by
Community law impossible in practice. Thus, the national court has discretion in assessing whether the
national rules setting time limits on the bringing of actions are no less favourable for that type of action
than for similar actions of a domestic nature24 and do not render the exercise of the right conferred by
Community law impossible in practice.
23
See eg the judgments in Fisscher [1995] All ER (EC), [1994] ECR I-4583 (paras 3940, point 5 operative part) and
Rewe-Zentralfinanz [1976] ECR 2043 (paras 56).
24
In the present case that issue is not examined at all by the national court.
48.
In the present case, as I have already indicated in earlier paragraphs, the limitation is one which
affects the right of an employee to be admitted to a special status under an occupational pension scheme
in accordance with the requirements concerning equal access, and not that persons right retroactively to
seek certain benefits.
49.
Regulation 12 of the 1976 regulations, provides that, in the context of proceedings concerning access
to membership of an occupational pension scheme, the right to join the scheme in question cannot be
backdated more than two years prior to commencement of the proceedings. However, I consider that the
above limitation under national law has more far-reaching effects than the limitation of the employees
right to claim a retroactive award of benefits. The reason is that it affects the number of years in respect of
which the persons concerned may claim MHO status and, consequently, their ability to claim the
additional benefits which flow from that status25, since the minimum period of 20 years of service can
never be completed with the result that exercise of the 51 right to additional benefits is rendered
impossible in practice26, as the European Commission, moreover, rightly points out.
25
See also the problems expounded in the opinion of Advocate General Jacobs in Denkavit Internationaal BV v Kamer
van Koophandel en Fabrieken voor Midden-Gelderland Case C-2/94 [1996] ECR I-2827 (para 67, and esp para 69), in
connection with the terms virtually impossible or excessively difficult in relation to the exercise of rights conferred by
Community law, owing to the limitation period imposed by national law for bringing proceedings. However, the court,
which gave judgment on 11 June 1996, did not express a view on this issue.
26
The present case differs from that which exercised the court in its judgment in Marshall v Southampton and South West
Hampshire Area Health Authority (No 2) Case C-271/91 [1993] 4 All ER 586, [1993] ECR I-4367, which concerned
the imposition of an upper limit fixed a priori for the reparation of the loss sustained by a person as a result of
discriminatory dismissal, and the exclusion of an award of interest to compensate for the loss sustained by the recipient
of the compensation as a result of the effluxion of time until the capital sum awarded was actually paid. That case differs
from the present case because the latter concerns a temporal limitation on the right to retrospective admission to a
special status for pension purposes (that of MHO), in the event that the action is successful.
50.
On the first preliminary question I reached the conclusion that, in the event of discrimination of part-
time employees, such as that described by the national court in the order for reference, their period of
service, for the purpose of awarding the additional benefits to which they are entitled under the
occupational pension scheme, must in principle be calculated with effect from 8 April 1976, the date of
delivery of the judgment in Defrenne. Thus, the temporal limitation imposed by Barber and Protocol No 2
does not apply in the present case. Consequently, I do not believe it is possible to invoke the principles of
legal certainty and avoidance of retroactive disturbance to the financial equilibrium of a contracted-out
occupational pension scheme relied on by the court in Barber [1990] 2 All ER 660, [1990] ECR I-1889
(para 44) in connection with recognition of the right of the applicants in the main proceedings to the
additional benefits. That is because the unfair treatment of part-time employees sanctioned for breach of
art 119 of the Treaty was known about long before the judgment in Barber.
51.
Nevertheless, a provision of national law such as reg 12 of the 1976 regulations, would substantially
reduce the practical effectiveness of art 119 of the Treaty, and could have the consequence of deterring
workers suffering discrimination from vindicating their rights under that article and, finally, of depriving
them of actual and effective judicial protection27.
27
See also analogous reasoning of the court in Draehmpaehl v Urania Immobilienservice ohG Case C-180/95 [1997] All
ER (EC) 719 (para 40). In that case the question arose, inter alia, whether Council Directive (EEC) 76/207 on the
implementation of the principle of equal treatment for men and women as regards access to employment, vocational
training and promotion, and working conditions, precludes provisions of domestic law imposing a ceiling on the
aggregate amount of compensation payable to several applicants discriminated against on the grounds of their sex in
the making of an appointment. The court held that the directive precludes such provisions of domestic law (see [1997]
All ER (EC) 719 (para 43)).
52.
Consequently, I consider that national legislation which does not permit retroactive admission, beyond
the period of two years from commencement of proceedings, of part-time employees to the special
occupational status provided for in the case of MHOs is rendering impossible in practice the exercise of
their right to belong to the status in question and to receive the additional benefits provided for by it, which
is a right flowing from the application of art 119 of the Treaty, and the national court is required not to
apply such a provision28.
28
Since this is a case of unfair discrimination in breach of art 119 of the Treaty, I do not consider it possible for the
judgment in Emmott v Minister for Social Welfare Case C-208/90 [1991] ECR I-4269, relied on by the applicants in the
main proceedings, to be applied, since that case concerned inadequate transposition of Directive 79/7. According to the
operative part of that judgment, so long as a member state has not properly transposed that directive into its legal
system: Community law precludes the competent authorities of a Member State from relying, in proceedings brought
against them by an individual before the national courts in order to protect rights directly conferred upon him by Article
4(1) of Directive 79/7 on national procedural rules relating to time limits for bringing proceedings. See also the
opinion of Advocate General Van Gerven in Vroege [1995] All ER (EC) 193, [1994] ECR I-4551 (para 31).
52
53.
If it were otherwise, the application of such a national provision would lead to a situation in which
judgments of the court are not observed. On the one hand, it the court may, as happened in Defrenne and
Barber impose temporal limitations on the effects of its judgments and, on the other, may review the
criteria for the application of national rules which impose time limits for bringing actions, including those
based on Community law (see eg esp Fisscher [1995] All ER (EC) 193, [1994] ECR I-4583 (paras 3940,
point 5 operative part) and Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case
33/76 [1976] ECR 1989 (paras 56)).
V CONCLUSION
54.
In light of the foregoing analysis, I propose that the Court of Justice should reply as follows to the
questions referred to it for a preliminary ruling:
(1) Article 119 of the EC Treaty and related Protocol No 2 are to be interpreted as meaning that,
in the case of discrimination against part-time workers, as described in the order for reference, their
period of work, for the purpose of conferring entitlement to benefits under an occupational pension
scheme, must be calculated as a matter of principle as from 8 April 1976, the date of delivery of the
judgment in Defrenne.
(2) National courts are required not to apply a rule of national law which, in the event of a
successful claim, does not permit retroactive admission, beyond the period of two years from
commencement of proceedings, of part-time employees to the special occupational status provided
for in the case of MHOs, thus rendering impossible in practice the exercise of their right to belong
to the status in question and to receive the additional benefits provided for by it, which is a right
flowing from art 119.
11 December 1997.
Costs
48.
The costs incurred by the UK government and the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the proceedings pending before the national court, the decision on costs
is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the questions referred to it by
the Office of the Industrial Tribunals and the Fair Employment Tribunal, Belfast, by order of 9 July 1996,
hereby rules: (1) Periods of service completed by part-time workers who have suffered indirect
discrimination based on sex must be taken into account as from 8 April 1976, the date of the judgment in
Defrenne v Sabena Case 43/75 [1981] 1 All ER 122, [1976] ECR 455, for the purposes of calculating the
additional benefits to which they are entitled. (2) Community law precludes the application, to a claim
based on art 119 of the EC Treaty for recognition of the claimants entitlement to join an occupational
pension scheme, of a national rule under which such entitlement, in the event of a successful claim, is
limited to a period which starts to run from a point in time two years prior to commencement of
proceedings in connection with the claim.
60
The four plaintiffs claimed refunds of VAT from the Belgian fiscal authorities. However, on examination of
the plaintiffs respective tax returns, the authorities found either that there were grounds for presuming tax
evasion or that there was a value added tax debt owing to them which was not apparent from the tax
returns and which the taxable person contested. In such circumstances Belgian legislation allowed the
fiscal authorities to retain the amount of refund claimed as a protective measure and in each case the
amounts claimed were so retained. All four plaintiffs instituted proceedings against the Belgian state
claiming that the Belgian legislation was incompatible with Council Directive (EEC) 77/388 on the
harmonisation of the laws of the member states relating to turnover taxescommon system of value
added tax: uniform basis of assessment. In each case, the national courts referred to the Court of Justice
of the European Communities for a preliminary ruling questions seeking to determine (i) whether
measures such as those in the Belgian law were precluded by art 18(4) 1 of Directive 77/388 which
permitted member states, where authorised deductions exceeded the amount of tax due, either to make a
refund or to carry the excess forward according to the conditions which they were to determine, and, if
not, (ii) what effect the principle of proportionality might have in such circumstances.
1
Article 18, so far as material, is set out at p 86 g h, post
Held (1) Directive 77/388 was intended to establish a uniform basis so as to guarantee the neutrality of
the value added tax system and to harmonise the rules governing deductions to the extent that they
affected the actual amounts collected and to ensure that the deductible proportion was calculated in a
similar manner in all the member states. Accordingly, Title XI of the directive which dealt with deductions,
and in particular art 18, related to the normal functioning of the common system of value added tax and
did not concern measures involving the retention by the fiscal authorities as a protective measure of
refundable amounts of value added tax on grounds of suspected incorrect particulars in returns or a
suspected value added tax debt to the state. It followed that art 18(4) did not preclude such measures
(see p 93 c d and p 96 e, post).
(2) Measures such as those at issue were liable to have an impact on the national authorities
obligation to make an immediate refund under art 18(4). 61Thus, in accordance with the principle of
proportionality, the member states had to employ means which, whilst enabling them effectively to attain
the objective pursued by their domestic laws, were the least detrimental to the objectives and the
principles laid down by the relevant Community legislation. Accordingly, whilst it was legitimate for
measures adopted by the member states to seek to preserve the rights of the treasury as effectively as
possible, such measures could not be used in such a way that they would have the effect of
systematically undermining the right to deduct value added tax, which was a fundamental principle of the
common system of value added tax established by Community legislation. It followed that the principle of
proportionality was applicable to national measures which were adopted by a member state in the
exercise of its powers relating to value added tax (see p 93 g to j and p 96 f, post).
(3) It was for the national court to examine whether or not the measures in question and the manner in
which they were applied by the competent administrative authority were proportionate. In the context of
that examination, if the national provisions or a particular construction of them would constitute a bar to
effective judicial review, in particular, review of the urgency and necessity of retaining the refundable
value added tax balance, and would prevent the taxable person from applying to a court for replacement
of the retention by another guarantee sufficient to protect the interests of the treasury but less onerous for
the taxable person, or would prevent an order from being made, at any stage of the procedure, for the
total or partial lifting of the retention, the national court should disapply those provisions or refrain from
placing such a construction on them. Moreover, in the event of the retention being lifted, calculation of the
interest payable by the treasury which did not take as its starting point the date on which the value added
tax balance in question would have had to be repaid in the normal course of events would be contrary to
the principle of proportionality (see p 95 j to p 96 b g to j, post); Gebhard v Consiglio dellOrdine degli
Avvocati e Procuratori di Milano Case C-55/94 [1996] All ER (EC) 189 applied.
Notes
For an introduction to Community provisions on value added tax, see 52 Halsburys Laws (4th edn) paras
20132014.
Cases cited
Balocchi v Ministero delle Finanze dello Stato Case C-10/92 [1997] STC 640, [1993] ECR I-5105, ECJ.
Becker v Finanzamt Mnster-Innenstadt Case 8/81 [1982] ECR 53.
BP Supergas Anonimos Etairia Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece Case C-62/93
[1995] All ER (EC) 684, [1995] ECR I-1883, ECJ.
Drexl (Criminal Proceedings against) Case 299/86 [1988] ECR 1213.
EC Commission v Belgium Case 324/82 [1984] ECR 1861.
EC Commission v France Case 196/85 [1987] ECR 1597.
EC Commission v France Case 50/87 [1988] ECR 4797.
EC Commission v France Case C-276/91 [1997] STC 584, [1993] ECR I-4413, ECJ.
Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325, ECJ.
Finanzamt Bergisch Gladbach v Skripalle Case C-63/96 [1997] STC 1035, ECJ.
Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357.
Fritz Werner Industrie-Ausrstungen GmbH v Germany Case C-70/94 [1995] ECR I-3189.
62
Gaston Schul Douane Expediteur BV v Inspecteur der Inverroechten en Accijnzen Case 15/81 [1982]
ECR 1409.
Gebhard v Consiglio dellOrdine degli Avvocati e Procuratori di Milano Case C-55/94 [1996] All ER (EC)
189, [1995] ECR I-4165, ECJ.
Jeunehomme v Belgium Joined cases 123/87 and 330/87 [1988] ECR 451.
Leifer (Criminal proceedings against) Case C-83/94 [1995] ECR I-3231.
Lennartz v Finanzamt Mnchen III Case C-97/90 [1995] STC 514, [1991] ECR I-3795, ECJ.
McDermott v Minister for Social Welfare Case 286/85 [1987] ECR 1453.
Netherlands v Federatie Nederlandse Vakbeweging Case 71/85 [1986] ECR 3855.
Pastoors v Belgium Case C-29/95 [1997] ECR I-285.
Peterbroeck, Van Campenhout & Cie (SCS) v Belgium Case C-312/93 [1996] All ER (EC) 242, [1995]
ECR I-4599, ECJ.
Pubblico Ministero v Ratti Case 148/78 [1979] ECR 1629.
R v Customs and Excise Comrs, ex p Strangewood Ltd [1987] STC 502.
R v Secretary of State for Transport, ex p Factortame Ltd Case C-213/89 [1991] 1 All ER 70, [1990] 3
WLR 818, [1990] ECR I-2433, ECJ.
Reisdorf v Finanzamt Kln-West Case C-85/95 [1997] STC 180, [1996] ECR I-6257, ECJ.
Rompelman v Minister van Financin Case 268/83 [1985] ECR 655.
Union nationale des entraneurs et Cadres techniques professionnels du football (Unectef) v Heylens
Case 222/86 [1987] ECR 4097.
Reference
The Hof van Beroep te Antwerpen (the Court of Appeal, Antwerp), 13th and 3rd Chambers (Cases C-
286/94 and C-340/95), the Rechtbank van Eerste Aanleg te Brussel (the Court of First Instance, Brussels)
(Case C-401/95) and the Rechtbank van Eerste Aanleg te Brugge (the Court of First Instance, Bruges)
(Case C-47/96) referred to the Court of Justice of the European Communities for preliminary rulings a
number of questions (set out at p 89 d e, p 90 g to j, p 91 e f and p 92 c to e, post) on the interpretation of
art 18(4) of Council Directive (EEC) 77/388 on the harmonisation of the laws of the member states
relating to turnover taxescommon system of value added tax: uniform basis of assessment. Those
questions concerned the compatibility with Community law of a form of preventive attachment exercised
by a national fiscal authority over the reimbursement of amounts of value added tax ostensibly overpaid
by a taxable person for certain declared tax periods. Those questions were raised in four actions brought
against the Belgian state by Garage Molenheide BVBA (Molenheide), Peter Schepens, Bureau Rik
Decan-Business Research & Development NV (BRD) (Decan) and Sanders BVBA (Sanders). Written
observations were submitted on behalf of: Molenheide, by V Dauginet, of the Antwerp Bar; Decan and
Sanders, by L Vandenberghe and R Tournicourt, of the Brussels Bar; the Belgian government, by J
Devadder, Counsellor General, Ministry of Foreign Affairs, External Trade and Development Co-operation,
acting as agent; the Greek government (Cases C-340/95, C-401/95 and C-47/96), by F Georgakopoulos,
Deputy Legal Adviser, Legal Council of State, and A Rokophyllou, Special Adviser to the Deputy Minister
of Foreign Affairs, acting as agents; the Italian government (Cases C-286/94, C-340/95 and C-401/95), by
Professor Umberto Leanza, head of the Department of Contentious Diplomatic Affairs, Ministry of Foreign
Affairs, acting as agent, assisted by Maurizio Fiorilli, Avvocato Dello Stato; the Swedish government
(Case C-401/95), by E Brattgrd, 63Departmental Adviser, Department of Foreign Trade, Ministry of
Foreign Affairs, acting as agent; and the European Commission, by B J Drijber, of its legal service, acting
as agent. Oral observations were made on behalf of Molenheide, represented by M Vanden Broeck, of
the Antwerp Bar, Decan and Sanders, represented by L Vandenberghe, the Belgian government,
represented by B van de Walle de Ghelcke and G de Wit, of the Brussels Bar, the Greek government,
represented by F Georgakopoulos, the Italian government, represented by G De Bellis, Avvocato Dello
Stato, and the Commission, represented by B J Drijber. The language of the cases was Dutch. The facts
are set out in the opinion of the Advocate General.
20 March 1997.
I LEGAL BACKGROUND
A. Community legislation
2.
The relevant provisions of the Sixth Directive are contained essentially in Title XI, entitled Deductions,
comprising arts 17 to 20. Under art 17 a taxable person is entitled to deduct from the VAT which he is
liable to pay on his taxable supplies the VAT due or paid in respect of the goods and services supplied or
to be supplied to him by another taxable person. The rules governing the exercise of the right to deduct,
which I shall quote as far as relevant, are set out in art 18. Article 18(1) deals with the formal evidential
requirements, such as the obligation to hold the relevant invoices. Article 18(2) provides:
The taxable person shall effect the deduction by subtracting from the total amount of value
added tax due for a given tax period the total amount of the tax in respect of which, during the
same period, the right to deduct has arisen and can be exercised under the provisions of paragraph
1.
Where the requirements of art 18(1) and (2) are not respected, art 18(3) permits the member states to
determine the conditions and procedures whereby a taxable person may be authorised to make a
deduction. Article 18(4), which is central to the instant cases, provides:
Where for a given tax period the amount of authorized deductions exceeds the amount of tax
due, the Member States may either make a refund or carry the excess forward to the following
period according to conditions which they shall determine.
64
However, Member States may refuse to refund or carry forward if the amount of the excess is
insignificant.
3.
Title XIII of the Sixth Directive concerns the Obligations of Persons Liable for Payment. Article 22
deals with taxable persons Obligations under the internal system, and includes obligations regarding
record-keeping, tax returns and accounting. The first sub-paragraph of art 22(4) obliges taxable persons
to submit a return within an interval to be determined by each Member State, which may not exceed two
months following the end of each tax period. The second sub-paragraph of art 22(4) provides:
The return must set out all the information needed to calculate the tax that has become
chargeable and the deductions to be made, including, where appropriate, and in so far as it seems
necessary for the establishment of the tax basis, the total amount of the transactions relative to
such tax and deductions, and the total amount of the exempted supplies.
Under art 22(5) the taxable person is obliged in principle to pay the net amount of value added tax
when submitting the return, unless the member state has specified a different payment date. Article 22(6)
permits member states to require taxable persons
to submit a statement, including the information specified in paragraph 4 concerning all
transactions carried out the preceding year [and which] must provide all the information necessary
for any adjustments.
Article 22(8), which is of particular relevance as regards national tax collection measures, provides:
Without prejudice to the provisions to be adopted pursuant to Article 17(4), Member States may
impose other obligations which they deem necessary for the correct levying and collection of the
tax and for the prevention of fraud. (My emphasis.)
4.
Article 27, the sole article of Title XV, entitled Simplification Procedures, of the Sixth Directive,
provides a procedure whereby member states may apply for derogations from the provisions of the
directive. Article 27(1) is worded as follows:
The Council, acting unanimously on a proposal from the Commission, may authorize any
Member State to introduce special measures for derogation from the provisions of this Directive, in
order to simplify the procedure for charging the tax or prevent certain types of tax evasion or
avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible
extent, may not affect the amount of tax due at the final consumption stage.
B. Belgian legislation
5.
Article 18(4) of the Sixth Directive is implemented in Belgian law primarily by art 47 of the BTW-
Wetboek (the VAT code), which provides that the excess of authorised deductions over VAT due for a
particular tax period shall be carried forward to the following tax period. Article 76(1)(1) of the code, as
amended by the Law of 28 December 19922, provides for the refund, where it is requested by 65 the
taxable person, of any excesses which are outstanding at the end of the calendar year in accordance with
the conditions to be established by royal decree. Under sub-para (2), the Crown may permit, subject to
such conditions as it sees fit, the grant of refunds even before the end of the calendar year. Sub-
paragraph (3) is central to the disputes involved in the present references and is worded as follows:
2
See Belgisch Staatsblad, 31 December 1992.
With respect to the requirements laid down in the first and second subparagraphs, provision
may be made by Royal Decree for a withholding in favour of the VAT, Registration and Property,
Authority3, with the effect of a preventive attachment within the meaning of Article 1445 of the
Judicial Code.
3
The Administratie van de BTW, Registratie en Domeinen.
6.
The new form of attachment was introduced by art 7 of the Koninklijk Besluit (Royal Decree) of 29
December 19924, which inserted, inter alia, a new art 8/(1)(3) into what is known in Belgium as Koninklijk
Besluit nr 4 of 20 December 1969 on refunds in respect of VAT (Royal Decree No 4) 5. For the purposes of
the present references, the two most important amendments concerned sub-paras (4) and (5) of art 8/(1)
(3).
4
See Belgisch Staatsblad (vierde uitgave), 30 December 1992. The French-language text was subsequently amended
and is now set out in the version inserted by art 6 of the Royal Decree of 14 April 1993 (see Moniteur Belge, 30 April
1992). The amended Royal Decree No 4 became effective on 1 January 1993 in accordance with art 13 of the Royal
Decree of 30 December 1992.
5
See Belgisch Staatsblad, 31 December 1969.
7.
However, it is important to note that, under sub-para (1) of art 8/(1)(3) of Royal Decree No 4, any
excess claimed as being due by a taxable person based upon his return is deemed to be claimed only
subject to payment of any unpaid tax debts. Article 8/(1)(3), sub-para (4) provides:
If the tax debt referred to in the first paragraph does not constitute, in favour of the
administration, a claim which is, in whole or in part, certain, payable and definite, which is inter alia
the case where it is disputed or has given rise to a distress warrant within the meaning of Article 85
of the Code execution of which is opposed by an objection within the meaning of Article 89 of the
Code, the tax credit shall be retained by the Administration up to the amount of the tax claimed.
That retention shall take effect as a preventive attachment until the dispute has been definitively
resolved, either in the administrative procedure or by a final court judgment. The condition laid
down by Article 1413 of the Judicial Code shall be deemed to have been satisfied as regards the
implementation of that retention.6
6
Article 1413 of the Judicial Code would appear to concern the onus of establishing the urgency of interim measures
when they are sought.
A. The facts
9.
The factual circumstances of each of the references are different. Hence, in the interests of clarity, I
shall set out briefly an individual description of each case.
(i) Molenheide (Case C-286/94)
10.
The plaintiff company operates a garage business in Antwerp. It submitted a VAT declaration for the
period 1 January 1993 to 31 March 1993 claiming the right to a deduction in the sum of BF 2,598,398.
However, an inspection carried out at the plaintiffs premises led the local VAT administration to raise
serious doubts about the truthfulness of the VAT declaration. The 67 plaintiff was informed by an official
minute sent to it by registered letter on 15 June 1993 that, in view of the doubts which had arisen, the tax
collector was going to retain any ostensible VAT refund due on the basis of the plaintiffs declaration. On
16 June 1993 the plaintiff received a notice of retention from the relevant tax collector, alluding to serious
grounds for suspecting the accuracy of one or more of the declarations submitted by the plaintiff.
Essentially, the VAT administration suspects the plaintiff of having engaged in fictitious circular sales
which artificially created an apparent credit for the first quarter of 1993. The retention affecting the sum
claimed as a credit by the plaintiff was stated to be protective. In effect, it froze the sum pending a
definitive administrative or judicial determination of whether the supposed credit was genuine. The legal
basis of the retention was the amended version of art 8/(1)(3)(5) of Royal Decree No 4.
11.
On 23 July 1993, the plaintiff brought an unsuccessful appeal against the retention to the Rechtbank
van Eerste Aanleg te Antwerpen (the Court of First Instance, Antwerp) with a view to setting aside the
attachment. It then appealed to the Hof van Beroep te Antwerpen (the Court of Appeal, 13th Chamber,
hearing civil matters (the national court)). The plaintiff submitted that the attachment prescribed in art
76(1)(3) of the code and in Royal Decree No 4 was contrary to arts 18(4) and 27 of the Sixth Directive.
Having heard the opposing arguments of the Belgian state advocate, the national court decided to refer
the following question to the Court of Justice for a preliminary ruling:
On a proper construction of Article 18(4) of the Sixth Directive, may a Member State refrain
from refunding substantial VAT credits of its residents or carrying them forward to a following tax
period, and instead attach them as a protective measure under national rules owing to the
existence of serious grounds for suspecting tax evasion, without creating a definitive legal title in
that respect and without the Member States having received any authorisation under Article 27 of
the Sixth Directive?
(ii) Schepens (Case C-340/95)
12.
The plaintiff owns a garage business. He submitted a VAT return in respect of the period 1 January
1993 to 31 March 1993 claiming a refund of an alleged credit of BF 3,311,438. Inspections of the plaintiffs
accounts effected in May 1993 by a chief inspector and an auditor from the VAT administration resulted in
the administration forming the view that there were serious grounds for doubting the accuracy of the
plaintiffs return and evidence that the return contained false and/or incomplete particulars. Accordingly,
on 15 June 1993 an official minute containing the findings of the inspections was drawn up. In a
statement sent by registered letter on 16 June 1993, the plaintiff was informed of the administrations
findings. He was also given a copy of the official minute and informed that, under the fifth sub-paragraph
of art 8/(1)(3) of Royal Decree No 4, as amended, it was intended to proceed with a retention of any
possible refund due to the plaintiff. The relevant withholding notice was drawn up and sent to the plaintiff
on 18 June 1993. A similar procedure was followed concerning the plaintiffs VAT return for the second
quarter of 1993, which, on its face, indicated a VAT credit of BF 2,419,078. Following an inspection
carried out on 15 September 1993, an official minute was prepared on 20 September 1993 which again
indicated that there were serious reasons for suspecting that the return was based on false particulars.
The plaintiff was informed of this second official 68 minute by registered letter on 22 September 1993 and
a withholding notice based on art 8/(1)(3)(5) of Royal Decree No 4 was sent to him on the same day 10.
10
A further official minute concerning the plaintiffs second quarterly return, containing additional findings, was drawn up
on 26 October 1993.
13.
The VAT administration essentially suspects the plaintiff of having participated in fraudulent circular
sales. In his case, this allegedly comprised buying various (expensive) cars on foot of invoices showing
considerable amounts of VAT to be payable as part of the purchase price paid by the plaintiffbut in
respect of which the administration had no record of having ever received the relevant sums of VAT from
any of the plaintiffs suppliersand selling the same cars to buyers located in other member states on
foot of invoices showing that no VAT was paid. The result was that the plaintiffs VAT returns showed
substantial tax credits due to him, although he was unable to prove, for example, that any of the cars sold
to non-Belgian purchasers ever, in fact, left Belgium.
14.
The plaintiff appealed to the beslagrechter at the Rechtbank van Eerste Aanleg te Antwerpen, who, by
decision of 8 March 1994, refused to lift the attachment. The plaintiff then appealed to the Hof van Beroep
te Antwerpen (Third Chamber, hearing civil appeals), which, in the light of the conflict between the plaintiff
and the Belgian state advocate regarding the compatibility of the Belgian legislation with arts 18(4) and 27
of the Sixth Directive, referred the following questions to the Court of Justice:
(1) Do Articles 18(4) and 27 of [the Sixth Directive] have direct effect in the national legal
systems of the Member States and thus in Belgian law?
(2) If so, does Article 18(4) preclude a Member State from refusing to refund to a taxable person
a VAT credit in relation to a specific period or periods during which that credit arose or to carry it
over to a subsequent tax period, and instead withholding it by means of the Belgian withholding
procedure, which has the effect of a preventive attachment within the meaning of Article 1445 of the
Belgian Judicial Code, as long as no definitive entitlement has arisen in that regard and only up to
the amount of the demand relating to that tax period or earlier periods, where the demand is
disputed by the taxable person?
(3) Is Article 18(4) applicable, given that, according to the Belgian State, such withholding is a
debt-recovery procedure? If so, is Article 27 applicable if such withholding were to form part of the
conditions (modalits)? If not, is Article 27 applicable, on the assumption that such withholding is
a debt-recovery procedure?
(4) If Article 18(4) is applicable to the Belgian withholding procedure, does that procedure
infringe the principle of proportionality as defined by the Court of Justice?
(iii) Decan (Case C-401/95)
15.
Unlike the Molenheide and Schepens cases, this case concerns an attachment effected on the basis
of art 8/(1)(3)(4) of Royal Decree No 4. The order for reference indicates that by registered letter of 26
September 1995 the VAT administration informed the company Decan (the plaintiff) that, pursuant to art 8/
(1)(3)(4), it was going to retain the supposed VAT credit of BF 705,404 owing to the plaintiff on foot of its
VAT return for the period 1 June to 30 June 1995. The plaintiff applied to the Rechtbank van Eerste
Aanleg te Brussel to set aside the 69 attachment. According to the national court, the attachment related
to a sum which is disputed by the plaintiff, noted in an official minute of 26 May 1994, in respect of which
the VAT administration served a distress warrant on 10 October 1995 for an amount of BF 784,305 plus
BF 130,500 by way of a penalty and BF 232,064 being interest calculated to 20 October 1995.
16.
It appears from the written observations of the plaintiff and the Belgian state that the plaintiffs earlier
alleged VAT debt related to the period 1 September 1990 to 30 August 1992. The state alleges that the
plaintiff used an inflated pro rata method for calculating the deductions claimed. A regularisation notice
asserting that the plaintiff in fact owed the sum of BF 784,306 (and a fine and interest) was issued on 30
August 1993 by the VAT administration. However, it was formally contested by the plaintiff on 16
September 1993. The administration, consequently, drew up on 26 May 1994 the official minute referred
to by the national court. An attachment order concerning the sum of BF 705,404 was ultimately adopted
pursuant to art 8/(1)(3)(4) of Royal Decree No 4 on 26 September 1995 (and apparently notified the same
day)11.
11
The written observations of the Belgian state refer also to another (first) art 8/(1)(3)(4) attachment order of 15 June
1994, which was notified by registered letter to the plaintiff on 16 June 1994, and which concerned a sum of BF 118,984
standing to the credit of the plaintiff in a special account for the period 31 January 1992 until 30 April 1992.
17.
On 13 October 1995, the plaintiff brought its application before the national court which, in the light of
the Community law arguments, decided to refer the following questions to the Court of Justice:
(1) Must Article 18(4) of the Sixth Directive be interpreted as permitting a Member State to
refuse to refund a VAT credit from a specific tax period or to carry it forward to a following period,
yet to retain it on the ground that, and for so long as, it has a claim against the taxpayer in question
relating to a previous tax period, if that claim is disputed by the taxpayer and thus does not yet
constitute a definitive title, where the Member State has not received any authorization under
Article 27 of the directive?
(2) If question 1 is to be answered in the affirmative, must Article 18(4), in conjunction with the
principle of proportionality, be interpreted as permitting the Member State to lay down that the
necessity or urgency of the retention may not be contested in any way and that the retention may in
no way be replaced by a guarantee or annulled so long as the disputed VAT claim has not been
made the subject-matter of a final judicial decision?
(iv) Sanders (Case C-47/96)
18.
Notwithstanding an initial allegation of fraud, this case also concerns an attachment effected under art
8/(1)(3)(4) of Royal Decree No 412. According to the order for reference, an official minute established by
the bijzondere belastingsinspectie (special tax inspectorate) on 30 January 1992 alleges that the plaintiff
company is liable to the Belgian state for the sum of BF 370,791 in VAT (plus a fine of BF 741,582 and
interest from 21 January 1988). This relates, firstly, to the purchase from another company without
invoices of 227,000 kg of flour, and, secondly, to having acted as agent in the supply by that other
company of 403,710 kg of flour to third parties. These activities allegedly took place in 1987. 70The
plaintiff was notified by registered letter of 23 November 1994 that the relevant tax collector was about to
effect a retention concerning a credit balance of BF 236,215 in favour of the plaintiff on 31 October 1994.
It is clear from the written observations of the plaintiff and the Belgian stateto which copies of the
relevant notice and attachment are annexedthat the state effected this retention on the basis of art 8/(1)
(3)(4)13. On 5 January 1995 the plaintiff applied, inter alia, to have the attachment set aside. The
application was referred to the beslagrechter at the Rechtbank van Eerste Aanleg te Brugge, who, having
regard to the parties differing arguments regarding Community law and noting the pending reference in
Molenheide, decided to refer the following questions to the Court of Justice:
12
The plaintiff states that criminal proceedings were initially instituted against the managers of Sanders. However, the
prosecuting authorities later decided to seek a non-suit, which was granted by court order of 10 December 1991. It was
only then that attachment proceedings were initiated.
13
The plaintiff points out in its written observations that on 7 March 1996 the VAT administration also retained (apparently
on the basis of art 8/(1)(3)(4) of Royal Decree No 4) the sum of BF 121,106, which was the sum standing to the credit of
the plaintiff in respect of December 1995, in respect of the same alleged debt as is at issue in the main proceedings in
Sanders.
(1) Must Article 18(4) of [the Sixth Directive] be interpreted as permitting a Member State,
instead of refunding to a taxable person a VAT credit for a given tax period, or carrying it forward to
a subsequent tax period, to withhold the same by way of protective attachment on the basis of an
additional demand in respect of an earlier tax period, where that additional demand is contested in
law and is thus not based on any definitive entitlement, and where the Member State has not
obtained authorization pursuant to Article 27 of [the directive]?
(2) In the event that question 1 is answered in the affirmative: Do the principle of proportionality
enshrined in Community law, and Article 18(4) of [the Sixth Directive] permit the Member State to
provide: (1) that the taxable person may contest the attachment (as validated by the withholding
measure) only by adducing evidence rebutting the allegations made by the Treasury in the official
report, and not by challenging the actual need for, and urgency of, that measure; and (2) that
withholding may not be replaced by another form of security nor lifted pending the delivery of final
judgment on the contested demand for payment made by the Treasury?
IV OBSERVATIONS
21.
Written and oral observations were submitted on behalf of all of the plaintiffs, with the exception of Mr
Schepens. Written observations were submitted by the Kingdoms of Belgium 15 and Sweden, the Hellenic
and Italian Republics and the European Commission, all of whom, save Sweden, also submitted oral
observations16. Those observations may, for convenience, essentially be summarised as follows.
15
The Belgian state is actually formally the defendant in each of the references. However, for convenience, I shall simply
hereinafter refer to the defendant as Belgium.
16
Greece and Sweden presented written observations on the Schepens, Decan and Sanders cases, whereas Italy, which
had initially submitted written observations on the Molenheide case, also submitted written observations on Schepens
and Decan.
A. The plaintiffs
22.
The plaintiffs contend that the provisions of art 18(4) of the Sixth Directive are sufficiently clear, precise
and unconditional to be capable of direct effect within the national legal orders of the member states.
Furthermore, they contend, essentially, that the retention provided under the Belgian legislation is
incompatible with the right conferred by art 18(4). Once the right to a deduction arises in accordance with
the provisions of arts 17 and 18(1) to (3), national VAT administrations may not subject it to any other
conditions but must either make a refund or carry the excess forward to the next VAT period.
23.
Decan and Sanders also contend that under art 18(2) of the Sixth Directive the balance of deductible
VAT must be calculated by reference to a specific deduction period. Hence the administration cannot
maintain that no reimbursement is due because, in relation to a wholly separate period, the taxable
person is allegedly indebted to it. They point out that the administration is not obliged to accept the
amount of the excess indicated unilaterally in the taxable persons declaration but, on the contrary, may
examine whether that declaration is correct17. In addition, all the plaintiffs submit that, although the first
paragraph of art 18(4) permits the member states to determine the conditions concerning 72 the refund,
they are not permitted to subject the right to that refund to supplemental substantive conditions. They
contend that the English text, which uses the word conditions, digresses from the other language
versions where words corresponding to the notion in English of details or arrangements are used 18. In
the light of the need to adopt a harmonious Community law interpretation of the provision, they contend
that, notwithstanding the possible ambiguity of the English text, member states have no competence to
lay down substantive conditions governing the refund, the latter being laid down exhaustively in arts 17
and 18(1) to (3). Accordingly, the plaintiffs submit that the retention system operated in Belgium
constitutes an impermissible additional condition. Moreover, even if the Belgian withholding system falls
within the powers of the member states concerning the administration of the VAT system, the plaintiffs
submit that it must, none the less, respect the Community law principle of proportionality 19. They contend
that the system constitutes a disproportionate limitation on the right to deduct guaranteed by the Sixth
Directive. Firstly, this is so because the authorities are permitted to attach, almost automatically,
outstanding balances in favour of the taxable person without having to prove necessity and without being
obliged to accept alternative securities or undertakings from the taxable person in circumstances where
no damages are paid if the attachment is ultimately found to be unjustified, and because, in that
eventuality, interest is only paid with effect from 1 April of the year following that when attachment was
exercised. Secondly, the taxable person has no effective remedy against the attachment, because the
beslagrechter has no competence to make a genuine assessment of either necessity or its merits. At the
second oral hearing (the second hearing), the plaintiffs contended that even if, contrary to the view
adopted in most, if not all, of the relevant Belgian case law and based on the apparently unambiguous
wording of Royal Decree No 4, the beslagrechter could, as contended by Belgium, suspend the
attachment pending judgment on its merits, the uncertainty of such a remedy would infringe the principle
of legal certainty.
17
See R v Customs and Excise Comrs, ex p Strangewood Ltd [1987] STC 502 which was cited in support of the
proposition that the VAT authorities must carry out this examination within a reasonable period.
18
Reference is made to the Dutch (regeling), German (einzelheiten), French (modalits), Italian (modalit) and Spanish
(modalidades) texts. The English version uses the same word, conditions, in both art 18(3) and (4), whereas several of
the other language versions use different words in each of these provisions.
19
Reference is made, amongst many others, to the judgments concerning VAT in EC Commission v France Case C-
276/91 [1997] STC 584, [1993] ECR I-4413 and Balocchi v Ministero delle Finanze dello Stato Case C-10/92 [1997]
STC 640, [1993] ECR I-5105.
26.
The retention procedure does not operate so as to render practically impossible the exercise by
taxpayers of the rights conferred by art 18(4) of the Sixth Directive, but, rather, merely postpones the
repayment of overpaid VAT until the veracity of the declaration upon which the putative overpayment is
based can be verified. It does not infringe art 18(4), because it merely attaches provisionally a sum which
is still recognised as being an asset of the taxpayer and which remains subject to restitution, unless the
taxpayers declaration is ultimately shown to be false or inaccurate. Accordingly, Belgium submits that art
27 of the Sixth Directive is of no relevance since the collection of VAT does not fall within the scope of the
directive.
27.
Belgium developed the above observations and its explanations of art 8/(1)(3) in its written
observations on the later references. The traditional attachment procedure, since it does not permit
provisional attachments, did not offer the administration sufficient protection in circumstances where
putative tax credits had either to be refunded or carried forward within three months of the relevant VAT
declaration, even where there was a disputed debt owing to the VAT administration in respect of an earlier
period. Without actually disputing the veracity of the alleged tax credit, the new preventive attachment
renders that credit provisionally unavailable. Its purpose is, thus, clearly to ensure that VAT, which may be
owing by the taxable person, is in fact paid. At the second hearing, Belgium, supported by Italy and
Greece, asserted that, to ensure the proper collection of VAT, fiscal authorities should be entitled to view
their relationship with the taxable person as constituting a form of current account, since to view each tax
period separately would ignore the fact that a current (even undisputed) credit might only have arisen
because of earlier false or inaccurate declarations.
28.
Belgium accepts that tax collection measures must not effectively undermine rights conferred by the
Sixth Directive but, with the support of Italy, Greece and Sweden, contends that the impugned Belgian
measures respect the principle of proportionality. Responding to questions posed during the first hearing,
Belgium maintained that, whatever might have been the prevailing practice, beslagrechters could,
pursuant to Royal Decree No 4, set aside, on an interim basis, even attachments based on art 8/(1)(3)(5)
if they were not satisfied about the allegations concerning fraud or substantive irregularity. Belgium
subsequently elaborated upon those initial observations. It submits that, under sub-para (4) of art 8/(1)(3),
not only is the beslagrechter obliged to verify 74 compliance with all the applicable procedural
safeguards21, but he may also assess the prima facie reliability of the allegations grounding the retention.
He has, as Belgium put it, a right to engage in a marginal review of the attachment. As to attachments
based on serious presumptions of fraud under sub-para (5) of art 8/(1)(3), Belgium accepted that the
power of a beslagrechter to lift such a retention is considerably more circumscribed; in effect, no lifting
may be ordered unless the beslagrechter, having apprised himself of all the relevant information
concerning the case, is satisfied that its maintenance is no longer justified 22. At the second hearing,
Belgium insisted, however, that this did not preclude the grant of a provisional lifting of a retention granted
under sub-para (5). It contended, generally, that, despite the perhaps misleading wording of sub-para (7)
of art 8/(1)(3), an attachment could be lifted provisionally by a beslagrechter.
21
eg the investigation and ultimate decision to attach are not taken by the taxable persons local VAT office, but by
specialised outside officials of the VAT administration.
22
Although sub-para (5) does not use the word fraud, counsel for Belgium submitted at the second hearing that acts of
retention based on sub-para (5) were, in practice, limited to cases of fraud. They concern suspected inaccurate
information resulting in the possibility of a tax debt, whose extent cannot readily or expeditiously be determined. This,
the counsel contended, would not be the case with potential debts based on mere inaccuracies or calculation oversights
in previous tax returns, the level of which could be calculated with relative ease.
C. The Commission
29.
The Commission contends that the Sixth Directive entrusts the fight against fraud to the member
states, which is evidenced by several references to their power to adopt such measures 23. Regarding art
18(4), and, in particular, the interpretation of the expression the amount of authorised deductions, the
Commission submits that the exercise of the right to deduct may be governed only by, the conditions laid
down by the Sixth Directive; it cannot be subject to approbation by national VAT authorities. However, the
Commission contends that the Belgian retention measures constitute tax collection measures and, thus,
fall outside the scope of the Sixth Directive. Consequently, Belgium was not obliged to seek an
authorisation pursuant to art 27(1).
23
It refers esp to arts 22(8), 13A(1), 13B(1), 14(1) and 15.
30.
Nevertheless, member states tax collection measures must not undermine the principles underpinning
the common Community system of VAT. The Commission draws an analogy with the case law of the court
concerning art 27 of the Sixth Directive24. Under that procedure, the Commission enjoys the advantage of
being fully apprised in advance of the proposed measures and is thus in a position to ensure that they
respect the principle of proportionality, which, it says, also applies to the collection measures involved in
this case25. In the Commissions opinion, the court should limit itself to establishing certain criteria whose
concrete application must be for the national court. In the case of attachments effected to secure an
earlier disputed tax debt, the measures may be presumed to be disproportionate. This should not,
however, be the case with attachments based on serious doubts or evidence of 75 fraud. In its written
observations, the Commission enumerates a number of criteria which, in its view, the national court
should consider when applying the proportionality principle. They are, essentially, the existence of
procedural guarantees at the pre-retention stage; the existence of an effective judicial remedy against the
retention; a relationship between the sum attached and the alleged tax debt; the possibility of the
acceptance by the authorities of alternative guarantees offering comparable security. In the light of the
contradictory observations submitted regarding the competence of the beslagrechter, the Commission
submitted at the second hearing that a relevant factor should be whether, in imposing the retention, the
VAT administration is obliged to take a substantive legal action regarding the alleged tax debts. However,
it argued that it would be overly formalistic to require national fiscal authorities to treat each VAT period
separately.
24
The Commission refers esp to EC Commission v Belgium Case 324/82 [1984] ECR 1861 and EC Commission v France
Case 196/85 [1987] ECR 1597.
25
Reference is also made to the case law concerning the proportionality of sanctions for the infringement of VAT
regulations (see Criminal Proceedings against Drexl Case 299/86 [1988] ECR 1213 and EC Commission v France Case
C-276/91 [1997] STC 584, [1993] ECR I-4413. At the second oral hearing, reliance was also placed on the recent
judgment in Pastoors v Belgium Case C-29/95 [1997] ECR I-285.
V ANALYSIS
A. Direct effect
31.
In Schepens the court is asked expressly whether arts 18(4) and 27 of the Sixth Directive have direct
effect. In the light of the possible conflict between the system of preventive retention operated in Belgium
and the right conferred on taxable persons by art 18(4), the relevance of this question is clear and should,
in my opinion, be answered by the court26. However, the relevance of the direct effect or otherwise of art
27, which has not been invoked by Belgium, to the resolution of the Schepens case is less clear. I do not
think that the court need answer that question.
26
Although art 76(1) and (2) of the code appear to implement the right conferred by art 18(4) of the Sixth Directive in
Belgium, the scope of those provisions is limited by art 76(1)(3) of the code and by Royal Decree No 4.
32.
The court has consistently held that, even where the implementation period has expired, a non-
implemented or incorrectly implemented directive must be both sufficiently precise and unconditional
before its provisions can be directly invoked by an individual before the courts of a member state 27. The
right of individuals to rely upon the Sixth Directive has been consistently upheld in the case law of the
court28. In BP Supergas Anonimos Etairia Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece
Case C-62/93 [1995] All ER (EC) 684, [1995] ECR I-1883 (para 34) the court stated:
27
See, inter alia, Pubblico Ministero v Ratti Case 148/78 [1979] ECR 1629 and, more recently, Faccini Dori v Recreb Srl
Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325
28
See eg Becker v Finanzamt Mnster-Innenstadt Case 8/81 [1982] ECR 53 and BP Supergas Anonimos Etairia Geniki
Emporiki-Viomichaniki kai Antiprossopeion v Greece Case C-62/93 [1995] All ER (EC) 684, [1995] ECR I-1883.
It follows from that case law that, despite the relatively wide discretion enjoyed by member
states in implementing certain provisions of the Sixth Directive, individuals may effectively plead
before national courts the provisions of the directive which are sufficiently clear, precise and
unconditional.
The court ruled, inter alia, that the provisions of art 17(1) and (2) dealing with the right to deduct
satisfy the above-mentioned criteria and therefore confer rights on individuals which they may invoke
before a national court in order to challenge national rules which are incompatible with those provisions
(see 76[1995] All ER (EC) 684, [1995] ECR I-1883 (para 35)). Those provisions are closely linked with art
18(4), which, in my view, for the reasons stated below, satisfies the same criteria.
33.
Where a taxable persons authorised deductions exceed his tax liability, art 18(4) of the Sixth Directive
requires member states either to make a refund or carry the excess forward to the following period,
unless the amount of the excess is insignificant. In its written observations, Molenheide submits that the
text is absolutely clear. Once the sum involved is not insignificant, the tax authority is obliged to do one of
two things. Although Belgium initially contested the direct effect of art 18(4) before the national court in
Molenheide, that position was not maintained in Belgiums observations to this court. Responding to the
express question referred in Schepens, the Commission, quite correctly, submits that art 18(4) is
sufficiently clear and precise to have direct effect and may be invoked directly before national courts.
34.
Differences of opinion as to what may constitute an insignificant overpayment cannot, in my opinion,
prevent a national court from being able to identify in most cases a significant tax excess which must be
refunded or carried forward. Moreover, since the objective of the Sixth Directive in respect of deductions
is to ensure that the right to deduct shall arise at a time when the deductible tax becomes chargeable
(see art 17(1) of the Sixth Directive), it is clear that the member states freedom to refuse a refund of
insignificant excesses is very limited. Accordingly, in my view, to invoke the second sub-paragraph of art
18(4) as a basis for denying direct effect to that article would confuse the issue of direct effect with that of
the discretion available to Member States in transposing the directive into national law (see the opinion of
Advocate General Mancini in Netherlands v Federatie Nederlandse Vakbeweging Case 71/85 [1986] ECR
3855 (para 3)).
35.
All of the plaintiffs submit that the discretion afforded to member states by the first sub-paragraph of art
18(4) of the Sixth Directive does not permit them to prescribe substantive conditions for the exercise of
the right to a refund. I think that the member states are merely permitted under the first sentence of art
18(4) to establish the necessary procedures or detailed arrangements concerning such refund 29 .. Indeed,
even the fact that a multiplicity of alternatives30 may be available for the purpose of implementing an
obligation imposed by a directive does not prevent it from having direct effect, once its content can be
determined sufficiently precisely on the basis of the provisions of the directive alone 31. Consequently, I
am satisfied that the obligation imposed by art 18(4) is clear, precise and unconditional and capable of
direct effect.
29
In Netherlands v Federatie Nederlandse Vakbeweging the court was asked whether art 4(1) of Council Directive (EEC)
79/7 on the progressive implementation of the principle of equal treatment for men and women in matters of social
security (OJ 1979 L6 p 24) was directly effective. Doubt centred on the directives non-discrimination principle, since
there were (at least) four different ways in which the Netherlands alone could have implemented it. The court, however,
rejected the view that such options detracted from the unconditionality of the obligation imposed by the relevant
provision
30
The phrase used by the court to describe Irelands objection to the direct effect of Directive 79/7 in McDermott v Minister
for Social Welfare Case 286/85 [1987] ECR 1453 (para 15).
31
See the judgment in Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357 (para 17)). In BP Supergas
[1995] All ER (EC) 684, [1995] ECR I-1883 the court held that arts 11A(1), 11B(1)(2) and 17(1)(2) of the Sixth
Directive were directly effective, notwithstanding the discretion accorded to the member states by art 11B(2) to adopt as
the taxable amount for imports the value defined in Council Regulation (EEC) 803/68 because they do not leave the
member states any discretion as regards their implementation (see the opinion of Advocate General Jacobs: [1995]
All ER (EC) 684, [1995] ECR I-1883 (para 48); and the judgment: [1995] All ER (EC) 684, [1995] ECR I-1883
(para 35) respectively).
77
(ii) Opinion
37.
I do not think that the direct effect of art 18(4) of the Sixth Directive, taken on its own, is sufficient to
establish the incompatibility of the impugned Belgian measures. The plaintiffs rightly submit that the
foundation of the right to authorised deductions, within the meaning of art 18(4), is contained in arts 17
and 18(1) to (3) and that, in the absence of any provision empowering the member states to limit the right
of deduction granted to taxable persons, the taxpayer must be permitted to exercise that right
immediately in respect of all the taxes charged on transactions relating to inputs (see the judgment in
Lennartz 78 v Finanzamt Mnchen III Case C-97/90 [1995] STC 514, [1991] ECR I-3795 (para 27)).
Member states are, therefore, only authorised to limit the right of deduction where they may rely on one
of the derogations provided for in the Sixth Directive (see [1995] STC 514, [1991] ECR I-3795 (para 29)).
In case of an excess of authorised deductions over tax due, the neutrality of the Community VAT system
means that the taxable person has the right to a refund. However, member states are not precluded from
adopting precautionary measures designed to ensure the veracity of the apparent excess of deductions
arising from the information contained in the underlying declaration made by the taxable person. A system
of control designed to verify authorised deductions within the meaning of art 18(4) before making
payment is not a repudiation of the taxable persons right to deduct.
38.
In Jeunehomme v Belgium Joined cases 123/87 and 330/87 [1988] ECR 4517 (para 16) the court,
referring to art 22(8), held that member states, when requiring an invoice to contain certain information,
other than that required by arts 18(1)(a) and 22(3)(b), are not required to have recourse to the procedure
laid down in art 27 in order to ensure the correct levying of value-added tax and permit supervision by the
tax authorities33. If member states are entitled to specify the information to be contained in invoices
grounding a right to deduct, they should also be entitled to adopt precautionary measures designed to
ensure the proper collection of taxes.
33
Advocate General Sir Gordon Slynn expressly recognised (at 4533) that the Sixth Directive was not a complete
harmonisation of all rules relating to the administration of the VAT scheme and that the Council left it to Member States
to require other matters to be stated in the invoice which were necessary for the administration of the scheme, so long
as the provisions adopted pursued the aims of the Directive, did not create exceptions to the Community scheme and
did not limit its scope.
39.
This view finds further support in the recent judgment of the court in Reisdorf v Finanzamt Kln-West
Case C-85/95 [1997] STC 180, [1996] ECR I-6257. In that case, which again concerned invoices, the
court confirmed the consistency with the Sixth Directive of the power of the member states of ensuring
that VAT is levied and collected, under the supervision of the tax authorities (see [1997] STC 180, [1996]
ECR I-6257 (para 24)). Moreover, it also held that art 18, in accordance with its heading, deals only with
the exercise of the right of deduction and does not govern proof of that right after it has been exercised by
a taxable person (see para 26). I am satisfied that member states are competent, within the framework of
their national VAT collection systems, to adopt measures to protect themselves against the risk of making
repayments where no genuine VAT credit exists. The adoption of precautionary, control measures
enables the interests of the national treasury to be balanced against the interest of a taxable person in
obtaining expeditious payment of any amount to which he appears, prima facie, to be entitled under art
18(4). I think that this interpretation of art 18(4) is consistent with its reference to the member states
obligation to effect the deduction according to conditions which they shall determine. Alternatively, art
22(8) permits member states to impose other obligations which they deem necessary for the correct
levying and collection of the tax and for the prevention of fraud. It does not seem to me to matter whether
the Belgian rules fall outside the scope of the matters harmonised by the Sixth Directive, or fall in principle
within its scope but are authorised by art 22(8) thereof. In either event, they must be submitted to the test
of proportionality to the extent to which they are capable of infringing the directive (see paras 42 to 54,
below).
79
40.
At the second hearing, counsel representing Decan and Sanders submitted that art 18(4) must be
interpreted in the light of art 18(2), and that, accordingly, once a member state has verified that a tax
credit is genuinely owing in respect of a particular tax period, the member state is obliged to permit the
taxable person immediately to exercise the right to deduct in respect of that credit. I agree with the
Commission, whose agent described this approach as too formalistic. It is more realistic to regard the
relationship between the taxable person and the national VAT authorities as being akin to a current
account. The plaintiffs refer, inter alia, to EC Commission v France Case 50/87 [1988] ECR 4797 (para
16), where the court held that
in the absence of any provision empowering the Member States to limit the right of deduction
granted to taxable persons, that right must be exercised immediately in respect of all the taxes
charged on transactions relating to inputs.
In that case, the impugned French decree permitted only a fraction of the VAT charged on the purchase or
construction of immovable property to be deducted where the property was let for a rent which was less
than one-fifteenth of its value. The Belgian retention rules, by contrast, do not restrict the right to deduct;
they merely provide that payment of the refund may, provisionally, be postponed. If member states were
entirely precluded from postponing refunding even undisputed tax credits arising in one tax period
because of a serious dispute regarding an earlier period, their financial interests could often be
significantly jeopardised. Nor do I think that art 18(4) should be interpreted as limiting member states
right to oppose a refund to cases where they have obtained a final judgment in respect of the taxable
persons indebtedness regarding an earlier period, or of the fraudulent nature of the supposed VAT credit.
Moreover, I do not think that the compatibility of a provisional retention of a payment due under art 18(4)
should depend on proof of a causal link with a debt or underpayment for an earlier period.
41.
As the court acknowledged in BP Supergas, member states enjoy a wide discretion in implementing
the provisions of the VAT system. There are two aspects to this. Firstly, the routine details of provisions
relating to the collection of the tax, which are typically to be found in national law, are not regulated by the
Sixth Directive at all. I would say, almost as an aside, for example, that there could be circumstances in
which a member state, without putting in question the application of art 18(4), would not strictly speaking
repay an established credit. If there is a clearly established counter-debt for VAT due from the taxable
person with the result that there are clear and certain amounts due both from and to the taxpayer, it would
be pointless to make a repayment, when one can be set off against the other. This might arise if there
was an underpayment from an otherwise uncontested earlier VAT return either by accident or by reason
of shortage of funds. More generally, the responsibility for managing the entire VAT system is left to
member states. As already stated at para 39, above, it is not necessary to decide whether this arises
because those matters fall outside the scope of the Sixth Directive or are expressly authorised, for
example, by art 22(8). However, measures coming within the scope allowed by art 22(8) may inevitably
have an impact on the obligation of the member state to make an immediate repayment under art 18(4),
in which event those measures will (for the reasons set out below) need to be assessed for their
proportionality in accordance with 80 Community law; in other words, for their appropriateness in view of
the aim which they seek to achieve.
34
It should be noted that the measures at issue in that case were in existence on 1 January 1977 and, thus, fell within the
scope of the transitional arrangement set out in art 27(5). There is no reason, however, to suppose that the court would
have adopted a different view had art 27(5) not been applicable (see, in this respect, my opinion in Finanzamt Bergisch
Gladbach v Skripalle Case C-63/96 [1997] STC 1035 (esp paras 2528)).
I think that the Commission is, therefore, correct in contending that national measures which, though not
based on an art 27 authorisation, may affect rights granted by the Sixth Directive must comply with the
principle of proportionality. In brief, where it is necessary to reconcile potential conflicts between the
application of national tax collection measures, such as preventive retention in Belgium, and the
fundamental right to deduct excess VAT guaranteed by the directive, the relevant national measures must
not go beyond what is necessary to achieve their aim.
44.
This view is supported by the case law of the court. Thus, for example, in Balocchi v Ministero delle
Finanze dello Stato Case C-10/92 [1997] STC 640, [1993] ECR I-5105, it held that the facility granted to
member states under art 22(5) to oblige taxable persons to make interim payments of VAT during the
course of a tax period did not permit them to require the payment of a fixed percentage 81(65%) of the
amount payable for an unexpired period. It follows that member states do not have unlimited discretion in
operating their tax collection systems.
(ii) Effective judicial control
45.
In such a situation, as a first step, the effectiveness of judicial control required by Community law
imposes an obligation on the authorities of the member states to give reasons for their decisions (see the
judgment in Union nationale des entraneurs et Cadres techniques professionnels du football (Unectef) v
Heylens Case 222/86 [1987] ECR 4097 (paras 1415)). In the present case, this function is performed by
the official minute which must be drawn up and duly notified to the taxable person in order that the VAT
authority may exercise its right to withhold its payment. In so far as Belgian law, in that respect, provides
for adequate notification and statement of reasons to be given to a taxable person whose right to refund is
delayed, it complies with that aspect of the requirements of Community law. At the second hearing, the
adequacy in practice of the pre-retention procedural safeguards was questioned by the counsel
representing Decan and Sanders. This, however, is a matter for the national court, which alone has the
jurisdiction and the capacity to interpret the relevant Belgian rules.
46.
The member states obligation to ensure effectiveness of judicial control requires, in addition, that
national courts be provided with an adequate range of powers to ensure a proper balance between the
rights of the taxable person and the rights and interests of the VAT authority. Of course, the nature and
extent of the judicial remedy is conditioned by the context and the type of danger against which a
measure is intended to protect. For example, in his joint opinion in Fritz Werner Industrie-Ausrstungen
GmbH v Germany Case C-70/94 [1995] ECR I-3189 (para 65) and Criminal proceedings against Leifer
Case C-83/94 [1995] ECR I-3231, Advocate General Jacobs, treating of an altogether different subject,
expressed the opinion that the nature of the issues that arise where the external security of a Member
State is at stake will usually prevent a court of law from adopting a strict proportionality test. In view of the
fact that assessments were made on the basis of intelligence information which could not be checked by
the court, he thought it difficult to ensure full judicial review. The present cases do not fall within that
exceptional category.
47.
Sub-paragraphs (4) and (5) of art 8/(1)(3) of Royal Decree No 4 cover a range of cases and practical
situations. At one extreme, covered by sub-para (5), there are serious allegations of fraud supported by
credible objective evidence. At the other, there will be cases of genuine disputed issues of fact and legal
interpretation leading, at most, to a disputed claim by the fiscal authorities. In the present sort of case,
where the court is, essentially, called upon to provide criteria to permit the national court, in performing its
task of judicial control, to assess whether the application of the impugned national measures is liable, in
practice, to undermine the effectiveness of the right conferred by art 18(4) of the Sixth Directive, the court
should not, in my opinion, lay down detailed rules. It should, instead, give broad guidance as to the nature
of the discretion which should be conferred on the relevant national courts.
(iii) Opinion
48.
Firstly, I would emphasise that Community law should not impose an inflexible need for the provision
of a full substantive review of the facts and merits of the claim of the fiscal authority at the stage of judicial
control of the withholding decision. As is apparent, in the present cases, from the terms, in 82 particular,
of sub-para (4) of art 8/(1)(3) of Royal Decree No 4, final determination of the disputed fiscal claim must
await a definitive court judgment. The latter implies a detailed examination of the contested factual and
legal issues with the possibility of appeals within the hierarchy of the national legal system. This
necessarily takes time and, indeed, some emphasis was laid at the second hearing, on behalf of
Molenheide, on the fact that many of these claims remain outstanding for years. That is not surprising.
The present case is, however, concerned with provisions for withholding of payment on a provisional
basis as a conservation measure. In its nature, this type of measure does not lend itself to final
determination of issues. I do not think that the beslagrechter can be expected to determine finally, but
rather only on an interim basis and as a matter of urgency, disputed and complex issues of fact and law.
49.
The beslagrechter should, however, in principle have power to order the lifting of the retention. In the
observations submitted, particularly at the second hearing, there was considerable disagreement between
counsel for the plaintiffs, on the one hand, and for Belgium, on the other, as to the extent or existence of
any discretionary power residing in the beslagrechter. Indeed, this situation of uncertainty seems to be
reflected to some extent in the varying behaviour of different beslagrechters. Some were described as
being very strict in the interpretation of their powers, while others appear to have been more liberal.
These matters of Belgian law cannot, of course, be determined by this court, which can merely indicate,
as stated above, the nature of the discretion, which must exist, and be known generally to exist, if due
protection is to be accorded to rights conferred by Community law.
50.
The fundamental test is, of course, that the measure taken be proportionate to the end to be achieved.
In other words, it should not go further than is strictly necessary in the pursuit of that purpose, namely the
protection of the VAT authority itself in its duty to ensure the financial integrity of the system and to collect
the tax. I would apply, by analogy, the principle enunciated by the court in EC Commission v Belgium
Case 324/82 [1984] ECR 1861 (para 29), in the case of a derogation pursuant to art 27 of the Sixth
Directive, that measures adopted to prevent tax evasion or avoidance may not derogate from the basis
for charging VAT laid down in art 11, except within the limits strictly necessary for achieving that aim. This
approach enables some broad principles of guidance to be adopted. I agree with the approach suggested
by the Commission at the second hearing; namely, that in cases such as those covered by sub-para (4) of
art 8/(1)(3) of Royal Decree No 4broadly speaking cases of disputed debtsthe presumption would be
against proportionality and that, in the same way, in cases such as those covered by sub-para (5),
especially those establishing serious presumptions of fraud, the presumption would operate in the
opposite direction.
51.
The decision to be made by a national court regarding the maintenance or lifting of a withholding
measure must, like all provisional measures, depend on the particular circumstances of the case. I shall
try to indicate the correct approach to a number of those circumstances. I think that the overriding interest
must be the need to protect VAT revenues. It would appear that the withholding provision found in art 8/(1)
(3) of Royal Decree No 4 reverses the normal requirement in Belgian law for the existence of urgency, ie
the urgent necessity to protect the revenue. In my view, the VAT authority must in all cases be able to
justify the measures taken on the basis of necessity; that is to say a genuine and urgent necessity to
protect tax revenues. In cases falling within sub-para (5), the official minute must establish, prima facie,
the existence of serious presumptions 83 of fraud or, alternatively, the existence of evidence of serious
underdeclarations for earlier periods to the effect that a debt in favour of the VAT authority can be
foreseen. It goes without saying that such an envisaged debt must be of such a size as to justify
withholding payment. Subject to that, the existence of evidence based on fraud or serious
underdeclaration (even if not fraud) could reasonably lead a national court to consider that fiscal interests
are in need of protection. That need must also, however, take account of any other relevant
circumstances. For example, the scale of the enterprise conducted by the taxable person and its financial
stability may be such as to satisfy a court that there is no need for the retention. If, on the other hand, that
enterprise is shown to be in danger of becoming insolvent or becoming bankrupt, it may reasonably be
said that, in an uncertain situation, a debt should not be paid to an enterprise which may enure to the
general body of creditors and not be available to satisfy the tax authorities claim.
52.
At the second hearing, the plaintiffs repeatedly contradicted Belgiums assertion that a beslagrechter
may set aside a retention, particularly in sub-para (5) type cases. It goes without saying that,
notwithstanding the apparent ambiguities of Belgian law, the Community law principle of proportionality
requires the subsistence of a genuine opportunity of judicial control for the taxable person. Thus, under
the principle of co-operation laid down in Article 5 of the Treaty, it is for the Member States to ensure the
legal protection which individuals derive from the direct effect of Community law (see the judgment in
SCS Peterbroeck, Van Campenhout & Cie v Belgium Case C-312/93 [1995] ECR I-4599 (para 12)). Since
there are no Community rules governing the collection of VAT, it is for the domestic legal systems
to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural
rules governing actions for safeguarding rights which individuals derive from the direct effect of
Community law. (see para 12.)
In the circumstances of the present reference, Belgian courts and, in particular, beslagrechters, must
ensure that in balancing the rights of taxable persons under art 18(4) against the treasury, they do not
render virtually impossible or excessively difficult the exercise of rights conferred by Community law (see
para 12).
53.
Where the beslagrechter is concerned with sub-para (4) type cases, I am of the opinion that the
retention should not be allowed to stand unless there is convincing evidence of the need to protect the
national treasury. This would not be limited to cases of impending insolvency, though this would be an
important matter. Furthermore, I do not think that treasury interests require the adoption of withholding
orders that seek, in addition to protecting the payment of alleged tax debts (and interest thereon), also to
secure administrative penalties imposed in respect of such supposed debts. A retention of that sort would
constitute an unjustifiable interference with the exercise of the right to deduct.
54.
In my opinion, the beslagrechter must, on the basis of his appreciation of the manifold elements of fact
which he may expect to find, be enabled to make a balanced judgment as to the necessity for the
withholding measure in the interests of the VAT administration, taking into account: the apparent strength
and seriousness of the evidence of fraud or underdeclaration; the likelihood of the due recovery of the
amount of the claim after complete determination of the dispute; the financial stability of the taxable
person; the length of time likely to elapse before resolution of the dispute; and giving due weight to the
need of the 84 taxable person for payment of the sum due to him for the continued conduct of his
business. As the court stated in the judgment in R v Secretary of State for Transport, ex p Factortame Ltd
Case C-213/89 [1991] 1 All ER 70, [1990] ECR I-2433 (para 21):
the full effectiveness of Community law would be just as much impaired if a rule of national
law could prevent a court seised of a dispute governed by Community law from granting interim
relief in order to ensure the full effectiveness of the judgment to be given on the existence of the
rights claimed under Community law.
Furthermore, a taxable person, who ultimately succeeds in the main action against the VAT authority,
must be entitled to effective compensation from Belgium, such as interest from the date the retained
refund would otherwise (ie but for the retention) have been paid.
VI CONCLUSION
55.
In the light of the foregoing, I recommend that the Court of Justice answer the various questions
referred by the three national courts, which have submitted questions in these four joined cases, as
follows:
(1) Article 18(4) of Council Directive (EEC) 77/388 on the harmonisation of the laws of the
member states relating to turnover taxescommon system of value added tax: uniform basis of
assessment (the Sixth Directive) is sufficiently clear, precise and unconditional to be capable of
being invoked directly by taxable persons in the internal legal systems of the member states.
(2) National provisions that permit the preventive retention of VAT credits supposedly due to a
taxable person in respect of a particular tax period are not, in principle, incompatible with art 18(4)
of the Sixth Directive.
(3) VAT retention measures must, however, not go beyond what is strictly necessary to protect
the fiscal interests of the member states in ensuring the effective collection of VAT and national
courts must ensure that a taxable person whose exercise of the right to deduct conferred by art
18(4) of the Sixth Directive is affected by such retention measures is guaranteed effective
procedural safeguards prior to the adoption of the measure, which must include, inter alia,
reasonable notice of the reasons for the proposed retention and the opportunity of seeking effective
judicial control of the measure after its adoption by the VAT administration. In the case of a
retention of an undisputed VAT credit based on a disputed earlier VAT debt, national legal
provisions which presume the urgency and/or need for the withholding measure must be set aside
by the national court before whom an interim application to lift the retention is brought; such a court
must have the power to determine for itself on the basis of all the evidence available and all the
circumstances of the case, including the availability of effective alternative forms of protection for
the VAT administration, whether there is an urgent necessity for the retention. However, such
urgent necessity may not extend beyond securing the amount of the disputed debt (plus interest).
In the case of a retention based on serious suspicions of fraud or other serious irregularities in the
affairs of the taxable person claiming entitlement to a VAT credit, the court or judge hearing an
interim application for its suspension must be entitled, where it/he is not satisfied, on the basis of
contradictory evidence which must be produced by the taxable person, of the genuineness of the
VAT administrations doubts, to lift the retention on 85 such terms as it/he sees fit. In all preventive
retention cases, the VAT administration must undertake, in the event of the taxable person being
ultimately successful in the main action concerning the retention, to pay interest on the sum
retained from the moment when, in accordance with the normal deduction rules applied in that
member state in the implementation of the Sixth Directive, the sum would have been paid to that
taxable person.
18 December 1997.
Costs
65.
The costs incurred by the Belgian, Greek, Italian and Swedish governments and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the
national courts, the decision on costs is a matter for those courts.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the questions referred to it by the
Hof van Beroep te Antwerpen, the Rechtbank van Eerste Aanleg te Brussel and the Rechtbank van
Eerste Aanleg te Brugge by orders of 17 October 1994, 25 October 1995, 12 December 1995 and 6
February 1996, hereby rules: (1) Article 18(4) of the Sixth Directive does not in principle preclude
measures of the kind at issue in the main proceedings. (2) However, the principle of proportionality is
applicable to national measures which, like those at issue in the main proceedings, are adopted by a
member state in the exercise of its powers relating to VAT, in that, if they went further than was necessary
in order to attain their objective, they would undermine the principles of the common system of VAT, in
particular the conditions governing deductions, which are an essential component of that system. It is for
the national court to examine whether or not the measures in question and the manner in which they are
applied by the competent administrative authority are proportionate. In the context of that examination, if
the national provisions or a particular construction of them would constitute a bar to effective judicial
review, in particular review of the urgency and necessity of retaining the refundable VAT balance, and
would prevent the taxable person from applying to a court for replacement of the retention by another
guarantee sufficient to protect the interests of the treasury but less onerous for the taxable person, or
would prevent an order from being made, at any stage of the procedure, for the total or partial lifting of the
retention, the national court should disapply those provisions or refrain from placing such a construction
on them. Moreover, in the event of the retention being lifted, calculation of the interest payable by the
treasury which did not take as its starting point the date on which the VAT balance in question would have
had to be repaid in the normal course of events would be contrary to the principle of proportionality.
96
The plaintiff was a Greek national who had worked in the Greek civil service for a number of years as a
specialist doctor. She subsequently moved to Germany where she was employed as a specialist doctor
by the City of Hamburg. Under the relevant collective wage agreement, specialist doctors were promoted
to a higher salary group after eight years practice. Since the eight years practice had to be completed as
an employee classified in a lower salary group specific to that agreement, any periods of employment
completed outside the agreement were excluded. The plaintiffs seniority was therefore calculated without
taking into account her practice in Greece. She subsequently brought an action before the Labour Court
seeking classification in the higher salary group, contending that she had suffered indirect discrimination
on grounds of nationality. The German court stayed the proceedings and referred to the Court of Justice
of the European Communities for a preliminary ruling the questions (i) whether art 48 1 of the EC Treaty
and art 7(1) and (4)2 of Council Regulation (EEC) 1612/68 on freedom of movement for workers within the
Community, prohibited a collective wage agreement (applicable to public service employees), which made
promotion on grounds of seniority conditional on eight years employment in a salary group determined by
that agreement, without regard to previous periods of comparable employment completed in the public
service of another member state and (ii) if so, what consequences ensued.
1
Article 48, so far as material, provides: freedom of movement shall entail the abolition of any discrimination based on
nationality between workers of the Member States as regards employment, remuneration and other conditions of work
and employment.
2
Article 7, so far as material, is set out at p 100 f, post
Held (1) The conditions for promotion on grounds of seniority laid down in the agreement in question
manifestly worked to the detriment of migrant workers, by failing to take into account comparable periods
of services completed in the public service of another member state, and therefore contravened the
principle of 97 non-discrimination set out in art 48 of the Treaty and art 7(1) and (4) of Regulation
1612/68. The fact that public service employees in other areas of Germany not covered by the collective
wage agreement were equally excluded for the purposes of calculating periods of service did not remedy
the breach of Community law; nor did the fact that seniority in the public service was governed by
different organisational and operational rules in each member state. Moreover, there was no question of
justification on the grounds of rewarding employee loyalty, since the wage agreement covered the
majority of German public institutions and undertakings performing public interest tasks and therefore
afforded a high degree of mobility to employees covered by the agreement. Further, the activities of a
specialist doctor did not fall within the scope of the derogation on freedom of movement set out in art
48(4)3 of the Treaty for public sector employees (see p 108 j, p 110 b to g and p 111 h, post).
3
Article 48(4), so far as material, provides: The provisions of this Article shall not apply to employment in the public
sector.
(2) A clause such as that at issue was null and void under art 7(4) of Regulation 1612/68 in so far as it
laid down or authorised discriminatory conditions in relation to workers who were nationals of other
member states. In order to determine the consequences which ensued from art 7(4), pending the
adoption by the parties to the collective agreement of the amendments necessary to eliminate the
discrimination, it was appropriate to apply the case law on the principle of equal pay for men and women.
Accordingly, where a provision discriminated against women, the members of the disadvantaged group
were to be treated in the same way and to have applied to them the same rules as the other workers and,
failing correct implementation of art 119 of the Treaty in national law, those rules remained the only valid
point of reference. It followed that, without requiring or waiting for the clause to be abolished by collective
negotiation or some other procedure, the national court had to apply the same rules to the members of
the group disadvantaged by that discrimination as those applicable to the other workers (see p 110 j to p
111 e j, post); van Cant v Rijksdienst voor Pensionen Case C-154/92 [1993] ECR I-3811 applied.
Notes
For the principle of non-discrimination between workers on grounds of nationality, and the public service
derogation from that principle, see 52 Halsburys Laws (4th edn) paras 1513, 1523.
For the EC Treaty, art 48, see 50 Halsburys Statutes (4th edn) 283.
Cases cited
Allu v Universita degli Studi di Venezia Case 33/88 [1989] ECR 1591.
Allu v Universita degli Studi di Venezia Joined cases C-259/91, C-221/91 and C-332/91 [1993] ECR I-
4309.
Bachmann v Belgium Case C-204/90 [1994] STC 855, [1992] ECR I-249, ECJ.
Biehl v Administration des Contributions du Grand-Duch de Luxembourg Case C-175/88 [1991] STC
575, [1990] ECR I-1779, ECJ.
EC Commission v Belgium Case 149/79 [1980] ECR 3881.
EC Commission v France Case 307/84 [1986] ECR 1725.
EC Commission v Luxembourg Case C-111/91 [1993] ECR I-817.
EC Commission v UK Case C-279/89 [1992] ECR I-5785.
98
Eurico Italia Srl v Ente Nazionale Risi Joined cases C-332333/92 and C-335/92 [1994] ECR I-711.
Grahame v Bestuur van de Nieuwe Algemene Bedrijfsvereniging Case C-248/96 (1997) Transcript, 13
November, ECJ.
Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591.
McDermott v Minister for Social Welfare Case 286/85 [1987] ECR 1453.
Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297.
OFlynn v Adjudication Officer Case C-237/94 [1996] All ER (EC) 541, [1996] ECR I-2617, ECJ.
Paraschi v Landesversicherungsanstalt Wrttemberg Case C-349/87 [1991] ECR I-4501.
Pinna v Caisse dAllocations Familiales de la Savoie Case 41/84 [1986] ECR 1.
Scholz v Opera Universitaria di Cagliari Case C-419/92 [1994] ECR I-505.
Sotgiu v Deutsche Bundespost Case 152/73 [1974] ECR 153.
Spotti v Freistaat Bayern Case C-272/92 [1993] ECR I-5185.
Union de Recouvrement des Cotisations de Scurit Sociale et dAllocations Familiales de la Savoie
(URSSAf) v Hostellerie Le Manoir Srl Case C-27/91 [1991] ECR I-5531.
van Cant v Rijksdienst voor Pensionen Case C-154/92 [1993] ECR I-3811.
Reference
By order of 1 December 1995, the Arbeitsgericht (the Labour Court) Hamburg referred to the Court of
Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty two
questions (set out at p 107 j to p 108 c, post) on the interpretation of art 48 of that Treaty and art 7(1) and
(4) of Council Regulation (EEC) 1612/68 on freedom of movement for workers within the Community.
Those questions arose in proceedings between Mrs Schning- Kougebetopoulou, of Greek nationality,
and the Freie und Hansestadt Hamburg concerning her classification in a higher salary group under the
applicable collective wage agreement. Written observations were submitted on behalf of: Mrs Schning-
Kougebetopoulou, by K Bertelsmann, Rechtsanwalt, Hamburg; the German government, by E Rder,
Ministerialrat in the Federal Ministry of Economic Affairs, and S Maass, Regierungsrtin zur Anstellung in
the same ministry, acting as agents; the French government, by C Chavance, Attach Principal
dAdministration Centrale in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and C de
Salins, Deputy Director in the same directorate, acting as agents; and the European Commission, by P
Hillenkamp, Legal Adviser, and P van Nuffel, of its Legal Service, acting as agents. Oral observations
were made by: Mrs Schning-Kougebetopoulou, represented by K Bertelsmann; the German
government, represented by E Rder; the Spanish government, represented by S Ortiz Vaamonde,
Abogado del Estado, acting as agent; the French government, represented by C Chavance; and the
Commission, represented by B Jansen, Legal Adviser, acting as agent. The language of the case was
German. The facts are set out in the opinion of the Advocate General.
17 July 1997.
The facts
2.
Dr Schning-Kougebetopoulou, a Greek national, has been employed since 1 August 1993 as a
specialist doctor by the City of Hamburg. She occupies the post of an Angestellte, that is to say, a
contractual employee not having the status of Beamte (an established official). As such her employment
relationship is governed, under the terms of her contract of employment, by the
Bundesangestelltentarifvertrag (the BAT) (the Federal Collective Wage Agreement for Contractual
Employees).
3.
As a specialist doctor employed as such Dr Schning-Kougebetopoulou is graded under the BAT in
Salary Group Ib. She considers however that she should be graded in a higher salary group, namely
Group Ia. Under the BAT a specialist doctor employed as such is classified in Salary Group Ia after eight
years practice as a doctor (either generalist or specialist) in Salary Group Ib. By stipulating that the eight
years practice must be completed in Salary Group Ib the BAT leaves out of account periods of
employment which a national or non-national may have completed abroad, or indeed in Germany with a
private employer, as an established official in the German public service or as a contractual employee not
covered by the BAT or by Salary Group Ib of the BAT.
4.
Before taking up employment with the City of Hamburg Dr Schning- Kougebetopoulou spent the
period from 1 October 1986 to 31 August 1992 working as a specialist doctor in the Greek public service.
She considers that, by disregarding that experience for the purposes of her grading, the City of Hamburg
contravened art 48 of the Treaty and art 7(1) and (4) of Regulation 1612/68.
5.
Article 7(1) and (4) provides:
(1) A worker who is a national of a Member State may not, in the territory of another Member
State, be treated differently from national workers by reason of his nationality in respect of any
conditions of employment and work, in particular as regards remuneration, dismissal, and should
he become unemployed, reinstatement or re-employment (4) Any clause of a collective or
individual agreement or of any other collective regulation concerning eligibility for employment,
employment, remuneration and other conditions of work or dismissal shall be null and void in so far
as it lays down or authorises discriminatory conditions in respect of workers who are nationals of
the other Member States.
6.
The national court notes that, although the BAT does not discriminate directly on grounds of
nationality, the condition for access to Salary Group Ia cannot be fulfilled abroad but only by nationals and
foreigners working in Germany. The national court considers that the proportion of foreigners among
those adversely affected by the rule is likely to be significantly higher than the proportion of foreigners
among those favoured by the rule. However, in the national courts view it is unnecessary to consider
whether the figures are sufficiently significant because the requirement for access to the higher grade is
objectively justified. Subsequent promotion to the higher grade represents the reward for loyalty and also
provides motivation by allowing an employee to improve his financial circumstances without changing his
job. It therefore serves to tie specialist staff to their public employer and is comparable to a private sector
bonus scheme based on years of service with an employer. The national court points out finally that, if the
opposite view were taken, there would be discrimination against German and foreign doctors whose
experience was gained in Germany but not under the relevant salary group of the BAT.
100
7.
Although apparently in little doubt about the correctness of its view the national court decided to put
the following questions to the Court of Justice:
(1) Is there an infringement of Article 48 of the EC Treaty and Article 7(1) and (4) of Regulation
(EEC) No 1612/68 of the Council on freedom of movement for workers within the Community
where a collective agreement for the public service provides for promotion on grounds of seniority
after eight years service only in a particular salary bracket provided for by the collective wage
agreement in force for all employees in the public service of the Federal Republic of Germany (the
BAT) and therefore does not take account of comparable activities carried out in the public service
of another member state of the EC?
(2) If the reply to question 1 is in the affirmative: Does Article 48 together with Regulation (EEC)
No 1612/68 of the Council on freedom of movement for workers within the Community require that,
where doctors have worked as such in the public service of another Member State of the EC, the
time spent in such employment should likewise be taken into account for the purposes of promotion
on grounds of seniority as provided for in the BAT or should the court instead take no such decision
and leave this matter to the parties to the collective agreement, having regard to their freedom to
agree terms?
8.
The court has received written and oral argument from Dr Schning- Kougebetopoulou, the French
and German governments and the European Commission. The Spanish government, although not
presenting written observations, was represented at the hearing. In addition the court, in response to a
written question put to the member states, received replies from the Austrian, Danish, Finnish, French,
German, Greek, Irish, Luxembourg, Netherlands, Spanish, Swedish and UK governments.
Question 1
9.
Dr Schning-Kougebetopoulou contends that the BAT rule infringes art 48 of the Treaty and art 7 of
Regulation 1612/68. It discriminates indirectly on grounds of nationality and is not objectively justified. Dr
Schning-Kougebetopoulou is supported in her view by the Commission.
10.
The German government, on the other hand, considers that the rule is neither directly nor indirectly
discriminatory and, in any event, is objectively justified. It is supported in that view by the French and
Spanish governments.
11.
It is common ground that the BAT rule does not discriminate directly on grounds of nationality. It
remains to be considered, however, whether it does so indirectly. A comprehensive summary of the
courts case law on indirect discrimination in the context of art 48 of the Treaty is to be found in the recent
judgment in OFlynn v Adjudication Officer Case C-237/94 [1996] All ER (EC) 541, [1996] ECR I-2617
(paras 1819), where the court held:
(18) Accordingly, conditions imposed by national law must be regarded as indirectly
discriminatory where, although applicable irrespective of nationality, they affect essentially migrant
workers (see Pinna v Caisse dAllocations Familiales de la Savoie Case 41/84 [1986] ECR 1 (para
24), Allu v Universita degli Studi di Venezia Case 33/88 [1989] ECR 1591 (para 12) and Union de
Recouvrement des Cotisations de Scurit Sociale et dAllocations Familiales de la Savoie
(URSSAF) v Hostellerie Le Manoir Srl Case C-27/91 [1991] ECR I-5531 (para 11)) or the great
majority of those affected are migrant workers (see EC Commission v UK Case 101 C-279/89
[1992] ECR I-5785 (para 42) and Spotti v Freistaat Bayern Case C-272/92 [1993] ECR I-5185 (para
18)), where they are indistinctly applicable but can more easily be satisfied by national workers
than by migrant workers (see EC Commission v Luxembourg Case C-111/91 [1993] ECR I-817
(para 10) and Paraschi v Landesversicherungsanstalt Wrttemberg Case C-349/87 [1991] ECR I-
4501 (para 23)) or where there is a risk that they may operate to the particular detriment of migrant
workers (see Biehl v Administration des Contributions du Grand-Duch de Luxembourg Case C-
175/88 [1991] STC 575, [1990] ECR I-1779 (para 14) and Bachmann v Belgium Case C-204/90
[1994] STC 855, [1992] ECR I-249 (para 9)).
(19) It is otherwise only if those provisions are justified by objective considerations independent
of the nationality of the workers concerned, and if they are proportionate to the legitimate aim
pursued by the national law (see, to that effect, Bachmann [1994] STC 855, [1992] ECR I-249 (para
27), EC Commission v Luxembourg [1993] ECR I-817 (para 12) and Allu v Universita degli Studi
di Venezia Joined cases C-259/91, C-221/91 and C-332/91 [1993] ECR I-4309 (para 15)).
12.
In my view it is clear that the BAT arrangements work to the particular detriment of migrant workers.
Any specialist doctor who has spent part of his career in the public service of another member state
incurs the disadvantage that his employment in that member state can never be taken into account for
grading purposes. By contrast any specialist doctor who has been continuously employed under the BAT
is entitled to have the whole period of his employment as a doctor taken into account.
13.
Of the public servants who spend their careers in Germany, it is only those who move from non-BAT to
BAT employment who are liable to incur the same disadvantage as migrant workers. Such persons are
likely to represent a small proportion of German public servants. The broad scope of the BAT allows
public servants extensive mobility between German public service employers without any pay
disadvantage. Moreover, it cannot be suggested that all doctors who are public servants in non-BAT
employment are actually disadvantaged by the BAT rule. Most employees not covered by the BAT will be
subject to their ownin some cases superiorcareer arrangements, such as the regulations applicable
to officials or to other collective agreements or contractual arrangements specific to their employer 4. By
contrast the BAT rule works to the disadvantage of every migrant worker joining the German public
service.
4
Eg the German governments reply to the courts written questions states that the Land Berlin, although no longer
subject to the BAT, has concluded a specific collective agreement adopting the collective conventions concluded under
the BAT by the body representing the other Lnder, the Tarifgemeinschaft deutscher Lnder.
14.
The fact that owing to the hiatuses between the arrangements applicable to the different categories of
staff some German public servants suffer the same disadvantage as migrant workers scarcely justifies
denying all migrant workers who take up employment in the German public sector the advantages
enjoyed by an entireand apparently the largestcategory of German public servants.
15.
The untenability of the German governments position is particularly clear if one considers what the
position would be if the BAT rule were repeated in the arrangements applicable in the case of other public
service employers or categories of staff. On the German governments analysis none of the arrangements
considered individually would be discriminatory owing to the existence of other 102 categories of staff and
public service employers not covered by the arrangements; yet the cumulative effect would be to place
migrant workers at a disadvantage for the purposes of grading in the entire German public sector.
Whether the rules are objectively justified
16.
In the present proceedings twoconflictinglines of argument have been put forward in order to
show that the BAT arrangements are objectively justified. On the one hand, the French and Spanish
governments, developing the arguments of the national court (set out at para 6, above), consider that
restrictions on mobility are justified by considerations specific to public service. The German government,
on the other hand, contends that the BAT can be compared to collective agreements in the private sector
and even denies that it is exclusively a public service arrangement. Its purpose is to promote a stable
workforce by rewarding loyalty to BAT employers viewed collectively. I shall consider those arguments in
turn.
Public service justification
17.
It is first of all common ground that the post of specialist doctor is outside the scope of art 48(4) of the
Treaty. The court has held that that provision applies solely to posts which presume on the part of those
occupying them the existence of a special relationship of allegiance to the state and reciprocity of rights
and duties which form the foundation of the bond of nationality (see the judgments in EC Commission v
Belgium Case 149/79 [1980] ECR 3881 (para 10) and EC Commission v France Case 307/84 [1986] ECR
1725 (para 12)). In any event art 48(4) cannot permit discrimination on the grounds of nationality, for
instance in pay or working conditions, if in fact a non-national is appointed to the post in question (see the
judgment in Sotgiu v Deutsche Bundespost Case 152/73 [1974] ECR 153 (para 4)).
18.
One cannot therefore in the present case speak of allegiance to the state in the above sense. There
nevertheless remains the question whether the BAT rule can be justified by the particular features of
public service employment. The starting point in considering this issue is the courts ruling in Scholz v
Opera Universitaria di Cagliari Case C-419/92 [1994] ECR I-505. There a public body, namely an Italian
university, based its selection criteria for appointment to a post as a university canteen assistant partly on
length of previous employment in the public service. The court held that the failure by the university to
take account of experience gained by the applicant in the public service of another member state (the
German post office) constituted unjustified indirect discrimination.
19.
The French and Spanish governments consider, however, that the ruling in Scholz relating to
appointment to a post in the public service cannot be transposed to the present case, which concerns
grading. They argue that under systems such as theirs public service entails the undertaking of reciprocal
obligations by employee and employer. In the absence of harmonised regulations on career structures
and pay, recognition of public service completed in another member state would disrupt their public
service structures.
20.
At the hearing the Spanish government gave the example of two teachers or doctors employed in
different member states. The employee in member state A must wait patiently for a number of years for
his pay to increase automatically according to length of service; the employee in member state B is paid
more highly from the start by virtue of more flexible grading rules. According to the Spanish government,
to require member state A to take account of the latter employees experience in member state B would
be to assimilate years of service that were not comparable.
103
21.
The French government nevertheless suggested at the hearing that the interest in free movement and
the integrity of national public services might be reconciled in cases such as the present, first, by requiring
that the employment of the migrant worker should have been in a public service or a body pursuing public
service aims and, secondly, by requiring a comparison of the functions performed, the level of
qualifications required and the level of remuneration.
22.
As I stated in my opinion in Scholz [1994] ECR I-505 (paras 2728), I am prepared to accept that
public servants share a special ethos which may be relevant in assessing whether periods of employment
should be taken into account for the purposes of recruitment and promotion in the public service. Public
servants may be motivated by factors that differ essentially from those obtaining in the private sector.
Typically, employment in the public service implies a willingness to accept relatively modest financial
rewards in return for greater long-term security, together, perhaps, with the satisfaction of rendering
service to the collectivity. Promotion may be viewed in part as a reward for such service.
23.
Notwithstanding the potential difficulty in defining the limits of public service, I therefore accept the
French governments suggestion that a member state may restrict periods of qualifying employment to
those completed in public service. However, as I noted in my opinion in Scholz, I do not think the special
ethos of public service can justify the disregarding of periods of public service completed in another
member state.
24.
As regards the French and Spanish governments argument concerning differences in career
structures, I accept that there are significant differences between the member states in the rules
governing the employment of public servants. In its above-mentioned written question, the court asked
the member states to state whether periods of service completed in another member state were taken
into account for the purposes of determining seniority in their public services. The replies reveal
considerable diversity in the public service structures of the member states, ranging from a highly flexible
system based on individually determined remuneration in Sweden to the rather more rigid systems
applied in France, Spain and Germany. It appears that in a number of member states, including Austria,
Denmark, the Netherlands, Sweden and the United Kingdom, relevant previous experience, including
experience gained in another member state, is taken into account, at least to some extent, upon initial
appointment but length of service plays no automatic role in future grading. In other member states, in
particular France, Germany, Luxembourg and Spain, length of service plays a formal role in subsequent
grading and salary progression. Moreover, it appears that at present no or little account is taken of
previous employment in another member state5; an apparent exception is Greece which, although also
applying a system of automatic advancement, recently adopted a law expressly providing for periods
completed in the public service of another member state to be taken into account for the purposes of
advancement (see Law No 2470 of 21 March 1997).
5
It appears that under a law of 16 December 1996 France now takes account of compulsory national service completed
in another member state or European Economic Agreement country for the purposes of calculating seniority.
25.
Despite the differences in public service structure public servants in the various member states
perform broadly similar functions and doubtless share similar types of motivation. The fact that a public
servant was subject to different conditions in the public service of another member state cannot justify
non-recognition of periods of employment in the service of that state. To accept 104 that would be to allow
a member state to place a migrant worker at a permanent disadvantage by comparison with national
public servants simply because he benefited, or may have benefited, from a more flexible career structure
in the past. It would serve to compartmentalise national public services and constitute a significant
obstacle to public sector mobility in the Community.
26.
In any event, it seems to me that the French and Spanish governments overlook part of the equation.
It may be true that the more flexible career structures in the public services of some member states may
allow higher initial salaries and more rapid promotion for some public servants. However, greater flexibility
brings with it greater demands on public servants: promotion and even continued employment may
depend to some degree on performance. The argument that it would be unfair to a migrant workers
colleagues to recognise his public service in another member state ignores the comparative
disadvantages to which he may have been subject.
27.
It has moreover not been suggested that the different career structures would of themselves induce
public servants to switch from the public service of one member state to that of another. In any event,
significant differences in career structures may exist between member states even in the private sector,
particularly in the professions.
Loyalty to an employer or group of employers
28.
The German government has not sought to rely on considerations specific to public sector
employment. It argues that, by rewarding loyalty for continuous service, the BAT rule does no more than a
private employer or a number of private employers collectively would do. Indeed the German government
has sought to show that the BAT is also in part a private sector arrangement.
29.
I agree with the Commission that arrangements adopted by an undertaking (or group of undertakings
in common ownership) in order to reward employees for long service do not necessarily entail unjustified
discrimination. However, as the Commission points out, it is difficult to see how the arrangements under
the BAT can be equated with the rewarding of loyalty by a specific private employer when service with
any BAT employer is treated as qualifying employment. It is apparent that the BAT applies to an array of
legally separate employers, sometimes with conflicting interests and policies and with only limited
common structures, operating methods or institutional goals.
30.
The German government replies that it is conceivable that a number of private employers might
collectively agree on arrangements such as those of the BAT. At the hearing it gave the example of two
car manufacturers who enter into a collective agreement with the relevant unions under which they each
agree to provide, in their loyalty schemes, for recognition of service under the other company.
31.
However, such an agreementon the assumption that it were able to withstand scrutiny under art 85
of the Treatywould not, in the absence of a single employer, involve the rewarding of loyalty in any
normal sense of the word. Service with a competitor can hardly be thought of as demonstrating loyalty to
ones employer. At the very least its sole purpose could not be to reward loyalty since that purpose would
be better served by agreements specific to each employer.
32.
The same applies to the BAT. If the aim of the BAT were solely to reward an employees loyalty to his
employer it would be sufficient for each employer to adopt its own arrangements or, if uniform conditions
were sought, to agree collectively on conditions to be applied independently by each employer without
any provision for 105 mutual recognition of periods of service. That would however presumably be
unacceptable to the parties to the BAT for the very reason which causes migrant workers to be placed at
a disadvantage under the present arrangements. It would preclude mobility, not only for migrant workers
(and a small number of German public servants), but for the majority of German public servants by
compartmentalising the German public sector. Thus the BAT goes beyond the mere rewarding of loyalty
by allowing in addition for extensive mobility for the majority of public servants.
33.
Finally, the German governments assertion that the BAT is in part a private sector arrangement casts
doubt on whether it would even be lawful to restrict qualifying periods of employment to those completed
in the public sector. However, the national courts questions are posited on the basis that the BAT is a
public sector agreement, and in any event it seems clear that Dr Schning- Kougebetopoulous previous
employment as a doctor was in the Greek public service.
Question 2
34.
By its second question the national court asks whether, on the assumption that the BAT rule is
unlawful, it should require the periods of service in another member state to be taken into account or refer
the matter back to the parties to the collective agreement, having regard to their freedom to contract.
35.
On this question I share the Commissions view that guidance may be sought from the courts case
law on sex discrimination, in particular the judgments in McDermott v Minister for Social Welfare Case
286/85 [1987] ECR 1453 (para 19) and van Cant v Rijksdienst voor Pensionen Case C-154/92 [1993]
ECR I-3811 (para 20). By virtue of art 7(4) of Regulation 1612/68 the BAT rule is null and void in so far as
it lays down or authorises discriminatory conditions for workers who are nationals of other member states.
It will be for the parties to the BAT to make the necessary amendments to it in order to eliminate the
discrimination. However, until such amendments are made the rules applied to the advantaged group
provide the only appropriate point of reference.
36.
As the Commission points out, it will be necessary for the national court in such circumstances to
examine the equivalence of the periods of service completed in the public service of the other member
state. However, there appears to be no dispute on that issue in relation to Dr Schning-Kougebetopoulou.
The BAT requires eight years employment as a doctor for promotion to Group Ia, and it appears to be
common ground that the years of service for which she seeks recognition were spent as a doctor in the
Greek public service.
Conclusion
37.
Accordingly, I am of the opinion that the questions referred by the Arbeitsgericht Hamburg should be
answered as follows:
(1) A clause of a collective agreement for the public service of a member state which provides
for promotion on grounds of seniority after eight years service in a particular career bracket under
the agreement and does not take account of comparable employment in the public service of
another member state infringes art 48 of the EC Treaty and art 7(1) of Council Regulation (EEC)
1612/68 on freedom of movement for workers within the Community and is null and void under art
7(4) of that regulation in so far as it lays down or authorises discriminatory conditions for workers
who are nationals of other member states.
106
(2) Until such time as the terms of the collective agreement are amended so as to eliminate the
discrimination, art 48 of the Treaty, together with art 7(1) of Regulation 1612/68, requires that the
advantages conferred by the agreement should be extended to a migrant worker, so that
comparable employment in the public service of another member state is given equivalent
recognition.
15 January 1998.
Costs
36.
The costs incurred by the French, German and Spanish governments and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the
national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Arbeitsgericht
Hamburg by order of 1 December 1995, hereby rules: (1) Article 48 of the EC Treaty and art 7(1) and (4)
of Council Regulation (EEC) 1612/68 on freedom of movement for workers within the Community
preclude a clause in a collective agreement applicable to the public service of a member state which
provides for promotion on grounds of seniority for employees of that service after eight years employment
in a salary group determined by that agreement without taking any account of previous periods of
comparable employment completed in the public service of another member state. (2) A clause in a
collective agreement entailing discrimination contrary to art 48 of the Treaty and to art 7(1) of Regulation
1612/68 is null and void by virtue of art 7(4) of that regulation. Without requiring or waiting for that clause
to be abolished by collective negotiation or by some other procedure, the national court must therefore
apply the same rules to the members of the group disadvantaged by that discrimination as those
applicable to the other workers.
111
The plaintiff lived and worked in Denmark where she was employed by an English company which was
neither established nor registered in Denmark. The company paid the plaintiff directly without making
deductions for tax, pension or other social security contributions under Danish law. In 1994 the company
was declared insolvent and its employees, including the plaintiff, were dismissed. In accordance with art
31 of Council Directive (EEC) 80/987 on the approximation of the laws of the member states relating to the
protection of employees in the event of the insolvency of their employer, which required member states to
take the measures necessary to ensure that guarantee institutions guaranteed payment of employees
outstanding claims resulting from contracts of employment or employment relationships, the plaintiff
claimed a sum representing unpaid salary, commissions and expenses from the Danish institution
responsible for settling outstanding claims under the directive. The defendant institution refused to settle
the claim, contending that responsibility lay with the equivalent guarantee institution of the state where the
employer was established. The plaintiff brought proceedings against the defendant institution in the stre
Landsret, which stayed the proceedings and referred to the Court of Justice of the European
Communities for a preliminary ruling a question seeking to determine which guarantee institution was
responsible in such circumstances.
1
Article 3, so far as material, is set out at p 114 g, post
Held Although Directive 80/987 contained no provisions expressly relating to the claims of employees
residing and employed, or having been employed, in a member state other than that in which their
employer was established, it could not be inferred that the directive did not apply to such claims,
particularly since art 1(1) did not restrict its scope in that regard. In order for the directive to apply, art 2(1)
required that a request for the opening of proceedings to satisfy collectively the claims of creditors should
be lodged with the competent national 112 authority, and that there should be either a decision to open
those proceedings, or a finding that the business had been closed down where the available assets were
insufficient. It followed that where the employer was established in a member state other than that in
which the employee resided and was employed, the guarantee institution responsible under art 3 of the
directive for the payment of that employees claims in the event of the employers insolvency was the
institution of the state in which either of the events set out in art 2(1) had occurred (see p 133 b to d and p
134 b e, post).
Bonifaci v Instituto Nazionale della Previdenza Sociale (INPS) Joined cases C-9495/95 (1997) ECJ
Transcript, 10 July, and Maso v Instituto Nazionale della Previdenza Sociale (INPS) Case C-373/95
(1997) ECJ Transcript, 10 July, applied.
Notes
For protection of employees on employers insolvency, see 52 Halsburys Laws (4th edn) para 2021.
Cases cited
Abels v Administrative Board of the Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische
Industrie Case 135/83 [1985] ECR 469.
Berkholz v Finunzamt Hamburg-Mitte-Altstadt Case 168/84 [1985] ECR 2251.
Bonifaci v Instituto Nazionale della Previdenza Sociale (INPS) Joined cases C-9495/95 (1997)
Transcript, 10 July, ECJ.
de Jaeck v Staatssecretaris van Financin Case C-340/94 [1997] ECR I-461.
EC Commission v France Case C-30/89 [1990] ECR I-691.
EC Commission v Greece Case C-53/88 [1990] ECR I-3917.
Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357.
Francovich v Italy Case C-479/93 [1995] ECR I-3843.
Maso v Instituto Nazionale della Previdenza Sociale (INPS) Case C-373/95 (1997) Transcript, 10 July,
ECJ.
Suifritti v Instituto Nazionale della Previdenza Sociale (INPS) Joined cases C-140141/91, C-278279/91
[1992] ECR I-6337.
Trans Tirreno Express SpA v Ufficio Provinciale IVA Case 283/84 [1986] ECR 231.
van Schaik (Criminal proceedings against) Case C-55/93 [1994] ECR I-4837.
Wagner Miret v Fondo de Garanta Salarial Case C-334/92 [1993] ECR I-6911.
Reference
By order of 27 March 1996, the stre Landsret (the Eastern Regional Court, Denmark) referred to the
Court of Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty a
question (set out at p 131 h j, post) on the interpretation of art 3 of Council Directive (EEC) 80/987 on the
approximation of the laws of the member states relating to the protection of employees in the event of the
insolvency of their employer. The question arose in a dispute between Mrs Mosbk and the
Lnmodtagernes Garantifond, the guarantee institution responsible pursuant to the directive for settling
outstanding claims in Denmark, following the insolvency of Mrs Mosbks employer. Written observations
were submitted on behalf of: Lnmodtagernes Garantifond, by U Andersen and A Rubach-Larsen, both of
the Copenhagen Bar; the German government, by E Rder, Ministerialrat in the Federal Ministry of the
Economy, and B Kloke, Oberregierungsrat in the same ministry, acting as agents; the French government,
by C de Salins, Head of Sub-directorate in the Legal Directorate of the Ministry of Foreign Affairs, and C
Chavance, Foreign 113 Affairs Secretary in the same directorate, acting as agents; the UK government,
by S Ridley, of the Treasury Solicitors Department, acting as agent, assisted by N Green, Barrister; and
the European Commission, by H Stvlbk and M Patakia, of its Legal Service, acting as agents. Oral
observations were made by: Danmarks Aktive Handelsrejsende, acting on behalf of Carina Mosbk,
represented by C Elmquist-Clausen, of the Copenhagen Bar; Lnmodtagernes Garantifond, represented
by U Andersen; the French government, represented by C Chavance; the UK government, represented
by S Ridley, assisted by N Green; and the Commission, represented by H Stvlbk. The language of the
case was Danish. The facts of the case are set out in the opinion of the Advocate General.
29 May 1997.
I PRELIMINARY OBSERVATIONS
1.
In the present case the stre Landsret (the Eastern Regional Court) has referred to the Court of
Justice for a preliminary ruling under art 177 of the EC Treaty a question on the interpretation of Council
Directive (EEC) 80/987 on the approximation of the laws of the member states relating to the protection of
employees in the event of the insolvency of their employer (OJ 1980 L283 p 23).
II LEGAL FRAMEWORK
2.
The purpose of Directive 80/987 is to guarantee employees a minimum Community protection in the
event of the insolvency of their employer, but without preventing member states from establishing more
favourable systems. To that end it requires that the member states create bodies which will ensure that
employees are paid part of their outstanding claims against employers who have become insolvent.
3.
More particularly, art 1 of the directive provides:
(1) This Directive shall apply to employees claims arising from contracts of employment or
employment relationships and existing against employers who are in a state of insolvency within
the meaning of Article 2(1).
(2) Member States may, by way of exception, exclude claims by certain categories of employee
from the scope of this Directive, by virtue of the special nature of the employees contract of
employment or employment relationship or of the existence of other forms of guarantee offering the
employee protection equivalent to that resulting from this Directive. The categories of employee
referred to in the first subparagraph are listed in the Annex.
4.
Article 2 provides:
(1) For the purposes of this Directive, an employer shall be deemed to be in a state of
insolvency: (a) where a request has been made for the opening of proceedings involving the
employers assets, as provided for under the laws, regulations and administrative provisions of the
Member State concerned, to satisfy collectively the claims of creditors and which make it possible
to take into consideration the claims referred to in Article 1(1), and (b) where the authority which is
competent pursuant to the said laws, regulations and administrative provisions has: either decided
to open the proceedings, or established that the employers undertaking or business has 114 been
definitively closed down and that the available assets are insufficient to warrant the opening of the
proceedings.
(2) This Directive is without prejudice to national law as regards the definition of the terms
employee, employer, pay, right conferring immediate entitlement and right conferring
prospective entitlement.
5.
Article 3 provides:
(1) Member States shall take the measures necessary to ensure that guarantee institutions
guarantee, subject to Article 4, payment of employees outstanding claims resulting from contracts
of employment or employment relationships and relating to pay for the period prior to a given date.
(2) At the choice of the Member States, the date referred to in paragraph 1 shall be: either that
of the onset of the employers insolvency; or that of the notice of dismissal issued to the employee
concerned on account of the employers insolvency; or that of the onset of the employers
insolvency or that on which the contract of employment or the employment relationship with the
employee concerned was discontinued on account of the employers insolvency.
6.
Article 4 gives member states the option to limit the liability of the guarantee institutions referred to in
art 3(1), according to the rules laid down in art 3(2), while art 4(3) provides that in order to avoid the
payment of sums going beyond the social objective of the directive member states may set a ceiling to the
liability for employees outstanding claims.
7.
Article 5 of the directive provides:
Member States shall lay down detailed rules for the organization, financing and operation of the
guarantee institutions, complying with the following principles in particular: (a) the assets of the
institutions shall be independent of the employers operating capital and be inaccessible to
proceedings for insolvency; (b) employers shall contribute to financing, unless it is fully covered by
the public authorities; (c) the institutions liabilities shall not depend on whether or not obligations to
contribute to financing have been fulfilled.
8.
Finally, art 9 provides: This Directive shall not affect the option of Member States to apply or introduce
laws, regulations or administrative provisions which are more favourable to employees.
III FACTS
According to the order for reference, the dispute which gave rise to the question referred to the court
may be described as follows. In May 1993 the English company Colorgen Ltd, whose registered office is
in Warrington, Cheshire, England, engaged Mrs Carina Mosbk, who resides in Denmark, with effect
from 1 July 1993 as commercial manager with responsibility for promoting sales in Denmark, Norway,
Sweden, Finland and, subsequently, Germany.
9.
Throughout the employment relationship Colorgen was never registered as an undertaking in
Denmark, where it was neither established nor represented other than by Mrs Carina Mosbk. Under the
contract of employment Mrs Mosbk was paid a fixed salary plus commission. Throughout the
employment relationship she was paid directly by Colorgen, from England, without deduction of Danish
tax or social security contributions, which, according to Danish law, 115are normally deducted at source
by employers in Denmark, including foreign employers which have set up a branch or other permanent
establishment there.
During the initial months Mrs Mosbk worked at home; from 6 September 1993, however, Colorgen
rented an office for her in the premises of another Danish undertaking.
10.
On 1 July 1994 Colorgen was declared insolvent. All its employees were therefore dismissed,
including Mrs Mosbaek, whose claims against the company for wages, commission and expenses came
to D Kr 471,996.
11.
In the same month Mrs Mosbk declared that claim to the Lnmodtagernes Garantifond, the
guarantee institution in Denmark responsible for ensuring payment of the claims covered by the directive,
and also to Colorgens receivers in England.
Furthermore, by letter of 22 August 1994 Mrs Mosbaek declared the same claim to the National
Insurance Fund, the UK guarantee body, which had not reached a definitive decision by the date of the
order for reference2.
2
It should be pointed out that the UK government stated in its written observations that no application had been received
by the UK institution. At the hearing, however, the representative of the UK government stated that Mrs Mosbaek s
application had been received by the UK institution a few days earlier.
12.
The Danish body refused to settle Mrs Mosbaeks claim on the ground that payment was the
responsibility of the UK guarantee institution. Consequently, on 19 December 1994 Mrs Mosbaek brought
proceedings against the defendant before the Hillerd Court, which, because of the importance of the
principle involved, referred the case to the stre Landsret.
13.
Before the stre Landsret the plaintiff, relying on the purpose of the directive, maintained that the
institution responsible for settling her claim was the Danish guarantee institution, owing, in particular, to
the fact that her place of residence and the place where she had provided services were Denmark, where
her employer had also rented premises to enable her to perform her work, but also owing to the difficulties
which she would have in pursuing her claim before the guarantee institution and the courts in the United
Kingdom.
14.
The Danish institution, on the other hand, contended that responsibility for the guarantee lay with the
institution of the state in which the employer was established and whose legislation governed the
employers insolvency, that is in the present case the UK guarantee institution. Furthermore, pursuant to
art 5 of the directive only the state in which the employer is established can require the employer to
contribute to the financing of the guarantee institutions so that those institutions are in a position to
compensate employees in the event of the employers insolvency. Finally, the Danish institution pointed
out that it could not, even in the interest of economy, compensate the plaintiff and then seek
reimbursement from the English guarantee institution, since the directive made no provision for such an
arrangement.
15.
It is apparent from the order for reference that Danish law does not regulate, either directly or
indirectly, the question of the competence of the Danish guarantee institution to settle claims such as the
plaintiffs. It is for that reason that the stre Landsret has asked the court to provide it with the
interpretation of the directive which will enable it to resolve the issue before it. To that end, it has referred
the following question to the Court of Justice for a preliminary ruling:
116
In a situation where the employer is not established in the Member State in which the employee
is resident and is solely represented in the state of the employees residence by way of the said
employees work, which inter alia is carried out in office premises rented by the employer for the
employees use, is it the guarantee institution in the country where the employer is established or
the guarantee institution in the country where the employee is resident which, on the employers
insolvency, according to Article 3 of Directive 80/987/EEC is to guarantee payment of the
employees outstanding claims resulting from the employment relationship in question?
IV SUBSTANCE
16.
The directive does not say which guarantee institution is required, where the case arises, to settle
outstanding claims of employees residing and working in one member state against an employer
established and declared insolvent in another member state.
17.
In those circumstances, the parties to the main proceedings, the German, French and UK
governments and the European Commission maintained in their written and oral observations that an
answer to the question referred to the court based on Community law can and must be determined on the
basis of the directive as a whole, taking account also of its purpose.
18.
However, the parties differ in their views as to which guarantee institution is eventually required to
settle employees claims. More particularly, the French and UK governments and the Commission
maintain that in the particular circumstances it is the guarantee institution of the state in which the
employer is established that is competent, or in the present case the UK institution. The plaintiff in the
main proceedings and the German government, on the other hand, claim that the competent institution is
the institution of the member state in which the employee resides and/or works, or in the present case the
Danish institution.
19.
To my mind, the principal arguments in support of the first view are as follows: (a) The directive is
designed to reduce the differences between national laws as regards the protection of employees in the
event of the employers insolvency. If the solution to the question in issue were a matter for the member
states employees would have no protection in the event of a negative conflict of laws 3, whilst other
difficulties would arise in the event of competing rules4. Thus the differences would be exacerbated.
Accordingly, the problem calls for a uniform Community solution. (b) For the purpose of determining
whether an employer is insolvent, art 2 of the directive refers to the legislation and the competent
authority of the member state concerned, that is, normally those of the state where the employer is
established. Since the guarantee institution assumes the obligations of a defaulting employer it is
normally the guarantee institution of the member state where the employer is established which must
assume that obligation. Furthermore, that institution is better placed to ascertain the existence and extent
of the employers liabilities. (c) It follows from art 5(c) of the directive that a member state can only impose
an obligation to contribute to the financing of the national guarantee institution on an employer covered by
its legislation, that is to say, an employer established in its territory. Consequently, only that institution is
required and in a position to fulfil the 117 employers obligations where the employer becomes insolvent.
If the guarantee fell to be paid by the institution of the employees state of residence and/or employment
that institution would be unprepared for liabilities in respect of which it would have been unable to require
a statutory contribution on the part of the employer. That would upset the financial equilibrium of the
guarantee organisations, however, which cannot have been the Community legislatures intention.
Furthermore, the directive does not provide for an action for indemnity between national guarantee
institutions. (d) In the case of migrant workers the body responsible for paying their claims is not known,
which leads to legal uncertainty and even provides the opportunity for abuse on the part of those workers,
again owing to the above-mentioned absence of an action for indemnity between national institutions.
3
That is, where no institution was required to provide the guarantee.
4
That is, where a number of institutions were required to provide the guarantee under national law.
20.
As regards the contrary argument: (a) The German government contends that the guarantee
institutions in the directive are social security institutions in the wide sense, like those referred to in
Regulation 1408/715. It therefore considers that, if art 13(2)(a) or art 14(2)(b) of that regulation is applied
by analogy, the guarantee should in this case be provided by the Danish institution. (b) At the hearing the
plaintiff in the main proceedings, who did not submit written observations, repeated the arguments which
she had put forward before the national court. She further stated that under a clause in her contract of
employment Danish labour law was also to be taken into account when interpreting that contract.
Furthermore, the plaintiff argued that the Danish institution was competent as the institution of the place
where the work was carried out and the place whose law was applicable, on the basis of Regulation
1408/71 and arts 4(1) and 3(3) of the Convention on the law applicable to contractual obligations (Rome,
19 June 1980; OJ 1980 L266 p 1)6 and also art 5(1) of the Convention on Jurisdiction and the
Enforcement of Judgments in Civil and Commercial Matters 1968.
5
As amended and updated by Council Regulation (EEC) 2001/83 (OJ 1983 L230 p 6).
6
See the Contracts (Applicable Law) Act 1990, Sch 1.
21.
None of the above points of view has convinced me to the extent that I am able to propose that it be
adopted unconditionally. The arguments put forward are certainly not without logic, but they are implicitly
based on certain premises concerning the purpose and meaning of the provisions of the directive which, I
fear, go beyond the letter and the spirit of the law and belong rather to the realm of what ought to be.
22.
The premises on which all the above arguments are based are in my view the following. First, the
premise that the concepts of employer and employee derive from the directive and are valid for all
member states. Secondly, the concept that the scope ratione personae of the directive includes all
employees, within the above meaning, of all insolvent employers, within the meaning of the directive,
within the Community, irrespective of their attachment to a member state. Thirdly, the concept that the
provisions of the directive are sufficiently clear, as regards the determination of the national institution
required to provide the guarantee and the scope of that obligation, for employees to be able to rely on
them directly, even in the absence of national implementing provisions, indeed in spite of any national
provisions to the contrary. Fourthly, and finally, the assumption that, in that context, the Community
legislature intended, in substance, to harmonise national laws relating to the protection of employees in
the event of the insolvency of their employer.
118
23.
I shall argue that none of those premises corresponds with the letter and spirit of the directive. The
lacuna found in the directive as regards the question before the national court is intentional and cannot be
filled by the interpretation proposed by either of the parties. In a case such as that before the national
court it is in the final analysis for the competent authorities and the competent courts of each of the
member states concerned to determine, on the basis of the national provisions, whether the employee is
entitled to the protection of the directive. The resultant lacuna in the protection of employees, or any other
unfavourable consequence for them, is the necessary consequence of the limited objectives of the
gradual harmonisation which the Community legislature has chosen at the current stage in the
development of Community law.
As regards the scope of the directive, moreover, art 1 of the proposal provided that the directive was to
apply to claims arising from employment or training relationships against insolvent employers whose
undertaking or business is situated within the territorial jurisdiction of the Treaty8.
8
The Parliament also adopted the proposal on this point.
Article 2 of the proposal provided that an employer was to be deemed insolvent 9 where proceedings
have been opened under by the laws, regulations and administrative provision of the Member States to
satisfy jointly the claims of creditors, etc (art 2(a)), or where an application for the opening of such
proceedings has been rejected on the grounds of lack of assets (art 2(b)) or where his business has
been closed down due to insolvency10.
9
The expression deemed insolvent was replaced in the actual directive by in a state of insolvency.
10
It will be observed that the proposal failed to establish precisely which authority was to determine, and according to what
rules, that the relevant proceedings had been opened or that an application to open them had been rejected, etc.
As regards the content of the guarantee, the proposal provided in art 3 for payment of salary claims
arising before the onset of the employers insolvency (art 3(a)) and also for payment of certain social
benefits (art 3(b)). It also allowed the member states to limit the guarantee to three months remuneration,
irrespective of any reference period (art 4(a)), while the payment of claims for 119 social benefits could be
limited to those which had arisen during the 12 months preceding the onset of insolvency 11.
11
The Parliament regret[ed] in particular that the Commission had merely adopted minimum rules of protection (para 4 of
the preamble to an opinion) and considered it wholly unacceptable that the guarantee was not extended to claims
arising after the employers insolvency (para 5); finally, taking the view that it was quite unreasonable that the
guarantee should be limited to three months wages (para 6), it proposed a guarantee of six months (see art 4(a) of the
proposal as amended by the Parliament).
It should be particularly noted that the proposal for the directive provided (art 5(b)) that the guarantee
institutions must not be financed by contributions solely from employees; in other words, employees
were to be primarily responsible for financing those institutions 12.
12
In para 7 of the preamble to its resolution, the Parliament considered that under no circumstances [could] there he any
question of asking employees to contribute to the financing of a guarantee fund to cover their legally justified claims
against their employer and, accordingly, it proposed that employers should pay the necessary contributions to cover the
expenditure of the fund, including administrative expenditure (see the amended version of art 5(b)). The Council agreed
to a certain extent, since the directive provides that the guarantee institutions are to be financed by employers and by
the member states (art 5(b)).
26.
Despite being somewhat vague and general, the wording of those provisions, in particular the
preamble and art 1, none the less permits the conclusion, in my opinion, that, in accordance with the
approach adopted when it was being drawn up, the directive sought to apply to all employees,
irrespective of whether they resided in the same member state as the employer, provided that the
employer was established in the territory of the Community.
Furthermore, it follows from the overall wording of the proposal, read in conjunction with the opinion of
the Parliament, that at the preparatory stage the objectives of the directive were just as ambitious as
regards the extent of the protection guaranteed to employees, which, it was envisaged, would be the
same in all member states.
27.
The Council eventually made radical amendments to the proposal.
28.
The amendments are evident even in the preamble. First, while the first recital states that it is
necessary to provide for the protection of employees in the event of the insolvency of their employer, the
second recital states first that differences still remain between the Member States as regards the extent
of the protection of employees in this respect13, before further stating merely that efforts should be
directed towards reducing these differences. For that reason, instead of the harmonization of the
national provisions to which the Commissions proposal referred, the third recital of the preamble to the
directive merely states that the approximation of laws in this field should, therefore, be promoted.
13
The Commission had already pointed that out when it referred to the absence of appropriate institutions in certain
member states (see the fifth recital in the preamble to the proposal for a directive).
As the court has observed (see the judgment in Francovich v Italy Case C-479/93 [1995] ECR I-3843
(para 20) (Francovich II)):
Whilst the legislature considered, in general, that it was necessary to provide for the protection
of employees in the event of the insolvency of their employer, it also limited the specific purpose of
its action to reducing the remaining differences between the Member States as regards the
protection of employees in that respect.
120
29.
As the court said in the same judgment, the restriction which the Community legislature placed on
itself was clearly due both to the intrinsic difficulties generally presented by any effort at harmonising
different national laws undertaken on the basis of art 100 and to the specific difficulties in drawing up
common rules in the particular field concerned. The latter difficulties are explained by the absence of a
definition of insolvency common to the insolvency proceedings of the member states, which, precisely
because of the existing differences14, have thus far proved impossible to harmonise throughout the
Community (see [1995] ECR I-3843 (para 28)).
14
The court had already held in Abels v Administrative Board of the Bedrijfsvereniging voor de Metaalindustrie en de
Electrotechnische Industrie Case 135/83 [1985] ECR 469 (paras 1617) that the specificity of insolvency law,
encountered in all the legal systems of the Member States, is confirmed in Community law [and] was reflected in
[inter alia] the adoption of Council Directive No 80/987, before going on to observe that the rules on liquidation
proceedings and analogous proceedings are very different in the various Member States.
30.
Consequently, the Community legislature sought, by adopting the directive, to promote a partial
harmonisation, or a gradual harmonization, of national provisions relating to the protection of employees
in the event of the insolvency of their employer (see [1995] ECR I-3843 (paras 20, 27)). In other words,
the directive represents the first step towards the harmonisation of national laws in this field.
31.
That the Community legislature opted in favour of partial or gradual harmonisation is confirmed by the
wording of the directive on two fundamental points, namely its scope and the extent to which employees
are to be protected, that is to say, the content of the guarantee.
After pointing out that under Article 2(2) of the directive the definition of employee is a matter of
national law ([1993] ECR I-6911 (para 11)), the court observed (para 12):
It follows that the directive on the insolvency of employers is intended to apply to all categories
of employee defined as such by the national law of a Member State, with the exception of those
listed in the Annex to the directive.
122
On the basis of those considerations, the court gave the following reply to the national court ([1993]
ECR I-6911 (para 14)):
higher management staff may not be excluded from the scope of Directive 80/987/EEC
where they are classified under national law as employees and they are not listed in section I of the
Annex to the directive.
39.
According the judgment in Francovich II [1995] ECR I-3843 (para 14), however, a finding to that effect
is not sufficient to bring a person within the category of persons entitled to the guarantee. As I have
already had occasion to point out, it constitutes a first step by the national court in bringing the person
concerned within the scope of the directive (see my opinion [1995] ECR I-3843 (para 22)). To follow its
reasoning to a conclusion the court will also have to take account of the employers situation.
Therefore, since Article 2(2) [of the directive] refers to national law for the definition of the concepts of
employee and employer, the national court will also have to determine, first, whether the employer
actually referred to is regarded as an employer in national law and, secondly, whether the employer is
insolvent within the meaning of the directive (see the judgment in Francovich I [1991] ECR I-5357 (para
13)).
40.
As regards the latter condition, the court, when defining art 2 of the directive, held as follows (see
Francovich II [1995] ECR I-3843 (paras 1819)):
(18) It is clear from the terms of Article 2 that in order for an employer to be deemed to be in a
state of insolvency, it is necessary, first, that the laws, regulations and administrative provisions of
the Member State concerned provide for proceedings involving the employers assets to satisfy
collectively the claims of creditors; secondly, that employees claims resulting from contracts of
employment or employment relationships may be taken into consideration in such proceedings;
thirdly, that a request has been made for the proceedings to be opened; and, fourthly, that the
authority competent under the said national provisions has either decided to open the proceedings
or established that the employers undertaking or business has been definitively closed down and
that the available assets are insufficient to warrant the opening of the proceedings.
(19) It thus appears that the Community legislature has expressly limited the scope of the
directive so that the rights which it introduces cannot be relied upon by employees whose contract
of employment or employment relationship is with an employer who cannot, under the provisions in
force in the Member State concerned, be subject to proceedings to satisfy collectively the claims of
creditors. Such an employer cannot be in a state of insolvency within the specific meaning of that
phrase as used in the Directive.
41.
On that basis, the court rejected an argument advanced by the Commission, among others, to the
effect that the directive was intended to protect all employees with the sole exception of those referred to
in the annex (see my opinion in Francovich II [1995] ECR I-3843 (para 21)). More precisely, the court held
that
(20) Although the literal interpretation of Article 2 of the Directive may mean that the protection
afforded by the Directive varies from one Member State to another as a result of differences
between the various national rules 123 governing proceedings to satisfy collectively the claims of
creditors, it cannot be rebutted by arguments based on the aim set out in the first recital in the
preamble. Whilst the legislature considered, in general, that it was necessary to provide for the
protection of employees in the event of the insolvency of their employer, it also limited the specific
purpose of its action to reducing the remaining differences between the Member States as regards
the protection of employees in that respect. That literal interpretation is thus consistent with the
partial harmonization pursued by the Directive.
(21) the Directive is to be interpreted as applying to all employees, other than those in the
categories listed in the annex thereto, whose employers may, under the applicable national law, be
made subject to proceedings involving their assets in order to satisfy collectively the claims of
creditors. (See the judgment in Francovich II [1995] ECR I-3843 (paras 2021).)
42.
It may be inferred from the foregoing, first, that the directive does not contain a Community concept of
employer and employee which can be applied uniformly in all member states. The content of those
concepts expressly falls to be determined by the member states. For the purpose of applying the directive
those concepts must be taken in the sense which they have in each national legal order 16.
16
This technique is common in secondary Community legislation. See de Jaeck v Staatssecretaris van Financin Case C-
340/94 [1997] ECR I-461 (paras 19, 23 and 24ff), where the court held that the concepts of employed person and paid
employment as used in Council Regulation (EEC) 1408/71 on social security for migrant workers (OJ S Edn 1971(II) p
416) are to be regarded as referring to the definitions given them by member states social security legislation, that they
are independent of the nature of the activity for the purposes of employment law and, furthermore, that they do not refer
to the Community concept of worker as used in art 48 of the Treaty.
Secondly, it follows from what I have said above that the aim of the directive is not to protect all
employees without exception, as the parties see in, wrongly, to believe, but only those who (a) are
regarded as employees in national law and (b) are not expressly excluded from the benefit of the
directive, provided that they have a relationship with employers who (c) are regarded as such in national
law and (d) are insolvent within the meaning of the directive.
Thirdly, it is impossible to determine solely on the basis of the directive whether or not a particular
person comes within its scope. That falls to be determined by the national court in the context of national
law.
17
In his opinion in that case, Advocate General Lenz observed that in Francovich I [1991] ECR I-5357 the court took the
view that despite being sufficiently precise and unconditional as regards determining the categories of persons entitled
to the guarantee and as regards the content of the guarantee, the provisions of the directive did not identify the person
liable to provide the guarantee and, accordingly, the persons concerned could not rely directly on those provisions in the
absence of transposition measures. The Advocate General therefore considered whether the existence of a guarantee
institution in Spain conferred direct effect on the provisions of the directive. He came to the conclusion that it did not,
since direct effect must derive from the rule itself, having regard to its context, and not from the law of a member state
(see [1991] ECR I-5357 (paras 1216). I support that argument. I also believe that in the Wagner Miret judgment the
court clearly supported it, albeit by implication, since it did not consider that the national provision which excluded the
person concerned from the protection could or should be set aside on the basis of the directive.
48.
The Wagner Miret case, like the Francovich cases, concerned claims by employers who were subject
to the jurisdiction of the same member state as their employers. The judgments delivered by the court,
especially in the Wagner Miret case, indicate that the directive does not itself determine the obligations of
the guarantee institutions, but requires the member states to do so in their implementing measures.
Consequently, it is impossible to determine on the basis of the provisions of the directive in themselves
whether and to what extent a national guarantee institution is required to ensure payment of outstanding
claims, whether for a certain category of employees or for certain employees. Even where, in objective
terms, they come within the scope of the directive, such employees cannot rely on its provisions to require
an institution to provide the guarantee to them where the measures adopted to transpose the directive do
not so provide; where the directive has not been properly transposed, however, they are entitled to
request reparation from the negligent member state.
49.
Consequently, where it is impossible to determine on the basis of the directive alone whether an
institution (which I shall presume has already been constituted) is obliged to ensure the guarantee where
both employer and employee come within the jurisdiction of the same member state, it is a fortiori
impossible to determine whether that institution is required to provide the guarantee where the
competence of the member state extends only to the employer or only to the employee. Accordingly,
where employer and employee are subject to the jurisdiction of different member states, as appears to be
the case here, it is also impossible to say which of the institutions involved is required to provide the
guarantee provided for in the directive.
50.
On the basis of those considerations, if the question referred for a preliminary ruling were to be strictly
interpreted, it would be necessary to give a reply such as: In a situation such as that in the main
proceedings, the employees claim must be paid by the guarantee institution of the member state on
which the obligation to do so is imposed by national law.
51.
Clearly, such a reply would be neither useful nor satisfactory to the national court, since it would
immediately beg the following question: Where there is no body which is competent, which member state
must, to apply the directive properly, ensure payment of the claim in circumstances such as those in the
main proceedings? Consequently, the question referred by the national court is in substance as follows:
126
In a situation such as that in the main proceedings, where the employer is established and has
been declared insolvent in one Member State, while the employee resides and works in another
Member State, does the directive require one of the two Member Statesand if so, which to
guarantee, by means of the measures adopted to transpose it, payment of the employees
claims?18
18
In all logic, this question consists of two parts: the first concerns Danish law and the answer must be such that the court
making the reference is able to determine the main dispute, and the other concerns English law and there is no need to
answer it from that point of view. Since, however, the question in its entirely lends itself better to a complete
interpretation of the directive, I shall consider both parts together.
52.
As thus reformulated, the question, if I interpret it properly, raises the problem of the scope rationae
territoriae of the directive.
According to the provisions of the directive, in the light of its purpose, its scope ratione territoriae to my
mind corresponds with the limits of the jurisdiction of each member state. In other words, the directive is
addressed to each member state and requires it to guarantee, by means of institutions envisaged for that
purpose, payment of employees claims against insolvent employers in so far as employees and
employers come within its jurisdiction19. Anything going beyond this is not a requirement but is authorised
by the directive as a measure which is more favourable to employees, within the meaning of art 9.
19
That is to say, in principle, but not necessarily, employers and employees established in the territory of the member
state.
53.
It should be pointed out at the outset that the reference to increasing economic interdependence
across national boundaries in the preamble to the proposal disappeared from the wording of the directive,
as did the criterion in art 1 of the proposal, which provided that the scope of the directive was to be
determined by reference to whether the undertaking or business was situated within the territorial
jurisdiction of the Treaty (see para 25, above). If it may therefore be inferred from its wording that the
proposal sought also to cover claims arising under employment relationships of an international nature, as
I maintained in para 26, above, then the removal or amendment of the corresponding points necessarily
means that the Community legislature abandoned that intention.
54.
Secondly, it should be observed that in arts 1 and 2 of the directive the scope ratione materiae
(employees outstanding claims, etc) is defined in conjunction with its scope ratione personae. Moreover,
to determine whether an employee comes within the scope ratione personae of the directive, the national
court must examine, as we have seen, first, whether the employee is regarded as such by national law
and does not conic within one of the categories excluded by the Annex to the directive and, secondly,
whether there is an employer within the meaning of national law and whether that employer is in a state of
insolvency within the meaning of the directive (see para 42, above). In so far as both these questions fall
to be resolved on the basis of the same national law, it is logical to conclude that the Community
legislature had in mind employees and employers subject to the same national law.
55.
It should be observed, thirdly, that the member states option, pursuant to arts 4 and 10 of the
directive, to limit the guarantee institutions obligations to pay in various ways presupposes an evaluation
of the economic and social conditions and the employment relationships which as a rule develop within a
single state. 127If the directive had intended to require member states also to cover claims arising from
employment relationships with transfrontier characteristics it would undoubtedly have established a
system for the co-ordination of the corresponding provisions of the member states, and in particular a
scheme for the adaptation of the guarantee which took account of the conditions in force in the place
where the guarantee is actually to be provided.
56.
Fourthly, tile method of financing the guarantee institutions, within the meaning of art 5, leads to the
same conclusion. There is no doubt that the Community legislature had in mind financially balanced
organisations, that is to say organisations whose income would cover expenditure, so that they would be
in a position to meet their obligations. Income also includes financing by employers and/or the member
state, while the principal expenditure and obligation consist in providing the guarantee to employees.
Furthermore, the financial balance of any system of this type depends to a large extent on being able to
foresee the date and amount of income and expenditure and also, of course, their implementation.
Clearly, such a balance can only be struck in the context of one and the same national law. In fact, in the
absence of express provisions in the directive, in a case such as this employers subject to the jurisdiction
of another state cannot be obliged to contribute to the financing of the guarantee institution of the state
under whose jurisdiction the employee comes, nor can the institution of the first state be required to settle
the claims of employees coming within the jurisdiction of another state, which it therefore did not foresee.
No support for the opposite argument is to be found in art 5(c) of the directive, since that provision in
reality severs the link between the guarantee institutions obligation to make payment and the actual
payment of employers contributions and does not refer to the employers statutory obligation to contribute
to the financing of the institutions as imposed by the state.
57.
Finally, it is necessary to consider arts 6 to 8 of the directive, which form part of Section III, entitled
Provisions concerning social security. Those articles establish a link between the guarantee institutions
obligation to pay and the national social security or provident schemes. They thus require coordination
between the guarantee institutions and the national social security schemes which is only practicable in
the context of the national law of each member state. It follows from art 6, for example, that the obligation
imposed on the guarantee institutions under arts 3 and 5 of the directive also generally extends to the
contributions payable by employees to national social security or provident schemes. All that
presupposes, logically, that employers and employees are subject to the same national social security
scheme and to the same guarantee institution. Furthermore, the guarantee institution and the social
security scheme must come within the jurisdiction of the same member state and, accordingly, employers
and employees must also be subject to the jurisdiction of that state.
58.
To my mind, it must be inferred from the foregoing that the scope ratione territoriae of the directive
coincides with the limits of the jurisdiction of each member state. That solution is consistent with both the
letter and the purpose of the directive, which was limited to a partial harmonisation of national laws
applicable in the event of the insolvency of the employer.
Were a contrary solution, that is one or other of those proposed by the parties, to be adopted, even
adapted to the true meaning of the question referred as reformulated, that would presuppose a
coordination of member states insolvency laws, labour laws and social security laws, not to mention
private 128 international law, which is completely extraneous to the purposes of the directive.
59.
That, moreover, is the solution which the court has adopted in the case of other directives designed to
approximate national laws.
When interpreting the Council Directive (EEC) 77/388 on the harmonisation of the laws of the member
states relating to turnover taxesCommon system of value added tax: uniform basis of assessment (OJ
1977 L145 p 1), the court has held that the territorial scope of the directive coincides, in the case of each
member state, with the scope of its value added tax legislation 20, but that
20
See the judgment in Berkholz v Finunzamt Hamburg-Mitte-Altstadt Case 168/84 [1985] ECR 2251 (para 16).
[the directive] in no way restricts the freedom of the Member States to extend the scope of their
tax legislation beyond their normal territorial limits, so long as they do not encroach on the
jurisdiction of other States. (See the judgment in Trans Tirreno Express SpA v Ufficio Provinciale
IVA Case 283/84 [1986] ECR 231 (para 20).)
Therefore, whilst the directive obliges member states to tax services which are provided in their
territory it does not oblige them to tax services provided on a ship in international waters, even where the
ship is travelling between two points in the national territory 21, although it is true that it does not prevent
them from doing so (see [1986] ECR 231 (para 21)).
21
See the judgment in EC Commission v France Case C-30/89 [1990] ECR I-691.
Similarly, in a judgment on the interpretation of Council Directive (EEC) 77/143 on the approximation of
the laws of the member states relating to roadworthiness tests for motor vehicles and their trailers (OJ
1977 L47 p 47), the court considered that that directive is based on the premiss that a member state can
only undertake direct supervision of testing establishments which are situated on its own territory and
that, because of the incomplete harmonisation of the criteria for testing, it is required under certain
conditions to recognise test certificates issued in other member states (see the judgment in Criminal
proceedings against van Schaik Case C-55/93 [1994] ECR I-4837 (paras 2022)).
60.
Lastly, it should be pointed out that the directive governs a particular question, so that it cannot be
interpreted by analogy, in the light of other particular provisions, such as the measures on which the
plaintiff and the German government relied. Moreover, those measures predate the directive, and if the
Community legislature had intended to refer to them it would have expressly said so in the directive.
Furthermore, the obligations which the directive imposes on member states are mandatory and cannot be
altered by private law agreements such as the contract of employment to which the plaintiff refers.
61.
I shall now examine the consequences of the solution which I propose to the court in the present case.
That solution implies that every member state must ensure the guarantee to all employees coming within
its jurisdiction, provided that they come within the scope of the directive. The directive does not require
states to extend the guarantee to other categories of employees over and above those who, strictly
speaking, are subject to its jurisdiction, but it does not prevent them from doing so. The national courts of
each member state are responsible, where necessary, for determining whether the person concerned
satisfies the conditions which bring him within the scope of the directive from the point of view described
above.
129
Where the court finds that the person concerned is covered by the directive it will then consider
whether the national institution ensures him the guarantee owing to him. Where the provisions relating to
the national institution do not provide for the cover of his outstanding claims 22 the employee has a right to
reparation.
22
It is possible, of course, that in a case such as the present one the national provisions of a member state will not regard
as employees persons employed in another member state in situations such as that of the plaintiff, while the provisions
of the state in which the employee carries out his activity will not regard an undertaking such as Colorgen as an
employer. In that case the employee will not benefit from the guarantee, since in each of the legal orders involved he
will fail to satisfy a substantive condition of the directive. That should come as no surprise. Such an eventuality may
arise even in the context of a single national legal order (as in Francovich II) and is explained by the limited objectives of
the directive. It may also happen that both states offer to provide the guarantee. That eventuality falls outside the
framework of the directive, however, and where necessary must be examined in the context of the national legislation of
each state.
62.
The order for reference does not say clearly whether Mrs Mosbk is subject to Danish law and
whether she is to be regarded as an employee for the purposes of Danish law. It follows from the terms
of the order, however, read in conjunction with the written and oral submissions of the representative of
the Danish institution, which have not been challenged, that Colorgen, the plaintiffs employer, does not
come under Danish law and cannot therefore be regarded as an employer for the purposes of Danish
law. If that is so the Kingdom of Denmark cannot be regarded as having infringed the directive on the
ground that it did not make provision for Mrs Mosbaeks claim to be settled by the Danish guarantee
institution. Consequently, the plaintiff has no right under Danish law to the guarantee or to reparation.
63.
On the other hand, the UK government stated in its written observations and at the hearing that Mrs
Mosbaek is entitled to the guarantee under English law which is not contrary to the directive.
I do not know to what extent that statement is binding on the UK guarantee institution and the courts in
the United Kingdom which may be called upon to resolve the plaintiffs case. In any event, the answer to
that question is not necessary for the solution to be provided to the dispute before the national court and,
consequently, the court need not concern itself with it.
VI CONCLUSION
64.
I therefore propose that the question referred to the Court of Justice be answered as follows:
Council Directive (EEC) 80/987 on the approximation of the laws of the member states relating
to the protection of employees in the event of the insolvency of their employer is to interpreted as
meaning that it does not require a member state to provide an employee with the guarantee
provided for in the directive where the employee or his employer is not subject to its jurisdiction or
where the employer or the employee is not recognised as such by national law. In a case such as
that in the main proceedings, where the employer is established and has been declared insolvent in
one member state, while the employee resides and works in another member state, it is for the
national courts of each member state concerned to determine whether, in those circumstances, the
employee must be regarded under the corresponding national law as coming within the scope of
the directive.
130
17 September 1997.
Costs
28.
The costs incurred by the German, French and UK governments and by the European Commission,
which have submitted observations to the Court of Justice, are not recoverable. Since these proceedings
are, for the parties to the main proceedings, a step in the action pending before the national court, the
decision on costs is a matter for that court.
On those grounds, Court of Justice (Fifth Chamber), in answer to the question referred to it by the
stre Landsret by order of 27 March 1996, hereby rules: where the employer is established in a member
state other than that in which the employee resides and was employed, the guarantee institution
responsible, under art 3 of Council Directive (EEC) 80/987 on the approximation of the laws of the
member states relating to the protection of employees in the event of the insolvency of their employer, for
the payment of that employees claims in the event of the employers insolvency is the institution of the
state in which, in accordance with art 2(1) of the directive, either it is decided to open the proceedings for
the collective satisfaction of creditors claims or it has been established that the employers undertaking or
business has been closed down.
134
The plaintiff, an Italian national, concluded a franchising contract with the defendant, an Italian company,
with a view to setting up and operating a shop in Mnchen to sell the latters dental hygiene products. In
return for exploiting the defendants trademark the plaintiff undertook, inter alia, to equip the shop at his
own expense, stock only the defendants products and pay a fee of Lit 8m. A clause of the contract
provided that the courts of Florence were to have jurisdiction to entertain any dispute relating the
interpretation, performance or other aspects of the contract. The plaintiff set up the shop and paid the
initial fee, but failed to pay for goods purchased from the defendant and subsequently ceased trading.
Thereafter, the plaintiff brought proceedings in the Landgericht, Mnchen I seeking to have the
franchising contract declared vodkas a whole under German law. He contended that the German court
had jurisdiction under art 5(1)1 of the Convention on Jurisdiction and the Enforcement of Judgments in
Civil and Commercial Matters 1968, since (a) his action sought to have the whole of the contract,
including the clause conferring jurisdiction exclusively on the Italian courts, declared void, and (b) the fact
that he not yet started trading meant that he should be regarded as a consumer for the purposes of arts
132 and 14 of the 1968 convention, and could therefore choose whether to bring the action in the German
or Italian courts. The Landgericht declined jurisdiction on the grounds that the exclusive jurisdiction clause
was valid under art 17c of the 1968 convention, which set out the conditions for concluding such clauses.
The plaintiff appealed to the Oberlandesgericht, Mnchen, which stayed the proceedings and referred to
the Court of Justice of the European Communities for a preliminary ruling the questions: (i) whether,
under arts 13 and 14, a person who had concluded a contract with a view to pursuing a trade or
profession in the future could be regarded as a consumer; and (ii) whether the courts of a 135 contracting
state which had been designated in a jurisdiction clause validly concluded under art 17 also had exclusive
jurisdiction where the action sought a declaration that the entire contract containing that clause was void.
1
Article 5(1), so far as material, provides: A person domiciled in a Contracting State may, in another Contracting State,
be sued: (1) in matters relating to a contract, in the courts for the place of performance of the obligation in question
2
Article s 13 and 14, so far as material, are set out at p 150 g h, post
3
Article 17, so far as material, is set out at p 153 c, post
Held (1) The definition of consumer in art 13 of the 1968 convention only applied to a private final
consumer, who was not engaged in trade or professional activities. Accordingly, only contracts concluded
for the purpose of satisfying an individuals own private consumption came within the scope of those
provisions, which were designed to protect the consumer as the economically weaker party. Moreover,
that protection applied only to contracts concluded outside and independently of any trade or professional
activity or purpose, whether present or future. It followed that a plaintiff who had concluded a contract with
a view to pursuing a trade or profession in the future, could not be regarded as a consumer for the
purposes of arts 13 and 14 (see p 152 c f h and p 154 g, post); Shearson Lehman Hutton Inc v Treuhand
fr Vermgensverwaltung und Beteiligungen (TVB) mbH Case C-89/91 [1993] ECR I-139 applied.
(2) A jurisdiction clause which served a procedural purpose was governed by the provisions of the
1968 convention establishing uniform rules of international jurisdiction. Article 17 set out to designate,
clearly and precisely, a court in a contracting state which was to have exclusive jurisdiction in accordance
with the consensus formed between the parties to a contract, which was to be expressed in accordance
with the strict requirements as to form laid down therein. The legal certainty which that provision sought to
secure could easily be jeopardised if one party to a contract could frustrate that rule by claiming that the
whole of the contract was void under the applicable substantive law. It followed that the courts of a
contracting state which had been designated in a jurisdiction clause validly concluded under art 17 also
had exclusive jurisdiction where the action sought, in particular, a declaration that the entire contract
containing that clause was void (see p 153 d j and p 154 d h, post); Effer SpA v Kantner Case 38/81
[1982] ECR 825 considered.
Per curiam. It is for the national court to determine whether the clause invoked before it, which refers
to any dispute relating to the interpretation, performance or other aspects of the contract, also covers
any dispute relating to the validity of the contract (see p 154 c, post); Powell Duffryn plc v Petereit Case
C-214/92 [1992] ECR I-1745 applied.
Notes
For the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
1968, arts 13, 14, 17 (as set out in Sch 1 of the Civil Jurisdiction and Judgments Act 1982), see 11
Halsburys Statutes (4th edn, 1991 reissue) 1142, 1143, 1145.
Cases cited
Bertrand (Socit) v Paul Ott KG Case 150/77 [1978] ECR 1431.
Dumez France v Hessische Landesbank (Helaba) Case C-220/88 [1990] ECR I-49.
Effer SpA v Kantner Case 38/81 [1982] ECR 825.
El Corte Ingls SA v Blzquez Rivero Case C-192/94 [1996] I-1281.
Handte & Cie GmbH v Traitements mcano-chimiques des surfaces (TMCS) Case C-26/91 [1992] ECR I-
3967.
Mainschiffahrts-Genossenschaft eG (MSG) v Les Gravires Rhnanes SARL Case C-106/95 [1997] All
ER(EC) 385, [1997] ECR I-911, ECJ.
136
Mulox IBC Ltd v Geels Case C-125/92 [1993] ECR I-4075.
Powell Duffryn plc v Petereit Case C-214/92 [1992] ECR I-1745.
Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgalis Case 161/84 [1986] ECR 353.
Sanders v van der Putte Case 73/77 [1977] ECR 2383.
Shearson Lehman Hutton Inc v Treuhand fr Vermgensverwaltung und Beteiligungen (TVB) mbH Case
C-89/91 [1993] ECR I-139.
Reference
By order of 5 May 1995, the Oberlandesgericht (the Higher Regional Court), Mnchen referred to the
Court of Justice of the European Communities for a preliminary ruling under the Protocol of 3 June 1971
on the interpretation by the Court of Justice of the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 1968, as amended, three questions (set out at p 151 a to d,
post) on the interpretation of arts 13, 14 and 17 of that convention. Those questions were raised in
proceedings between Dentalkit Srl, having its seat in Florence, and Mr Benincasa, an Italian national,
relating to the validity of a franchising contract concluded between them. Written observations were
submitted on behalf of: Mr Benincasa, by R Bhner, Rechtsanwalt, Mnchen; Dentalkit, by A von
Kuhlberg, Rechtsanwalt, Mnchen; the German government, by J Pirrung, Ministerialrat in the Federal
Ministry of Justice, acting as agent; and the European Commission, by P van Nuffel, of its Legal Service,
acting as agent; and H-J Rabe, Rechtsanwalt, Hamburg. Oral observations were made by: Mr Benincasa,
represented by R Bhner; and the Commission, represented by M Nez-Mller, Rechtsanwalt,
Hamburg. The language of the case was German. The facts are set out in the opinion of the Advocate
General.
20 February 1997.
Question 1
24.
To answer the first question from the national court, the Court of Justice must decide whether a
franchise agreement signed by a person who has not previously carried on a business should be
classified as a contract for a purpose which can be regarded as being outside his trade or profession,
within the meaning of art 13 of the Brussels Convention.
25.
I shall begin by examining franchise agreements and go on to consider the courts case law relating to
the term consumer contracts in art 13 of the convention. This will lead to my conclusion that the term is
not applicable to agreements of that kind.
Franchise agreements
26.
Franchise agreements are a widespread form of business arrangement whereby one undertaking, the
franchiser, grants to another, the franchisee, the right to exploit its own system for marketing goods or
services.
27.
Natural or legal persons who act as franchisers normally establish a network of franchises in a
particular field of commerce. They offer to include future franchisees in the network, by concluding a
contract setting out the principal stipulations of the bilateral agreement. In most cases this a standard-
form contract.
28.
The franchisee is legally independent. He is a genuinely independent trader carrying on his own
business and engaging in commercial transactions (he purchases goods from his supplier for resale to his
customers).
29.
The Court of Justice considered this form of business from the viewpoint of freedom of competition in
its judgment in Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgalis Case 161/84 [1986]
ECR 353, which relates to atypical distribution franchise agreements under which the franchisee merely
sells certain products in a shop which bears the franchisers business name.
141
30.
In that judgment the court outlined the main features of the relationship between franchisers and
franchisees, stressing that the latter are independent traders ([1986] ECR 353 (para 15)):
In a system of distribution franchises of that kind, an undertaking which has established itself as
a distributor on a given market and thus developed certain business methods grants independent
traders, for a fee, the right to establish themselves in other markets, using its business name and
the business methods which have made it successful. Rather than a method of distribution, it is a
way for an undertaking to derive financial benefit from its expertise without investing its own capital.
Moreover, the system gives traders who do not have the necessary experience access to methods
which they could not have learned without considerable effort and allows them to benefit from the
reputation of the franchisers business name. (My emphasis.)
31.
Article 1 of Commission Regulation (EEC) 4087/88 on the application of art 85(3) of the Treaty to
categories of franchise agreements (OJ 1988 L359 p 46) also presumes that a franchise agreement is
entered into by two undertakings, that is to say two economic entities operating on a commercial basis 4.
4
Article 1 defines a franchise as a package of industrial or intellectual property rights relating to trade marks, trade
names, shop signs, utility models, designs, copyrights, know-how or patents, to be exploited for the resale of goods or
the provision of services to end users. A franchise agreement is defined as an agreement whereby one undertaking,
the franchiser, grants the other, the franchisee, in exchange for direct or indirect financial consideration, the right to
exploit a franchise for the purposes of marketing specified types of goods and/or services.
40.
Contrary to the appellants viewwhich was expounded at greater length during the oral procedureI
certainly do not consider that the court should disregard or water down the traditional principle of
autonomous interpretation of the terms, including consumer, used in the convention.
41.
In my opinion, the autonomous interpretation of consumer to which I referred in connection with the
judgment in Shearson Lehman Hutton is preferable 143 to an interpretation which relies on national law,
and there are two reasons for that view: (a) national legislation need not coincide from one state to
another and may differ slightly in certain respects, depending on the particular case. To rely on one body
of legislation rather than another (and what would be the criterion for making the choice?) would prejudice
the legal certainty which the Brussels Convention aims to ensure; (b) the same national legislation may
contain different definitions consumer, depending on the field of law in which they occur.
42.
In the opinion of counsel for the appellant, the court should give primacy to the German definition of
consumer deriving from the German Law on consumer credit (the Verbraucherkreditgesetz) 6, which
confers the status of consumers upon persons applying for credit in order to pursue an activity which they
had not previously taken up.
6
One of the grounds of the appellants action in the German court of first instance was that that law applied by analogy to
franchise agreements.
43.
I do not agree with that argument: it is also opposed by the German government itself which, in its
written observations, points out that that wider definition of consumer was expressly and intentionally
formulated by the national legislature to go beyond the minimum standard laid down by Council Directive
(EEC) 87/102 for the approximation of the laws, regulations and administrative provisions of the member
states concerning consumer credit (OJ 1987 L42 p 48), which the Law on consumer credit was intended
to implement so as to offer consumers a higher level of protection than that provided for by the
Community measure.
44.
According to the German government, the Community definition of consumer in Directive 87/102 7
excludes not only persons who are parties to contracts relating to a trade or profession already taken up
(in the actual words of the Law on consumer credit), but also generally persons who are parties to
contracts which are concluded for the purpose of a trade or profession.
7
This is also the criterion used in Council Directive (EEC) 93/13 on unfair terms in consumer contracts (OJ 1993 L95 p
29), art 2 of which defines consumer as any natural person who, in contracts covered by this Directive, is acting for
purposes which are outside his trade, business or profession, whereas dealer or supplier means any natural or legal
person who, in contracts covered by this Directive, is acting for purposes relating to his trade, business or profession,
whether publicly or privately owned.
45.
In the same observations, the German government adds that in its legal system a narrower definition
of consumer is used in other consumer protection measures: for example, the Law on the cancellation of
doorstep sales (the Haustrwiderrufsgesetz).
46.
All this merely confirms the necessity to adhere to the autonomous interpretation of the definition of
consumer in art 13 of the Brussels Convention, which need not be linked to the definitions used in
individual cases in the respective national legal systems.
47.
Finally, the view I have just put forward is not contradicted by the inclusion in the EC Treaty of a new
Title XI8 on consumer protection, in which art 129a lays down a high level of consumer protection as an
objective of the Community. First, the legal scope of that provision is limited 9 and, secondly, art 129a(3)
expressly permits member states to maintain or introduce more stringent protective measures. It follows
logically that the Community level of 144 protection need not be identified with the level obtaining in one
or more of the member states.
8
Added by art G.38 of the Treaty on European Union (Maastricht, 7 February 1992; TS 12 (1994); Cmnd 2485; OJ 1992
C191 p 1).
9
According to para 19 of the judgment in El Corte Ingls SA v Blzquez Rivero Case C-192/94 [1996] I-1281. In para 20
of the same judgment the court stated that art 129a merely assigns an objective to the Community and confers powers
on it to that end without also laying down any obligation on member states or individuals.
48.
To sum up, it is in my view necessary to uphold the autonomous interpretation of the term consumer
used in the Brussels Convention, as the court did in the judgment in Shearson Lehman Hutton, which
means that the term must be limited to private final consumers not acting in the capacity of parties to
contracts concerning their trade or professional activities.
49.
Sometimes, no doubt, franchisees do not have previous business experience, but this does not justify
describing the activity covered by the franchise agreement as being outside a trade or profession. It is
precisely the activity in question and not, I emphasise, the existing personal circumstances of the party to
the agreement which was the factor taken into account when special rules of jurisdiction in relation to
certain contracts were laid down in art 13 of the convention.
50.
Therefore, the wording of art 13 does not permit it to be extended to cover any contract, irrespective of
its subject matter and purpose, in which an economically weaker party is faced by a party in a position
which is objectively superior or superior by reason of the circumstances.
51.
Contracting parties are not normally in a position of equality in the area of business relationships, but
that does not mean that contracts of that kind, including standard-form contracts, entered into by
businessmen benefit from the special rule in art 13. Although that provision aims to protect the weaker
party in a contractual relationship, its scope is limited to contracts in which one party is acting for
purposes unrelated to a business activity, that is to say as a private final consumer, not engaged in trade
or professional activities.
52.
In other words, the mere fact that one of the parties to a contract concluded with a view to the pursuit
of a trade or professional activity or in the course of such activities is in an inferior position, as in the case
of franchise agreements, is not regarded by the Brussels Convention as requiring special protection in
relation to the attribution of jurisdiction.
53.
Therefore I consider that the courts reply to the first question should be that art 13 of the Brussels
Convention does not apply to a contract such as that in the present case.
Question 2
54.
The national courts second question falls to be answered only if the courts reply to the first is that art
13 of the Brussels Convention does apply to a contract such as that in the present case. In view of my
proposed reply to the first question, it is unnecessary, in my opinion, to answer the second.
55.
Should the court find that art 13 is applicable, it will have to reply to the second question from the
Oberlandesgericht Mnchen concerning the interpretation of point 1 of the first paragraph of art 13,
relating to the sale of goods on instalment credit terms.
56.
Specifically, the national court asks whether or not the legal concept contract for the sale of goods on
instalment credit terms covers a franchise agreement under which one party undertakes to buy from the
franchiser, over a 145 period of three years, the articles and goods required to equip and operate a
business, without instalment credit terms having been agreed. In that connection the franchisees only
obligations are to pay an initial fee and, as from the second year, a licence fee of 3% of his turnover.
57.
The significance of the second question lies in the fact that art 13 not only requires the contract to
have been concluded for a purpose which can be regarded as being outside any trade or profession, but
also requires it to belong to one of the three categories described in points 1, 2 and 3 of the first
paragraph, point 1 being contracts for the sale of goods on instalment credit terms.
58.
In my view, the reply to this question must also be in the negative. Contracts for the sale of goods on
instalment credit terms cannot be confused with other contracts which, although entailing successive
obligations, possess features quite different from those of a sale on instalment credit terms.
59.
In the present case, the national court itself observes that the instalment credit rules do not apply to
the purchases which the franchisee undertakes to make from the franchiser during the three-year term of
the agreement, which makes no provision for the payment of instalments for the goods on successive,
predetermined dates.
60.
The fact that a contract provides for successive obligations to be performed by one or both parties
does not in itself justify treating it as a sale of goods on instalment credit terms.
61.
The periodical purchases which the franchisee has to make under a franchise agreement are the
consequence or effect of the initial contract which, as such, bears no resemblance at all to a sale on
instalment credit terms for the purpose of art 13.
62.
Furthermore, those periodical purchases are not in this case even subject to provisions relating to the
sale of goods on instalment credit terms.
63.
Still less can it be concluded from the fact that the franchisee has to pay at regular intervals a sum
equal to 3% of his annual turnover for the use of the franchisers business names that there is a sale of
goods on instalment credit terms. It is quite clear that in such circumstances no bilateral contract for the
sale of goods exists, whether by instalments or for cash.
64.
Consequently, if a reply is required to the second question, in my opinion the court should answer in
the negative.
Question 3
65.
The third question is wider in scope. In essence, the national court asks whether, pursuant to the first
paragraph of art 17 of the Brussels Convention, the court with exclusive jurisdiction designated by the
parties in a jurisdiction clause 16 is also competent to adjudicate in an action for the annulment of the
contract containing the jurisdiction clause.
66.
Let me begin with two points which seem to me important: (a) it is not disputed that the jurisdiction
clause in the agreement in question meets the formal requirements of art 17 of the convention 10; (b) the
jurisdiction clause is in the most general terms possible, as it relates to any dispute concerning the 146
interpretation, performance or other aspect of this contract, and it is stipulated that any such dispute must
be brought before the courts of Florence.
10
Nor is it disputed that the clause complies with the formal requirements of Italian law as it is a contractual stipulation
separately approved in accordance with arts 1341 and 1342 of the Italian Codice Civile. In any case, there is no
question here of applying national law, whether Italian or German: the issue is whether the clause complies with the
Brussels Convention.
67.
In my view, an agreement conferring jurisdiction such as that in the present case, which is formally
valid under the convention and has been stipulated by the parties in order to settle future differences of
any kind concerning any aspect of the contract, is applicable to any legal disputes which may arise,
including those relating to the requirements for the validity of the contract containing the jurisdiction
clause.
68.
In its judgment in Effer SpA v Kantner Case 38/81 [1982] ECR 825 the court examined a similar
problem relating to the ambit of art 5 of the convention. The question in that case was whether the courts
for the place of performance of the contract had jurisdiction when the dispute between the parties
concerned the very existence of the main contract or the conditions for its formation.
69.
The court found that the national courts jurisdiction to determine questions relating to a contract
included the power to consider the existence of the constituent parts of the contract itself since that was
indispensable in order to enable the national court to examine whether it had jurisdiction under art 5 of the
convention.
70.
That view was strengthened by consideration of the harmful effects on legal certainty 11 if that were not
the case. The provisions of the Brussels Convention would be liable to be deprived of their legal effect if it
were accepted that, in order to defeat them, it would be sufficient for one of the parties merely to claim
that the contract did not exist.
11
The objective of the Brussels Convention is precisely to ensure legal certaintyand, specifically, certainty or
foreseeability in designating a competent court: the objectives [of the Conventionj include unification of the rules on
jurisdiction of the contracting states, so as to avoid as far as possible the multiplication of the bases of jurisdiction in
relation to one and the same legal relationship and to reinforce the legal protection available to persons established in
the Community by, at the same time, enabling the plaintiff easily to identify the court before which he may bring an
action and the defendant reasonably to foresee the court before which he may be sued (see the judgment in Mulox IBC
Ltd v Geels Case C-125/92 [1993] ECR I-4075).
71.
The court added that, on the contrary, respect for the aims and spirit of the convention demanded that
its provisions should be construed as meaning that the court called upon to decide a dispute arising out of
a contract may examine, even of its own motion, the essential preconditions for its jurisdiction, having
regard to conclusive and relevant evidence adduced by the party concerned, establishing the existence or
the non-existence of the contract.
72.
The same arguments are applicable by analogy to the present case, where the issue is the validity, not
the existence, of the contract. The difference between this situation and that considered in the judgment
in Effer is that territorial jurisdiction was determined in the latter case by a legal criterion (the place of
performance of the obligation), and not by a jurisdiction clause in the contract. In my opinion, however, the
legal reasoning used in the earlier case applies equally to both situations.
73.
It is possible to reach the same conclusion by analysing the nature of the jurisdiction clauses provided
for by art 17 of the convention. In my opinion, it must be recognised that they are to some extent
independent of the contract of which they form part.
74.
This question is the subject of a well known academic controversy 12 which has not been settled.
However, I consider that, so far as art 17 is concerned, the court should take the same approach as in the
Effer judgment and incline towards 147 the view which promotes legal certainty and which, specifically,
means recognising the court chosen in a jurisdiction clause (provided, of course, that the latter fulfils the
requirements of art 17) as the competent court, even when it is alleged that the contract containing the
clause is void.
12
See the recent works of Blanchin Lautonomie de la clause compromissoire: Un modle pour la clause attributive
dejuridiction? (1995) and Rodrguez Benot Los acuerdos atributivos de competencia judicial internacional en Derecho
conzunitano europeo (1994).
75.
There are a number of reasons for taking this approach. First, jurisdiction clauses do not depend on
the economic or legal factors forming the basis of the contract, nor is the cause of the contract the same
as that of the jurisdiction clause, the purpose of which is merely procedural (to locate within a particular
forum proceedings to deal with any future disputes). Consequently, any grounds of nullity which might
affect the substantive elements of a contract should not have any impact on jurisdiction clauses.
76.
Secondly, if one party alleges that there was no consensus ad idemfor example, that there was a
mistake as to essential aspects of the subject matter, rendering the mutual obligations voidthe
jurisdiction clause is not necessarily affected because the mistake does not extend to the express choice
of the competent court. This applies a fortiori where the alleged grounds of nullity of the contract relate to
its compatibility or otherwise with the substantive law of a particular national system.
77.
Thirdly, if a court other than that designated by the parties in a jurisdiction clause were allowed to
decide on the validity of the contract in general, the practical consequences would be rather
disconcerting. If, for example, such proceedings led to a decision that the contract in general was valid,
the court in question would immediately have to decline jurisdiction in favour of the court chosen by the
parties, which has exclusive jurisdiction to settle their differences. It would be difficult to deny that the
latter court in turn would not be competent to rule that the contract or any of its essential stipulations was
invalid, even if by so doing it contradicted the judgment of the first court.
78.
Finally, the approach that I advocate has the advantage of avoiding concurrent litigation and
preventing circumvention of the very system whereby only one forum should have jurisdiction, which
forms the basis of the Brussels Convention. Merely by claiming that the contract containing the jurisdiction
clause was void, either party would displace the jurisdiction rules and thereby render art 17 ineffective.
That would certainly detract from certainty and foreseeability in designating the competent court.
79.
In that connection I should point out that neither party to this action has questioned the validity of the
jurisdiction clause itself on substantive13 or on formal grounds. Mr Benincasa merely claims that the
franchise agreement is void in general on grounds based on substantive German law (alleged
infringement of the BGB and the German Law on standard business conditions) 14.
13
The legal system of a particular state may lay down certain substantive conditions for the validity of jurisdiction clauses.
It is not clear whether such provisions would be consistent with art 17 of the Brussels Convention. So far as formal
requirements are concerned, it is clear that art 17 is the only permissible point of reference.
14
See para 10 of this opinion, above.
80.
The response to those allegations, that is to say the decision on the validity of the franchise
agreement, will depend on the substantive law found to be applicable to it. However, I consider that the
competent court to give a ruling on 148 that pointsince the parties have stipulated a jurisdiction clause
in such general termsmust be precisely the court designated by them beforehand.
81.
The parties intention expressed in the jurisdiction clause is clear: any dispute concerning any aspect
of the contract (which must include disputes on Validity) falls within the jurisdiction of the courts of
Florence.
82.
On this point it is inevitable that the courts reply cannot be limited to a hypothetical interpretation of art
17 of the Brussels Convention, unconnected with the dispute with which the question from the national
court is concerned. Without any intention to take the place of the competent national court in interpreting
the agreement between the parties, a helpful reply from the Court of Justice, under the preliminary ruling
procedure, necessitates an analysis of the terms of the jurisdiction clause in order, by reference to its
characteristics, to provide the national court with an interpretation of the Brussels Convention, as
requested.
Conclusion
83.
I therefore propose that the Court of Justice reply as follows to the questions from the
Oberlandesgericht Mnchen:
(1) The parties to a franchise agreement for the forthcoming opening of a commercial
establishment cannot be regarded as consumers within the meaning of the first paragraph of art 13
and the first paragraph of art 14 of the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 1968.
(2) The court designated in a jurisdiction clause as having jurisdiction to entertain any dispute
relating to the interpretation, performance or other aspect of this contract has exclusive jurisdiction,
in accordance with the first sentence of the first paragraph of art 17 of the 1968 convention, even
where the action seeks, inter alia, annulment of the contract containing the jurisdiction clause.
3 July 1997.
Costs
33.
The costs incurred by the German government and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the proceedings pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the questions referred to it by
the Oberlandesgericht Mnchen by order of 5 May 1995, hereby rules: (1) The first paragraphs of arts 13
and 14 of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial
Matters 1968, as amended, must be interpreted as meaning that a plaintiff who has concluded a contract
with a view to pursuing a trade or profession, not at the present time but in the future, may not be
regarded as a consumer. (2) The courts of a contracting state which have been designated in a
jurisdiction clause validly concluded under the first paragraph of art 17 of the 1968 convention also have
exclusive jurisdiction where the action seeks in particular a declaration that the contract containing that
clause is void.
154
[1998] All ER (EC) 155
A Belgian regional council adopted an order implementing Community provisions on waste before the
period laid down in those provisions for their transposition into national law had expired. The Community
provisions required any undertaking carrying out waste disposal or recovery to obtain a permit, but
provided exemptions for companies carrying out waste disposal on their own premises at the place of
production and companies carrying out waste recovery on condition, inter alia, that the waste was non-
hazardous. The plaintiff environmental group brought proceedings against the regional council, seeking
annulment of the order on the grounds that it infringed the relevant Community provisions by excluding
from the permit system installations intended for the collection, pre-treatment, disposal or recovery of
toxic or dangerous waste, where they formed an integral part of an industrial production process. The
national court stayed the proceedings and referred to the Court of Justice of the European Communities
for a preliminary ruling the questions: (i) whether a substance was excluded from the definition of waste
in art 1(a)1 of Council Directive (EEC) 75/442 on waste, as amended by Council Directive (EEC) 91/156,
merely because it directly or indirectly formed an integral part of an industrial production process; and (ii)
whether arts 52 and 1893 of the EC Treaty precluded member states from adopting measures contrary to
Directive 91/156 during the period prescribed for its transposition.
1
Article 1(a), so far as material, is set out at p 172 c, post
2
Article 5, so far as material, provides: Member States shall take all appropriate measures to ensure fulfilment of the
obligations arising out of action taken by the institutions
3
Article 189, so far as material, provides: A Directive shall be binding, as to the result to be achieved, upon each Member
State to which it is addressed, but shall leave to the national authorities the choice of form and methods.
Held (1) On a proper construction of Directive 72/442, the scope of the term waste in art 1(a) turned on
the meaning of discard, which covered both disposal and recovery of a substance or object. The concept
of waste did not therefore exclude any kind of residue, industrial by-product or other substance arising
from production processes and was not to be understood as excluding substances and 155 objects
capable of economic reutilisation. It followed that a substance was not excluded from the definition of
waste in art 1(a) of the directive by the mere fact that it directly or indirectly formed an integral part of an
industrial production process. That conclusion did not, however, undermine the distinction which had to be
drawn between waste recovery within the meaning of the directive and the normal industrial treatment of
products which were not waste (see p 175 b to e j and p 177 h, post); Criminal proceedings against
Tombesi Joined cases C-304/94, C-330/94, C-342/94 and C-224/95 [1997] All ER (EC) 639 applied.
(2) In accordance with art 191 of the EC Treaty, a directive had legal effect with respect to the member
state to which it was addressed from the moment of its notification. During the subsequent transposition
period, member states had to take the measures necessary to ensure that the result prescribed by the
directive was achieved at the end of that period and although they were not obliged to adopt those
measures before the end of the transposition period, arts 5 and 189 of the Treaty and Directive 91/156
required that they should not take any measures which could seriously compromise the result during that
period. It followed from the Treaty that, during the transposition period, member states had to refrain from
adopting measures liable to compromise seriously the aims of the directive and, in assessing whether that
had happened, the national court had to consider whether the national measure constituted full
transposition of the directive as well as the effects in practice of applying those provisions and of their
duration in time (see p 176 h and p 177 a to c e j, post).
Notes
For a general outline of Community provisions on waste disposal, see 51 Halsburys Laws (4th edn) paras
822826.
For the EC Treaty, art 5, see 50 Halsburys Statutes (4th edn) 267 and for art 189 (as amended by art
G.60 of the Treaty on European Union), see ibid, Current Service, 101.
Cases cited
Aannemersbedrijf P K Kraaijeveld BV v Gedeputeerde Staten van Zuid-Holland Case C-72/95 [1997] All
ER (EC) 134, [1996] ECR I-5403, ECJ.
EC Commission v UK Case 804/79 [1981] ECR 1045.
European Commission v Germany Case C-422/92 [1995] ECR I-1097.
France v EC Commission Joined cases 1516/76 [1979] ECR 321.
Hansa Fleisch Ernst Munde GmbH & Co KG v Landrat des Kreises Schleswig-Flensburg Case C-156/91
[1992] ECR I-5567.
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135.
Marshall v Southampton and South West Hampshire Health Authority (Teaching) Case 152/84 [1986] 2 All
ER 584, [1986] QB 401, [1986] 2 WLR 780, [1986] ECR 723, ECJ.
Opel Austria GmbH v EU Council Case T-115/94 [1997] All ER (EC) 97, ECJ.
Peskeloglou v Bundesanstalt fr Arbeit Case 77/82 [1983] ECR 1085.
Pubblico Ministero v Ratti Case 148/78 [1979] ECR 1629.
Teuling v Bedrijfsvereniging voor de Chemische Industrie Case 30/85 [1987] ECR 2497.
Tombesi (Criminal proceedings against) Joined cases C-304/94, C-330/94, C-342/94 and C-224/95
[1997] All ER (EC) 639, [1997] ECR I-3561, ECJ.
Vaneetveld v La Foyer SA Case C-316/93 [1994] ECR I-763.
156
Verbond van Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen Case 51/76
[1977] ECR 113.
Zanetti (Criminal proceedings against) Case C-359/88 [1990] ECR I-1509.
Reference
By judgment of 29 March 1996, the Belgian Conseil dtat referred to the Court of Justice of the European
Communities for a preliminary ruling under art 177 of the EC Treaty two questions (set out at p 174 h j,
post) on the interpretation of arts 5 and 189 of the Treaty and art 1(a) of Council Directive (EEC) 75/442
on waste, as amended by Council Directive (EEC) 91/156. Those questions were raised in proceedings
brought by Inter-Environnement Wallonie ASBL, a non-profit-making association, for annulment of the
order of the Walloon Regional Executive of 9 April 1992 on toxic or hazardous waste. Written
observations were submitted on behalf of: Inter-Environnement Wallonie, by J Sambon, of the Brussels
Bar; the Belgian government, by J Devadder, Senior Adviser in the Ministry of Foreign Affairs, External
Trade and Development Cooperation, acting as agent; the German government, by E Rder,
Ministerialrat in the Federal Ministry of Economic Affairs, and B Kloke, Oberregierungsrat in the same
ministry, acting as agents; the French government, by J-F Dobelle, Deputy Director in the Legal
Directorate of the Ministry of Foreign Affairs, and R Nadal, Assistant Foreign Affairs Secretary in that
directorate, acting as agents; the Netherlands government, by A Bos, Legal Adviser in the Ministry of
Foreign Affairs, acting as agent; the UK government, by J E Collins, Assistant Treasury Solicitor, acting as
agent, and D Wyatt QC; and the European Commission, by M Condou-Durande, of its Legal Service,
acting as agent. Oral observations were made by: Inter-Environnement Wallonie ASBL, represented by J
Sambon; the French government, represented by J-F Dobelle and R Nadal; the Netherlands government,
represented by J Steven van den Oosterkamp, Deputy Legal Adviser in the Ministry of Foreign Affairs,
acting as agent; the UK government, represented by D Wyatt QC; and the Commission, represented by M
Condou Durande. The language of the case was French. The facts are set out in the opinion of the
Advocate General.
24 April 1997.
159
16.
Moreover, in its many judgments in proceedings under art 169 of the Treaty concerning non-
implementation of directives the court, in declaring member states to be in breach of their obligations
under Community law, has consistently defined the breach as a failure to adopt the necessary
implementing measures within the prescribed period.
17.
In his opinion in Teuling v Bedrijfsvereniging voor de Chemische Industrie Case 30/85 [1987] ECR
2497 (para 7) Advocate General Mancini nevertheless suggested that the legislative freedom of member
states following the adoption of a directive was subject to certain limits:
such freedom does not include the power to aggravate the defect which the directive is
intended to remedy. Indeed it may be that measures adopted during the prescribed period must of
necessity be measures intended to transpose the Community provisions. Such measures must at
least not conflict with the requirements laid down in those provisions.
18.
Advocate General Mancinis remarks were made against the background of national rules, adopted
during the period for the implementation of Council Directive (EEC) 79/7 on the progressive
implementation of the principle of equal treatment for men and women in matters of social security (OJ
1979 L6 p 24), which were alleged to increase discrimination on grounds of sex in the award of benefits in
respect of incapacity for work. In its judgment the court did not however find it necessary to rule on the
issue.
19.
In the present proceedings Inter-Environnement and the Commission propose an affirmative answer to
both parts of the national courts first question.
20.
Inter-Environnement emphasises that it does not seek to challenge the principle that an individual can
rely upon the provisions of a directive before a national court only from the expiry of the implementation
period. In its action before the Conseil dtat it is not seeking to assert individual rights. Its action seeks
the annulment of the national regulation on the basis that it conflicts with a superior rule, namely the
Community directive which it is intended to implement. Under Belgian law such an action must be brought
within 60 days of the publication of the measure concerned. In the absence of an obligation on the
Walloon executive of the kind canvassed in the first question, an implementing measure adopted more
than 60 days before the expiry of the implementation period would be unassailable. Challenges based on
Community law would therefore be treated less favourably than challenges based on national law.
21.
Inter-Environnement considers that the legality of national implementing measures can be reviewed
even before the expiry of the implementation period. In the course of such review, account must be taken
of the duty of co-operation under art 5 of the Treaty, which imposes an obligation on member states to
implement the directive properly. The position is particularly clear in the present case since the contested
regulation expressly purports to be an implementing measure.
22.
The Commission argues that the adoption of a directive entails a standstill obligation based on arts 5
and 189 of the Treaty. A member state is not permitted to adopt any new measure which would increase
the disparity between the national and Community rules. Such a measure would be liable to jeopardise
the attainment of one or more of the objectives of the directive and lead to legal uncertainty for
individuals. It is therefore immaterial whether a measure is specifically intended to implement a directive.
23.
In its written observations the Commission stated that the failure by a state to fulfil its obligations under
the directive may be established only after the 160 implementation period. At the hearing it suggested that
an action could nevertheless be brought against a member state under art 169 of the Treaty to establish
an infringement of the standstill obligation itself. The Commission accepts however that such obligation
would not give rise to rights for individuals before the end of the implementation period.
24.
The Belgian, French, Netherlands and UK governments all propose a negative reply to the first
question. The German government did not submit observations on that question.
25.
The Netherlands government accepts that the adoption of a directive entails a form of standstill
obligation. However, it considers that a member state cannot be in breach of arts 5 and 189 where, as
here, it is unclear whether the provisions in question are in breach of the directive. Moreover, it considers
that no action may be brought under art 169 of the Treaty before the end of the implementation period.
26.
The Belgian, French and UK governments all take the view that pending the final date for
implementation of a directive member states remain free to enact rules which are contrary to it. The
United Kingdom adds the qualification that a member state is precluded by arts 5 and 189 of the Treaty
from adopting national measures which would have the effect of making it impossible or excessively
difficult for the state to give proper effect to the directive when it subsequently introduces measures to
transpose the directive into national law.
27.
It seems to me that, in considering the Conseil dtats first question, it is important to bear in mind the
reasons which have led it to put the question to the court. Although the question is phrased in terms of the
power of member states to adopt rules contrary to a directive during the period for its implementation,
Inter-Environnements action is not specifically concerned with that period. The question arises because
of the principle in Belgian administrative law that the validity of a measure must be assessed by reference
to the circumstances obtaining at the moment of its adoption. The Conseil dtats question is therefore
designed to discover whether at the moment of the adoption of the contested regulation Community law
precluded Belgium from enacting a measure which was contrary to the directive. The Conseil dtat
assumes that, unless at the moment of the adoption of the contested regulation the directive imposed
such an obligation on Belgium, the regulation cannot be challenged by way of an action for annulment
before the Conseil dtat.
28.
Inter-Environnement also points out in its written observations that an action for annulment must be
brought before the Conseil dtat within 60 days of the publication of the contested measure. Thus in
order to be admissible its action had to be brought before the final date for implementation of Directive
91/156. However, it is not clear whether, even if an applicant were able to bring an action after the final
date for implementation of a directive because the contested measure was adopted less than 60 days
before that date, its action could succeed unless an obligation existed under Community law at the
moment of the adoption of the measure.
29.
Against that background it seems to me that the real issue in the present case is not whether Directive
91/156 precludes the application of the contested regulation during the period for the implementation of
the directive but whether, despite the fact that that period had not yet expired at the moment when the
contested regulation was adopted, the Conseil dtat is obliged to take account of the directive in
assessing the validity of the regulation. In my view that question must plainly be given an affirmative reply
even on the basis of existing principles.
161
30.
The Treaty, in particular the third para of art 189, imposes on member states an obligation to achieve
the result required by a directive no later than the final date fixed for its implementation. However, that
obligation actually arises not from the final date for implementation but on the day on which the directive
enters into force or takes effect as laid down in art 191. Directive 91/156 took effect, by virtue of the
second paragraph of art 191 of the Treaty, on the date on which it was notified to Belgium. From that date
onwards and throughout the period for the implementation of the directive Belgium was under an
obligation to bring its national provisions into line with the directive by 1 April 1993. In other words, it was
under an obligation to ensure that there were no national rules contrary to the directive after that date.
That obligation flowed from a legal instrument which had already taken effect at the moment of the
adoption of the contested national regulation and must clearly be taken into account by the Conseil dtat
in assessing the validity of the regulation. That is so notwithstanding the fact that performance of the
obligation to implement the directive was not required until a later date; as I shall explain below, that may
however be relevant in determining the scope of the remedy to be granted by the Conseil dtat (see para
34, below).
31.
Such a conclusion is therefore consistent with the rule, applicable also under Community law, that the
validity of a measure must be assessed on the basis of the situation at the moment of its adoption (see eg
the judgment in France v EC Commission Joined cases 1516/76 [1979] ECR 321). The rationale for that
rule is that the legislature can reasonably be expected to take account only of legal and factual
circumstances obtaining at that moment. In the present case however the Community directive had
already been adopted and had taken effect at the moment of the adoption of the contested national
regulation. Its existence was therefore a legal circumstance of which the Walloon executive must be taken
to have been aware.
32.
In that connection reference may also be made to the recent judgment of the Court of First Instance in
Opel Austria GmbH v EU Council Case T-115/94 [1997] All ER (EC) 97 (paras 87ff). The Court of First
Instance, while acknowledging that the legality of a measure contested under art 173 of the Treaty had to
be assessed in the light of the elements of fact and law existing at the time when the measure was
adopted, held that, in reviewing the legality of a Council regulation, it was entitled to take account of the
Agreement on the European Economic Area between the European Communities, their Member States
and the Republic of Austria, the Republic of Finland, the Republic of Iceland, the Principality of
Liechtenstein, the Kingdom of Norway, the Kingdom of Sweden and the Swiss Confederation (the EEA
Agreement) (Oporto, 2 May 1992; TS 26 (1995); Cm 2847; OJ 1994 L1, p 3) which had been concluded
by the Communities seven days before the adoption of the regulation but entered into force shortly
afterwards. The Court of First Instance based that conclusion inter alia on the principle of good faith as
embodied in art 18 of the Vienna Convention on the Law of Treaties (the First Vienna Convention)
(Vienna, 23 May 1969; TS 58 (1980); Cmnd 7964).
33.
It seems to me to be even clearer that, by virtue of the duty of co-operation imposed on member states
by art 5 of the Treaty and their specific obligation to implement under art 189, account must be taken of a
directive which has already taken effect in assessing the legality of national measures.
34.
In such a case it is for a national court, if it concludes that a national measure is incompatible with the
obligations flowing from a directive, to determine the appropriate remedy in accordance with the relevant
national rules. It may be that in certain cases, for example where a national measure was adopted under
delegated 162 powers and the enactment of a measure contrary to the directive would be ultra vires, the
measure would fall to be annulled ab initio. More generally, in the case of a measure specifically intended
as an implementing measure that result may be thought to be consistent with the purpose of an action,
such as the action for annulment in the present case, which is designed to allow rapid review of new
regulations in the interests of legal certainty.
35.
However, that is a matter for national law. As a matter of Community law it would in my view be
sufficient in the present case for the Conseil dtat to annul the contested national regulation, if it were
found to contravene the directive, solely with effect from the final date for implementation of the directive,
namely 1 April 1993. It is from that date that the regulation would begin to produce unlawful effects. I
should emphasise that the foregoing is of course without prejudice to the rules applicable under national
law with respect to locus standi, time limits and other procedural conditions.
36.
The above solution may at first sight seem somewhat curious in so far as the moment by reference to
which the legality of a national measure must be appraised does not coincide with the moment from which
it produces unlawful effects. However, that anomaly is the consequence of the special features of
directives. If, owing to the particular method by which directives are transposed into national law, national
implementing measures adopted before the final date for implementation of a directive were immune from
challenge by way of an action for annulment before the Conseil dtat, the result would be that actions
based on Community law would be placed at a disadvantage by comparison with actions based on
national law. For example, an action based on a superior rule of national law, such as a Decree of the
Walloon Regional Council, would not encounter the same obstacle. Implementing measures would then
at most be susceptible to indirect challenge by way of a plea of illegality raised in proceedings brought
against individual decisions or other provisions adopted pursuant thereto.
37.
The above conclusion based on existing principles should be sufficient to resolve the anomaly which
prevents the Conseil dtat from reviewing the legality of implementing measures adopted before the final
date for implementation of directives. I do not therefore think it is necessary in the present case for the
court to rule on the views put forward by Inter-Environnement and the Commission, namely that the entry
into force of a directive has a blocking effect in the sense that it confines the power of member states to
the adoption of implementing measures in conformity with the directive, at least where such measures
expressly purport to implement the directive, or precludes the adoption of measures which increase the
disparity between national and Community rules (a standstill obligation). Those arguments raise more
difficult issues which would be better resolved in a case in which they genuinely arose. I shall
nevertheless consider them briefly.
38.
It is clear that Directive 91/156 does not expressly impose limitations of the kind suggested on the
powers of member states. It would have been open to the Community legislature to do so, yet it did not.
Like other directives, it merely imposes an obligation to bring into force the laws, regulations and
administrative provisions necessary to comply with the directive not later than a certain date.
39.
The question arises whether such limitations may nevertheless be inferred from arts 5 and 189 of the
Treaty. I certainly accept that a member state would be in breach of its duty of co-operation under art 5 of
the Treaty if it were to adopt measures during the period for implementation of a directive which were
liable to jeopardise the attainment of the aims of a directive by the appointed date. It would also be in
breach of its more specific duty to implement under art 189 of the Treaty.
163
40.
As the United Kingdom suggests, that would be so if a member state adopted measures which
rendered the attainment of the objectives of the directive impossible or unduly difficult. For example,
suppose that the Community adopted a directive imposing limits on the quantity of nuclear waste
produced by member states. It seems to me that a member state would plainly be in breach of its
obligations under arts 5 and 189 of the Treaty if, after the adoption of the directive, it were to invest in a
nuclear programme which would of necessity make compliance with the directive impossible or unduly
difficult.
41.
In such a case, in which measures adopted by a member state were liable to create a situation which
would make implementation of a directive impossible or unduly difficult, there would be sound reasons for
recognising that the member state was in breach of its obligations under Community law even before the
implementation period had expired. The Commission would then be able to bring the matter before the
court as a matter of urgency, with a view to forestalling the application of the measures.
42.
I do not rule out the possibility that a member state might in some circumstances also be considered to
be in breach of its duty of faithful co-operation under art 5 of the Treaty (although possibly not its duty to
implement under art 189) if it were to enact without justification, after the adoption of a directive,
measures which were wholly contrary to the spirit and tenor of a directive, especially one which conferred
rights on individuals. That might particularly be so where the measures, although repealed before the final
date for implementation, continued to produce practical effects after that date. For example, as Advocate
General Mancini suggested in Teuling, a member state might be in breach of its duty of co-operation if,
following the adoption of a directive prohibiting discrimination on grounds of sex in certain areas, it
adopted measures introducing discrimination in those areas.
43.
However, such cases would be exceptional. Contrary to the views expressed by Inter-Environnement
and the Commission, I do not think it would be appropriate to interpret arts 5 and 189 as entailing a
general blocking effect in any of the senses mentioned in para 37, above.
44.
First, the somewhat extreme view that the power of a member state is limited, following the adoption of
a directive, solely to the adoption of implementing measures ignores the fact that, during the
implementation period, member states are permitted to continue applying their existing arrangements and
may well need to make adjustments to those arrangements during that period. It seems clear that
member states must in principle retain the power freely to amend individual aspects of such
arrangements, which may be based on methods and even objectives which differ materially from those
underlying the directive, in order to preserve their coherence and effectiveness pending their replacement
by the Community system.
45.
Even the imposition of a standstill obligation, precluding a member state from exacerbating any
disparities between the national and Community rules, would in my view be inappropriate other than in
special circumstances such as those described above. Such a restriction would, as the French
government suggests, unduly curtail the freedom of choice of member states in implementing a directive;
in some cases it may even make member states reluctant to agree to the adoption of a directive in the
first place.
46.
Suppose, for example, that during 1997 the Council adopts a directive introducing a maximum rate of
VAT with effect from 31 December 2000. A member state, in agreeing to the adoption of the directive,
calculates that for the years 1999 and 2000 it will require additional revenue in order to meet its public
164 expenditure which can be met by increasing the rate of VAT which it levies above the maximum rate
for those years. At the same time, however, it plans to use those years to draft and adopt new legislation
introducing a wealth tax from the beginning of the year 2001 in order to meet the shortfall in tax revenue,
allowing it to comply with the maximum rate of VAT from that year onwards. It seems to me that in that
example the member state, far from being in breach of its duty of co-operation, has been co-operative
both in the adoption and implementation of the directive.
47.
An implied standstill obligation would also be inappropriate in areas such as the environment, where a
member state by the adoption of measures seeks to ensure the attainment of certain physical parameters
or values required by a directive. A member state may be reluctant to guarantee that some worsening of
the situation will not occur, and need to be reflected in its national rules, before the measures it puts in
place for the attainment of the aims of the directive are effective.
48.
Moreover, numerous directives designed to ensure the free movement of goods, services or persons
provide for the replacement of regulation or supervision in the importing or host state by regulation or
supervision in the state of origin. Pending the introduction of uniform rules permitting the transfer of
competence to the state of origin it may be necessary, in the light of commercial or other developments,
for an importing or host state to introduce additional arrangements or procedures which, once the
directive is implemented, will become the exclusive responsibility of the state of origin. Yet the introduction
by the importing or host state of any new arrangements would by definition be contrary to the directive
and in breach of a standstill obligation.
49.
Contrary to the Commissions view, I do not think any support for the view that a standstill obligation
arises from arts 5 and 189 of the Treaty can be derived from the courts judgment in Peskeloglou v
Bundesanstalt fr Arbeit Case 77/82 [1983] ECR 1085 or EC Commission v UK Case 804/79 [1981] ECR
1045. The courts finding in Peskeloglou that, during the transitional period provided for in the second
sub-paragraph of art 45(1) of the Act of Accession (1979): EC 18 (1979); Cmnd 7650; OJ 1979; L291 p 17
(Greece), national provisions concerning the first grant of a work permit to a Greek national could not be
made more restrictive after the entry into force of the Act was based on a restrictive interpretation of a
provision of the Act itself, there is no equivalent provision in the directive in issue here (see, to the same
effect, Prechal Directives in European Community Law (1995) p 26).
50.
The Commission refers to the passage in EC Commission v UK [1981] ECR 1045 (para 28) where the
court stated that art 5 of the Treaty
imposes on Member States special duties of action and abstention in a situation in which the
Commission, in order to meet urgent needs of conservation, has submitted to the Council
proposals which, although they have not been adopted by the Council, represent the point of
departure for concerted Community action.
However, those remarks concerning the duties of member states were made in the context of art 102 of
the Act of Accession (1972); TS 17 (1979); Cmnd 7463 (UK, Denmark, Ireland), under which the exclusive
power to adopt measures relating to the conservation of the resources of the sea had been expressly
transferred to the Community as from 1 January 1979.
51.
Inter-Environnements narrower view that, where a member state adopts measures purporting to
implement a directive, its power is limited to the adoption of measures which are in conformity with the
directive is less objectionable at first 165 sight. As I have already noted, it is certainly possible that as a
matter of national law the power of the legislator is so limited.
52.
However, other than in special circumstances I see no compelling reason why as a matter of
Community law an implementing measure should be considered unlawful before the obligation to
implement has crystallised. In proceedings brought by individuals based on the direct effect of directives
national courts are obliged to set aside conflicting national rules only after expiry of the implementation
period. It is more consistent with that principle that in the present case the Conseil dtat should, as a
matter of Community law, be obliged to annul the regulation (if found to be contrary to the directive) only
with effect from the final date for implementation.
53.
Finally, I see no inconsistency between the above result and the view which I took in my opinion in
Hansa Fleisch Ernst Munde GmbH & Co KG v Landrat des Kreises Schleswig-Flensburg Case C-156/91
[1992] ECR I-5567 the effect that, even before the expiry of the period for implementation, a national court
was obliged under Community law to interpret national legislation intended to implement a directive in
accordance with the directive. As I noted in that opinion, the duty to interpret implementing provisions
consistently with the directive arises, not from the expiry of that period, but from the duty of the national
court under art 5 of the Treaty to cooperate with other national authorities in their endeavour to implement
the directive. It would plainly be absurd if a national court were permitted to frustrate the intention of the
national legislature by refusing to interpret implementing provisions in conformity with the directive where
they were capable of being so interpreted.
54.
The purpose of the national courts second question is to ascertain whether the fact that the collection,
pre-treatment, disposal or recovery of a substance forms part of an industrial process removes it from the
scope of Directive 75/442.
55.
In what follows I shall refer only to those provisions of the Community legislation which are directly
relevant to the present case. For a fuller account of that legislation I would refer to my opinions in
European Commission v Germany Case C-422/92 [1995] ECR I-1097 (esp paras 211) and Criminal
proceedings against Tombesi Joined cases C-304/94, C-330/94, C-342/94 and C-224/95 [1997] All ER
(EC) 639, [1997] ECR I-3561 (esp paras 218)).
56.
Inter-Environnement, the Commission and the Belgian, German, Netherlands and UK governments all
consider that it is immaterial whether the operation in question forms part of an industrial process. I share
that view.
57.
Article 1(a) of Directive 75/442 defines waste as: any substance or object in the categories set out in
Annex I which the holder discards or intends or is required to discard.
58.
Annex I to Directive 75/442, to which art 1(a) of the directive refers and which is entitled Categories of
waste, lists different categories of waste, including
(Q1) Production or consumption residues not otherwise specified below
(Q2) Off-specification products
(Q7) Substances which no longer perform satisfactorily (eg contaminated acids, contaminated
solvents, exhausted tempering salts)
(Q8) Residues of industrial processes
(Q11) Residues from raw material extraction and processing (eg mining residues, oil field slops,
etc)
(Q12) Adulterated materials
166
The broad definition of waste is reinforced by the final category: (Q16) any materials, substances or
products which are not contained in the above categories.
59.
A detailed list of waste known as the European Waste Catalogue (the EWC) was adopted by the
Commission pursuant to art 1(a) of the directive by Commission Decision (EC) 94/3 (OJ 1994 L5 p 15).
Introductory Note 3 of the EWC states that:
the EWC is an harmonized, non-exhaustive list of wastes, that is to say, a list which will be
periodically reviewed and if necessary revised in accordance with the committee procedure.
However, the inclusion of a material in the EWC does not mean that the material is a waste in all
circumstances. The entry is only relevant when the definition of waste has been satisfied.
60.
Thus a substance, in particular those listed in Annex I or in the EWC, constitutes waste within the
meaning of Directive 75/442 where the holder discards or intends to discard or is required to discard it.
The scope of the term waste therefore turns on the meaning of the term discard. As I noted in my
opinion in Tombesi [1997] All ER (EC) 639, [1997] ECR I-3561 (para 50), it is clear from the provisions of
the directive, in particular art 4, arts 8 to 12 and Annexes IIA and B, that the term discard employed in the
definition of waste in art 1(a) has a special meaning encompassing not only the disposal of waste but also
its consignment to a recovery operation.
61.
There is nothing in the directive to suggest that its scope is limited to disposal or recovery operations
not forming an integral part of an industrial process. On the contrary, it is clear from the list of categories
of waste in Annex I, in particular the items mentioned at para 58 above, and from the disposal and
recovery operations listed in Annexes IIA and IIB that the notion of waste is sufficiently broad to cover all
kinds of industrial residues, by-products and other materials resulting from production processes.
62.
Moreover, it is clear from arts 9,10 and 11 of the directive, summarised at para 5 above, that the permit
requirement laid down by those provisions applies not only to undertakings specialising in waste disposal
and recovery for third parties but also to undertakings which carry out their own waste disposal and
recovery. The broad scope of the directive is confirmed by the power of member states to lay down
certain exemptions. Article 11 allows member states to exempt undertakings carrying out their own waste
disposal or recovery from the permit requirement on certain closely defined conditions. That power is
subject to further limits in the case of hazardous waste. Under art 3(1) of Directive 91/689 member states
are not permitted to exempt undertakings carrying out their own disposal operations in so far as the
substance is classified as hazardous waste within the meaning of that directive. Moreover, art 3(2) of the
directive lays down more specific conditions for the exemption of undertakings carrying out their own
recovery of hazardous waste going beyond those applicable to general waste under art 11 of Directive
75/442.
63.
It is clear therefore that a substance which is disposed of or recovered within the meaning of the
directive constitutes waste even where such disposal or recovery forms part of an industrial process. That
conclusion is sufficient to provide the national court with the guidance it seeks.
64.
The member states which have submitted observations on the second question have however gone
further and explained the criteria which they use for distinguishing between waste and non-waste
materials with particular reference to materials produced or used in industrial processes.
65.
The Belgian government considers that a substance referred to in Annex I to the directive integrated
into an industrial production process constitutes waste only 167 if it is used in a manner which is not in
conformity with the nature or function assigned to it under a natural process or assigned to it intentionally
under a production or other process.
66.
The German government takes the view that it is necessary, in the absence of criteria laid down by the
directive, to consider each case on its merits in the light of the view generally held in the trade. The
German government produces by way of an annex to its written observations a recent OECD discussion
document providing guidance on the factors which may be relevant in distinguishing between waste and
non-waste materials in individual cases (see Discussion Paper on guidance for distinguishing waste from
non-waste issued by the OECD Waste Management Policy Group, ENV/EPOC/WMP(96)1). I shall
consider that document in some detail below.
67.
The Netherlands and UK governments put forward similar views to those which they expressed in
Tombesi [1997] All ER (EC) 639, [1997] ECR I-3561 (see paras 4748 of the opinion). The Netherlands
government distinguishes between waste and secondary raw materials. The environmental objectives
underlying the waste directives mean that very stringent conditions must be fulfilled before a substance
can be categorised as a secondary raw material. In the Netherlands the following criteria have been laid
down for that purpose: the substance must be transported directly from the producer to the person who
will make further use of it; it must be used 100% in a production process, for example as a substitute for a
primary raw material; and it must not be subject to any process comparable to a current means of waste
disposal or recovery.
68.
The United Kingdom considers that a substance constitutes waste if it is consigned to a disposal
operation within the meaning of Annex IIA or to an operation which falls within Annex IIB by virtue of the
fact that it is unequivocally associated with the recovery of waste. Production residues, secondary raw
materials and useful by-products used in industrial production processes in the same way as any other
raw materials of non-waste origin do not constitute waste provided that they are not subjected to an
operation unequivocally associated with the recovery of waste. Production residues which, by virtue of
adulteration or other like reasons associated with their character as secondary raw materials, require
processing in order to protect human health or the environment under conditions different from those
necessary in the case of other raw materials of non-waste origin, are to be regarded as destined for
recovery processes within the meaning of Annex IIB and constitute waste.
69.
It seems to me that it would be possibleand may be desirable in the interests of legal certaintyfor
the court, in the light of the observations presented to it in the present case, to offer some general
guidance on the distinction between the discarding of waste within the meaning of the directive and
normal industrial processing of non-waste products. As I suggested in my opinion in Tombesi [1997] All
ER (EC) 639, [1997] ECR I-3561 (para 56), however, as the directive stands at present it must to some
extent be left to member states to develop more detailed criteria to apply the rules of the directive, as
interpreted by the court, to the various situations which may occur in practice.
70.
Such an approach is moreover consistent with the division of responsibilities between the court and
the national courts under the Treaty. It is for the national courts to verify that national authorities have
properly applied the directive in individual cases.
71.
Although the governments represented in these proceedings have put forward different criteria for
applying the directive, it seems to me that there is 168 nevertheless considerable common ground.
Moreover, the OECD document produced by the German government suggests that the same is true
among OECD countries. Although prepared for a different purpose (namely the application of the notion of
waste in the context of an OECD decision), the document contains a useful comparative survey of the
relevant law and practice of OECD countries.
72.
The document notes that OECD countries commonly distinguish between primary raw materials,
residues and secondary raw materials. Primary raw materials are defined as materials obtained from
natural sources for use in manufacturing or production processes (eg mined or quarried minerals, crude
oil, harvested crops). Such materials are not regarded as waste because they have been intentionally
obtained (although I presume that even primary raw materials could become waste if the holder formed
an intention to dispose of them).
73.
Residual materials or residues are defined as materials which unavoidably arise during the
manufacture or use of a product. Such a material may be used directly as an effective substitute for a
product or as an ingredient in another manufacturing process to create a different product or may have no
direct use without being subjected to further processing. Some countries define the term by-product in
the same way. Such materials are generally regarded as waste unless they are capable of being used as
an effective substitute for another product or as an ingredient in another process other than a recovery
operation. In both cases any direct use should be environmentally sound, i.e. comply with the same
standards, regulations and specifications as the product or ingredient that the material is replacing.
74.
According to the OECD document its member countries use the term secondary raw material in three
different ways: (a) a material which may no longer be used for its originally intended purpose but is in a
form which allows it to be used directly in a production process as a substitute for a primary raw material
(in which case it is unlikely to constitute waste); (b) a material which can be so used only after being
consigned to a recovery operation (and hence is likely to constitute waste); (c) a material which has
undergone a recovery operation and is now ready for use in a production process (and is therefore likely
to have ceased being waste).
75.
Although that appears to be the limit of the international consensus on the subject, the OECD
document notes that its member countries employ a range of other criteria for determining whether a
material constitutes waste in a given case. I think it is helpful to set out those criteria in full (para 17 of the
document):
(1) Is the material produced intentionally? (2) Is the production of the material subject to quality
control? (3) Does the material meet well developed nationally and internationally recognised
specifications/standards? (4) Do these standards include environmental considerations, in addition
to technical or economic considerations? (5) Is the material made in response to market demand?
(6) Is the overall economic value of the material negative? (7) Is further processing required before
the material can be directly used in a manufacturing/commercial application? (8) Is this processing
limited to minor repair? (9) Is the material still suitable for its originally intended purpose? (10). Can
the material be used for another purpose as a substitute material? (11) Is the use of the material as
environmentally sound as that of a primary product? (12) Will the material actually be used in a
production process? (13) Does the material have an identified use? (14) Does use of the material in
a production process cause any increased risks to human health or the environment greater than
the use of the corresponding raw material? (15) Is the material no longer part of the normal
commercial cycle or chain of utility? 169(16) Can the material be used in its present form or in the
same way as a raw material without being subjected to a recovery operation? (17) Can the material
be used only after it has been subjected to a recovery operation?
76.
The document then continues (para 18):
In presenting these questions, it should be noted that no particular weighting can be assigned
to individual questions nor any judgment made on their application given the variations in the way
that they are used in different countries. Some of these questions overlap nor is the list exhaustive.
In order to fully evaluate the status of the material, all of these questions may be considered when
making a determination.
77.
In my opinion in Tombesi [1997] All ER (EC) 639, [1997] ECR I-3561 (paras 5354) I suggested that
underlying the Community directive was an implicit distinction between non-waste materials which are put
to continued use in their existing form and waste materials which are subject to a recovery operation.
Thus a by-product or residual product would not constitute waste if it was destined for direct use in a
further process in its existing form, in other words if it was not destined for disposal or consignment to a
recovery operation prior to its continued use. I pointed out however that a particular problem arose in
distinguishing between direct use and recovery.
78.
It seems to me that the foregoing comparative survey provides further guidance on how that difficulty
may be resolved, as well as being consistent with the basic conclusions which I reached in Tombesi. The
OECD document suggests that there is general consensus that, where a secondary raw material or
residue can be used directly in a further process, possibly as a substitute for a primary raw material, it is
unlikely to constitute waste. It will on the other hand constitute waste if it must first undergo a recovery
process. Similar considerations appear to underlie a number of the detailed criteria applied by individual
countries (see esp points 7 to 10, 12 to 13 and 15 to 17 at para 75, above).
79.
As regards the sometimes difficult distinction between recovery of waste and direct use of non-waste
materials, as noted at para 73, above, it appears that there is general consensus among OECD countries
that it is relevant to consider whether the use of a residual product or by-product as a substitute for
another material or ingredient is as environmentally sound as that of the material or ingredient which it is
replacing; in other words whether it complies with the same standards, regulations and specifications as
those applicable to that product. Once again similar considerations appear to underlie a number of the
more detailed criteria (see esp points 3, 4, 11 and 14 at para 75, above).
80.
It seems to me that a similar approach would be appropriate in interpreting the term waste in the
Community legislation. The directive seeks to ensure that waste is recovered or disposed of without
endangering human health and without using processes or methods which could harm the environment
(see art 4). The notion of waste must therefore be interpreted sufficiently broadly to ensure that any
processing of a substance that is undertaken by reason of its nature as waste falls within the regulatory
system of the directive. Thus where, owing to the fact that it is a residue, by-product, secondary raw
material or other material resulting from an industrial process, a materialor the process which it
undergoesdoes not meet normal health or environmental requirements or standards, it must be
regarded as waste and subject to special regulation under the directive. In so far as a material is wholly
interchangeable with another product and requires no additional regulation 170 or supervision beyond
that applicable to the product it is replacing, it is unnecessary for it to be classified as waste.
81.
I conclude therefore that the mere fact that a disposal or recovery operation within the meaning of the
directive is carried out as part of an industrial process does not remove it from the scope of the directive.
For the purpose of distinguishing between waste recovery and processing of non-waste materials it is
relevant to consider whether a substance is destined to be put directly to continued use in its existing
form. In the case of residues, by-products, secondary raw materials or other materials resulting from
industrial processes, that condition is fulfilled where the material, or the process to which it is destined to
be put, meets normal health and environmental requirements applicable to non-waste products or
processes.
82.
As the Community legislation stands at present, it is for the member states to lay down further detailed
criteria for the application of the rules of the directive to individual cases. For example, there is the
problem that the mere possibility of a material being put to direct use in another process without
undergoing recovery does not of itself guarantee that it will be so used; a number of the additional criteria
mentioned in the OECD document may well be relevant in determining the intention of the holder to put
the material to such use (eg points 3, 5, 6 and 12 at para 75, above).
83.
It would therefore not be appropriate to attempt to go further at this stage in defining the notion of
waste for the purposes of Community legislation.
84.
Accordingly, the questions referred by the Belgian Conseil dtat should in my opinion be answered as
follows:
(1) In reviewing the legality of a national measure enacted after the adoption of a directive but
before the final date for its implementation, a national court must take account of the obligations
imposed by the directive on the member state concerned. It may therefore be called upon to annul
the national measure with effect from that final date.
(2) A substance which would otherwise constitute waste within the meaning of art 1(a) of
Council Directive (EEC) 75/442 on waste, as amended by Council Directive (EEC) 91/156, does
not cease to be waste merely because the disposal or recovery operation to which it is subject
forms part of an industrial production process. For the purpose of distinguishing between waste
recovery and processing of non-waste materials it is relevant to consider whether a substance is
destined to be put directly to continued use in its existing form. In the case of residues, by-products,
secondary raw materials or other materials resulting from industrial processes, that condition is
fulfilled where the material, or the process to which it is destined to be put, meets normal health
and environmental requirements applicable to non-waste products or processes.
18 December 1997.
177
The respondent farmer elected under a German law to be charged to value added tax at the rate of 7%
rather than 13%, but did not notify that fact to livestock dealers to whom he had supplied fat pigs. The
dealers therefore issued him with credit notes, which he did not contest, on which value added tax was
calculated at 13%. Under German law a credit note by which a trader settled up for a taxable supply was
deemed to be an invoice and as a result, the tax office made a demand based on the 13% rate in relation
to those supplies. Subsequently, the respondent successfully brought proceedings in the Finanzgericht for
a reduction in the amount of tax demanded. The tax office appealed to the Bundesfinanzhof, which stayed
the proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling,
inter alia, the questions: (i) whether art 22(3)(c) 1 of Council (EEC) Directive 77/388 on the harmonisation
of the laws of the member states relating to turnover taxescommon system of value added tax: uniform
basis of assessment, authorised a member state to regard a credit note issued by the recipient of goods
or services as a document serving as an invoice; and (ii) whether a taxable person who had not
contested an incorrect amount of value added tax mentioned in a credit note serving as an invoice was to
be regarded as the person who had so mentioned the value added tax, and therefore as the person liable
for the amount stated pursuant to art 21(1)(c) 2.
1
Article 22(3)(c), so far as material, is set out at p 188 h, post
2
Article 21(1)(c), so far as material, is set out at p 188 g, post
Held (1) Since the purpose of art 22 of the directive was to ensure correct collection of the tax and the
avoidance of fraud, there was no reason why an invoice or document serving as such should not be
drawn up by the recipient of the goods or services, provided that it included the information prescribed for
an invoice and the taxable person had been given the opportunity, if necessary, to correct that 178
information. In such a case, the taxable person could be regarded as the author of the document, the
drawing up of which he had effectively delegated to his customer. It followed that a credit note fulfilled the
function of documenting the taxable persons rights and obligations with respect to value added tax, as it
contained the same information as a traditional invoice and the taxable person was free to approve its
content. Accordingly, art 22(3)(c) authorised member states to regard a credit note issued by the recipient
of goods or services as a document serving as an invoice where it included the information prescribed
for invoices, it was drawn up with the agreement of the taxable person, and the latter was able to contest
the amount of value added tax mentioned (see p 191 e f j and p 192 h, post).
(2) Where a credit note served as an invoice, the taxable person was to be regarded for the purposes
of art 21(1)(c) as the person who had in fact mentioned value added tax in the credit note, and he was
consequently liable to pay the amount stated. Otherwise, part of the value added tax appearing in the
document serving as invoice would not have to be paid by the taxable person, even though that value
added tax might have been deducted in full by the recipient of the goods and services, thus giving scope
for possible fraud or collusion. It followed that a taxable person who had not contested the mention, in a
credit note serving as an invoice, of an amount of value added tax greater than that owed by reason of
taxable transactions could be regarded as the person who had mentioned that amount, and was therefore
liable to pay the amount shown pursuant to art 21(1)(c) (see p 192 c to e j, post).
Notes
For persons liable for payment of tax and the obligations of those persons, see 52 Halsburys Laws
(4th edn) paras 20342035.
Cases cited
Genius Holding BV v Staatssecretaris van Financin Case C-342/87 [1991] STC 239, [1989] ECR 4227,
ECJ.
Jeunehomme v Belgium Joined cases 123/87 and 330/87 [1988] ECR 4517.
Reisdorf v Finanzamt Kln-West Case C-85/95 [1997] STC 180, [1996] ECR I-6257, ECJ.
Reference
By order of 14 March 1996, the Bundesfinanzhof (the Federal Finance Court) referred to the Court of
Justice of the European Communities for a preliminary ruling three questions (set out at p 190 e to g,
post) on the interpretation of arts 21(1)(c) and 22(3)(c) of Council Directive (EEC) 77/388 on the
harmonisation of the laws of the member states relating to turnover taxescommon system of value
added tax: uniform basis of assessment. Those questions were raised in proceedings between the
Finanzamt (the tax office) Osnabrck-Land and Mr Langhorst concerning the question whether Mr
Langhorst was liable to pay the amount of value added tax mentioned on a credit note issued by a
customer, which he had not contested, even though the amount was higher than that owed by reason of
the taxable transactions. Written observations were submitted on behalf of: the German government, by E
Rder, Ministerialrat in the Federal Ministry of Economic Affairs, acting as agent; the UK government, by
S Ridley, of the Treasury Solicitors Department, acting as agent, and S Lee, Barrister; and the European
Commission, by J Sack, Legal Adviser, acting as agent. Oral observations were submitted on behalf of:
the German government, represented by E Rder; the Greek government, represented by V Kontolaimos,
Deputy Legal Adviser in the 179 State Legal Service, and A Rokofyllou, Special Adviser to the Deputy
Minister of Foreign Affairs, acting as agents; the UK government, represented by S Ridley and S
Richards, Barrister; and the Commission, represented by J Sack. The language of the case was German.
The facts are set out in the opinion of the Advocate General.
27 May 1997.
3.
It is thus appropriate to determine whether the characteristics of a document drawn up by the debtor
rather than the creditor are close enough to those of a traditional invoice for it to be acknowledged as
having an identical function in the common system of VAT, even though certain provisions of Council
Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover taxes
common system of value added tax: uniform basis of assessment (the Sixth Directive) appear to
preclude such an equation.
5.
Not being aware of that election, livestock dealers to whom Mr Langhorst had supplied fat pigs issued
him with credit notes mentioning separately VAT calculated at the rate of 13%. Mr Langhorst did not
initially contest the amount of VAT mentioned in the credit notes.
6.
He then brought proceedings in the Finanzgericht (the Finance Court), which gave a judgment
reducing the amount of tax. The Finanzamt (the tax office) appealed on a point of law to the
Bundesfinanzhof.
B. National legislation
7.
The Bundesfinanzhof considers that the reduction was correctly determined by the Finanzgericht, but
that the appeal by the Finanzamt might nevertheless succeed under the first sentence of para 14(2) of the
UStG. Paragraph 14(2) provides as follows:
180
If the trader has in an invoice for a supply or other service shown separately a higher amount of
tax than he owes under this Law in respect of the transaction, then he shall also owe the additional
amount. If he corrects the amount of tax as against the recipient, then Paragraph 17(1) shall apply
correspondingly.
8.
The UStG equates credit notes with invoices, under certain conditions. Thus para 14(5) provides:
A credit note by which a trader settles up for a taxable supply or other service made to him shall
also be deemed to be an invoice. A credit note shall be recognised if the following conditions are
met: (1) The trader providing the service (the recipient of the credit note) must be entitled under
subparagraph 1 to show the tax separately in an invoice. (2) There must be agreement between
the issuer and the recipient of the credit note that the supply or other service is to be settled by a
credit note. (3) The credit note must include the information prescribed in the second sentence of
subparagraph 1 above5. (4) The credit note must have been delivered to the trader providing the
service. Sentences 1 and 2 above shall apply by analogy to credit notes which the trader issues as
payment or partial payment for a taxable supply or other service which has not yet been carried
out. The credit note shall cease to have effect as an invoice in so far as the recipient contests the
amount of tax shown therein.
5
The second sentence of para 14(1) prescribes: Such invoices must include the following information: (5) the
consideration for the supply or other service and (6) the amount of tax due on the consideration
9.
The Bundesfinanzhof considers it necessary to interpret para 14(2) of the German UStG in
accordance with Community law.
C. The national courts questions and the relevant provisions of Community law
10.
It consequently refers the following three questions to the Court of Justice:
(1) Is it permissible under Article 22(3)(c) of the Sixth Council Directive for a credit note
within the meaning of Paragraph 14(5) of the Umsatzsteuergesetz 1980 to be regarded as an
invoice or other document serving as an invoice (Article 21(1)(c) of the Sixth Directive)?
(2) If so, is it permissible under Article 21(1)(c) of the Sixth Directive for a person who accepts a
credit note showing a higher amount of tax than that owed by reason of taxable transactions, and
does not contest in that respect the amount of tax mentioned in the credit note, to be regarded as a
person who mentions value added tax in an invoice or other document serving as an invoice and is
therefore liable to pay that value added tax?
(3) Can the recipient of a credit note, in the circumstances set out in Question 2, rely on Article
21(1)(c) of the Sixth Directive if the value added tax mentioned in the credit note is claimed from
him as a tax debt to the extent of the difference between the tax mentioned and the tax owed by
reason of taxable transactions?
11.
The national court states that the third question arises only if the answer to the second question is
negative.
181
12.
Article 21(1) of the Sixth Directive lists the persons liable to pay VAT under the internal system. Sub-
paragraphs (a) and (c) specify that
(a) taxable persons who carry out taxable transactions other than those referred to in Article
9(2)(e) and carried out by a taxable person resident abroad (c) any person who mentions the
value added tax on an invoice or other document serving as invoice
are liable to pay VAT.
13.
Article 22 of the Sixth Directive principally determines the obligations of persons liable to pay VAT
under the internal system. Article 22(3) deals with invoices and their content. Sub-paras (a) and (c) state:
(a) Every taxable person shall issue an invoice, or other document serving as invoice in respect
of all goods and services supplied by him to another taxable person (c) The Member States shall
determine the criteria for considering whether a document serves as an invoice.
A. The first question: whether a credit note issued by the recipient of a supply of goods or
services may be equated with an invoice within the meaning of the Sixth Directive
15.
A precise delimitation of the concept of an invoice within the meaning of the Sixth Directive is of use in
view of the significant part played by that document in the Community legislation on VAT.
16.
The invoice constitutes the documentary evidence of the amount of VAT owed by the trader, thus
serving both the payment of that tax and the deduction of the tax paid by the previous trader (see art
18(1)(a) of the Sixth Directive).
17.
The Sixth Directive contains no definition of the terms invoice and document serving as invoice used
in arts 21(1)(c) and 22(3)(a). After listing the minimum conditions relating to the information an invoice
must by virtue of its very purpose contain6, the directive leaves it to the member states to determine the
criteria for considering whether a document serves as an invoice (see art 22(3)(c)).
6
Article 22(3)(b) states: The invoice shall state clearly the price exclusive of tax and the corresponding tax at each rate
as well as any exemptions.
18.
The Federal Republic of Germany made use of that power by enacting para 14(5) of the UStG, which
introduces the credit note at issue in these proceedings.
182
19.
The court has ruled on two occasions on the extent of the power thus conferred on the member states
(see the judgments in Jeunehomme v Belgium Joined cases 123/87 and 330/87 [1988] ECR 4517, and
Reisdorf v Finanzamt Kln-West Case C-85/95 [1997] STC 180, [1996] ECR I-6257). In both cases it
adopted a position favourable to the member states and allowed them a considerable discretion.
20.
In Jeunehomme, on the basis also of art 22(8) of the Sixth Directive, which allows member states to
impose other obligations which they deem necessary for the correct levying and collection of the tax and
for the prevention of fraud, it was held that a member state could require invoices to include additional
particulars (see Jeunehomme [1988] ECR 4517 (para 16))7.
7
The judgment in Jeunehomme [1988] ECR 4517 (para 17) also states, however, that such particulars must not, by
reason of their number or technical nature, render the exercise of the right to deduction practically impossible or
excessively difficult.
21.
In Reisdorf [1997] STC 180, [1996] ECR I-6257 (para 31), the court held that member states were
permitted to regard as an invoice not only the original but also any other document serving as an invoice
that fulfils the criteria determined by the member states themselves.
22.
The court was careful to state, however, that that power must be exercised consistently with one of
the aims of the Sixth Directive, that of ensuring that VAT is levied and collected, under the supervision of
the tax authorities (see [1997] STC 180, [1996] ECR I-6257 (para 24)) 8.
8
See also the judgment in Jeunehomme [1988] ECR 4517 (para 17).
23.
The aim thus described reflects the concern which, in my opinion, the court should continue to be
guided by in determining requirements relating to invoicing, although, unlike in the cases cited, the
relevant criterion for classification of the credit note is linked not only to its content but also to the person
who issues it.
24.
The national court refers in its first question, inter alia, to art 21(1)(c) of the Sixth Directive. That
provision forms the logical reference point for the present case, in view of the fact that the proceedings
pending in the German court concern an amount of VAT which differs from that owed by reason of the
taxable transaction alone. The mistake affecting the amount shown in the credit note would thus no longer
make the trader liable in his capacity as a taxable person within the meaning of art 21(1)(a), but in his
capacity as a person who mentions VAT on an invoice or document serving as an invoice.
25.
That provision, however, cited by the national court in order to define the legal context of the case, is
of no use in answering the first question, since it gives no indication of whether or not the decisive factor
in deciding whether a credit note is a document serving as an invoice is the identity of the person who
issues or delivers it.
26.
The present question seeks to establish whether the power given to member states by art 22(3)(c) of
the Sixth Directive permits a document drawn up not by the trader but by the recipient of the goods or
services to be regarded as an invoice.
27.
A literal interpretation of art 22(3)(a), which describes the taxable person as the person who is to issue
the invoice, argues against the conclusion that the recipient of the goods or services, who cannot claim to
be the taxable person with respect to the VAT at issue, may fulfil the obligation of issuing an invoice and
that the trader may be allowed to escape that obligation. The credit note would then not be capable of
taking the place of the invoice.
183
28.
I do not support such a reading, however, which I consider too formal. The aim pursued by the
legislature when drawing up the relevant provision must be considered when interpreting it 9.
9
If the Community legislature in 1977, like the German legislature in 1980, took no account of the practice of self-billing in
the wording of the provision, that was no doubt because that practice was as yet little developed.
29.
Since its aim, as stated at para 22, above, is to ensure that the tax is correctly levied and to avoid
fraud, there appears to be no valid reason why the document drawn up by the recipient of the goods or
services should not serve as an invoice, where that document contains the information prescribed for
invoices by the Sixth Directive and its addressee is able to correct it if necessary (see para 17, above).
30.
In those circumstances, by exercising his power to check and correct, the trader remains the person
who issues the credit note, the drawing-up of which he has merely delegated, as it were, to his customer.
The credit note does not lose its function of documenting the traders fiscal rights and obligations, since it
contains the same information as a traditional invoice and the trader is free to approve its contents. He
thus keeps responsibility for drawing up the invoices, whatever their form, and ultimately remains their
true author.
31.
I consider, as moreover do all the intervening governments and the European Commission, that self-
billing as regulated by para 14(5) of the UStG fulfils the conditions under which uncontested credit notes
may be equated with invoices issued by the trader.
32.
Under para 14(5)(3), the credit note must include the same information as that prescribed for invoices,
including the consideration for the supply or other service and the amount of tax due on the
consideration.
33.
A power of control for the trader is ensured by para 14(5)(2), which states that the parties to the
contract must agree that a credit note is to be used. Again, under para 14(5)(4), the credit note must have
been delivered to the trader providing the service, and the second sentence of the second indent
provides that the credit note shall cease to have effect as an invoice in so far as the recipient contests the
amount of tax shown therein.
34.
The trader admittedly does not have an express power of rectification, but his right to deprive a credit
note of its status as an invoice by contesting its content nevertheless gives him complete control of the
classification in law of that document, which suffices to accept the equation of that document with an
invoice within the meaning of the Sixth Directive.
57.
On this point, my view is that the invoice should preserve its function of documentation. My reason for
proposing that the court should thus limit the scope of its previous case law is no different from that which
inspired the solution adopted in that case: to discourage tax evasion.
58.
It would be an incitement to fraud if, in the event of a difference between the amount invoiced and the
amount following from the taxable transaction, the incorrect part of the amount shown in the invoice could
fall outside the obligation to pay on the part of the author of the invoice.
59.
Above all, that would make the invoice purposeless and deprive the supervisory authorities of a
reference document describing the economic operation, on the basis of which checks may be made.
60.
This, moreover, is the solution the court implicitly adopted in the judgment in Genius Holding [1991]
STC 239, [1989] ECR 4227 (para 18), when it observed that the member states may provide in their
internal legal systems for the possibility of correcting any tax improperly invoiced where the person who
issued the invoice shows that he acted in good faith. In other words, the principle is that the person who
issues an invoice mentioning excess tax must pay it, unless he is able to prove that there was no
fraudulent intent behind the amount stated.
61.
Moreover, the priority given to what is mentioned in the invoice is dictated by the relevant provisions of
the Sixth Directive. The Genius Holding judgment is based largely on art 17(2)(a) of the Sixth Directive,
concerning the right to deduct11. In the present case, the provision whose scope is decisive is art 21(1)(c)
of the Sixth Directive. That provision admittedly defines the person liable for VAT and gives no direct
information as to the amount to be paid. However, the fact that it is intended to apply to cases where VAT
is not legally due, and where the economic operation cited might not even exist, shows that the mention in
the invoice is all that matters, since it constitutes the only means of referring to a specific figure.
11
That provision provides: the taxable person shall be entitled to deduct from the tax which he is liable to pay: (a) value
added tax due or paid (my emphasis).
62.
In view of the answer given to the second question, there is no need to express an opinion on the
national courts third question.
CONCLUSION
63.
In the light of the above considerations, I propose that the Court of Justice should answer as follows:
187
(1) Article 22(3)(c) of Council Directive (EEC) 77/388 on the harmonisation of the laws of the
member states relating to turnover taxescommon system of value added tax: uniform basis of
assessment allows member states to regard a credit note issued by the recipient of a supply of
goods or services as a document serving as an invoice, where it includes the information
prescribed for invoices by the directive and its content may be corrected or contested by the trader
who has carried out the economic operation.
(2) Article 21(1)(c) of the directive allows a person who accepts a credit note mentioning a
greater amount of VAT than that due, without contesting the amount thus mentioned, to be
regarded as a person who has mentioned VAT in an invoice or document serving as an invoice and
is consequently liable to pay it.
17 September 1997.
German law
5.
Paragraph 14(1) of the Umsatzsteuergesetz (the Law on Turnover Tax) (the UStG) of 26 November
1979, as amended by the Law of 18 August 1980, provides:
188
If a trader carries out taxable supplies or other services under Paragraph 1(1)(1), he is entitled
and, where he carries out the transactions to another trader for the latters undertaking, obliged on
request by the latter, to issue invoices in which the tax is shown separately. Such invoices must
include the following information: (1) the name and address of the trader providing the services, (2)
the name and address of the recipient of the services, (3) the quantity and the usual commercial
description of the subject-matter of the supply or the type and extent of the other service, (4) the
date of the supply or other service, (5) the consideration for the supply or other service (Paragraph
10 above) and (6) the amount of tax due on the consideration (point 5 above).
6.
Paragraph 14(2) of the UStG then provides:
If the trader has in an invoice for a supply or other service shown separately a higher amount of
tax than he owes under this Law in respect of the transaction, then he shall also owe the additional
amount. If he corrects the amount of tax as against the recipient, then Paragraph 17(1) shall apply
correspondingly.
7.
Under para 14(5) of the UStG:
A credit note by which a trader settles up for a taxable supply or other service made to him shall
also be deemed to be an invoice. A credit note shall be recognised if the following conditions are
met: (1) The trader providing the service (the recipient of the credit note) must be entitled under
sub-paragraph (1) to show the tax separately in an invoice. (2) There must be agreement between
the issuer and the recipient of the credit note that the supply or other service is to be settled by a
credit note. (3) The credit note must include the information prescribed in the second sentence of
sub-paragraph (1) above. (4) The credit note must have been delivered to the trader providing the
service. Sentences 1 and 2 above shall apply by analogy to credit notes which the trader issues as
payment or partial payment for a taxable supply or other service which has not yet been carried
out. The credit note shall cease to have effect as an invoice in so far as the recipient contests the
amount of tax shown therein.
Question 1
15.
By its first question the national court essentially asks whether art 22(3)(c) of the Sixth Directive
authorises member states to regard a credit note issued by the recipient of goods or services as a
document serving as an invoice.
16.
Under art 22(3)(a) of the Sixth Directive, an invoice or document serving as such must be issued by
every taxable person in respect of all goods and services supplied by him to another taxable person and,
under art 22(3)(b), that that invoice or document serving as such must state clearly the price exclusive of
tax and the corresponding tax at each rate as well as any exemptions.
190
17.
The minimum conditions regarding the information which must appear on the invoice or document
serving as such having thus been laid down, art 22(3)(c) leaves the member states free to determine the
criteria for considering whether such a document serves as an invoice. That power must, however, be
exercised consistently with one of the objectives of the Sixth Directive, namely to ensure that VAT is
levied and collected under the supervision of the tax authorities (see, to this effect, the judgments in
Jeunehomme v Belgium Joined cases 123/87 and 330/87 [1988] ECR 4517 (paras 16, 17) and Reisdorf v
Finanzamt Kln-West Case C-85/95 [1997] STC 180, [1996] ECR I-6257 (para 24)).
18.
It must therefore be considered whether a credit note which includes, as in the case in the main
proceedings, the compulsory information referred to in art 22(3)(b) of the Sixth Directive may be regarded
as serving as an invoice even though it is issued by the recipient of the goods or services, where under
the relevant national provisions the issuer and the recipient of the credit note must have agreed that the
supply or service is to be settled by a credit note, the credit note must have been delivered to the trader
providing the service, and the credit note may no longer serve as an invoice if its recipient contests the
amount of tax stated therein.
19.
Article 22(3)(a) of the Sixth Directive refers to the normal situation where an invoice or document
serving as an invoice is issued by the taxable person who supplies the goods or services.
20.
However, as Advocate General Lger observes in paras 29ff of his opinion, above, since the purpose
of that provision is to ensure correct collection of the tax and to avoid fraud, there is no reason why the
document in question should not be drawn up by the recipient of the goods or services, provided that it
includes the information prescribed for an invoice and the taxable person who supplies the goods or
services has been given the opportunity to ask, if necessary, for the information to be corrected.
21.
In such a case, since he has that power of control, the taxable person may be regarded as the author
of the document, the drawing-up of which he has, as it were, delegated to his customer. The credit note
thus fulfils the function of documenting the taxable persons rights and obligations with respect to VAT,
since it contains the same information as a traditional invoice and the taxable person is free to approve its
content.
22.
As the German and UK governments have rightly observed, a credit note issued by the recipient of the
goods or services is in many cases the best means of accounting for the supplies effected, in that it is
only the recipient of the goods or services who is in a position to check that they comply with the terms of
the contract.
23.
In those circumstances, it cannot be deduced from the fact that art 22(3)(a) of the Sixth Directive
provides only for the issuing by the taxable person who supplies the goods or services of an invoice or
document serving as such that it is not possible for the member states to regard a document as serving
as an invoice solely because it has been issued by the recipient of the goods or services.
24.
The answer to question 1 must therefore be that art 22(3)(c) of the Sixth Directive authorises member
states to regard a credit note issued by the recipient of the goods or services as a document serving as
an invoice, where it includes the information prescribed for invoices by that directive, it is drawn up with
the agreement of the taxable person who supplies the goods or services, and the latter is able to contest
the amount of VAT mentioned.
191
Question 2
25.
By its second question the national court seeks to establish whether a taxable person who has not
contested the mention, in a credit note serving as an invoice, of an amount of VAT greater than that owed
by reason of taxable transactions may be regarded as the person who has mentioned that amount, and is
consequently liable for the amount stated, within the meaning of art 21(1)(c) of the Sixth Directive.
26.
Article 21(1)(c) of the Sixth Directive provides that any person who mentions the VAT on an invoice or
other document serving as invoice is liable to pay VAT under the internal system.
27.
Where, as in the case in the main proceedings, a credit note serves as an invoice, the taxable person
must be regarded as the person who has in fact mentioned VAT in the credit note, within the meaning of
art 21(1)(c) of the Sixth Directive, and is consequently liable to pay the amount stated.
28.
Were it otherwise, part of the VAT appearing in the document serving as an invoice would not have to
be paid by the taxable person, even though, as the order for reference observes, that VAT might have
been deducted in full by the recipient of the goods or services, thus giving scope for possible fraud or
collusion, contrary to the proper functioning of the common system of VAT established by the Sixth
Directive and to its objective of ensuring that VAT is levied and collected under the supervision of the tax
authorities.
29.
The answer to question 2 must therefore be that a taxable person who has not contested the mention,
in a credit note serving as an invoice, of an amount of VAT greater than that owed by reason of taxable
transactions may be regarded as the person who has mentioned that amount, and is consequently liable
to pay the amount shown, within the meaning of art 21(1)(c) of the Sixth Directive.
Question 3
30.
In view of the answer to question 2, there is no need to answer question 3.
Costs
31.
The costs incurred by the German, Greek and UK governments and by the European Commission,
which have submitted observations to the Court of Justice, are not recoverable. Since these proceedings
are, for the parties to the main proceedings, a step in the action pending before the national court, the
decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the
Bundesfinanzhof by order of 14 March 1996, hereby rules:
(1) Article 22(3)(c) of Council Directive (EEC) 77/388 on the harmonisation of the laws of the member
states relating to turnover taxescommon system of value added tax: uniform basis of assessment
authorises member states to regard a credit note issued by the recipient of the goods or services as a
document serving as an invoice, where it includes the information prescribed for invoices by that
directive, it is drawn up with the agreement of the taxable person who supplies the goods or services, and
the latter is able to contest the amount of VAT mentioned. (2) A taxable person who has not contested the
mention, in a credit note serving as an invoice, of an amount of VAT greater than that owed by reason of
taxable transactions may be regarded as the person who has mentioned that amount, and is
consequently liable to pay the amount shown, within the meaning of art 21(1)(c) of the directive.
192
The plaintiff applied to her employer for travel concessions for her female partner, with whom she
declared she had had a meaningful relationship for over two years. Her employer refused the request on
the ground that, under company regulations, travel concessions for unmarried persons could only be
granted for a partner of the opposite sex. The plaintiff subsequently brought proceedings before an
industrial tribunal, claiming that the refusal constituted discrimination on grounds of sex and was contrary
to Community provisions on equal pay. The tribunal stayed the proceedings and referred to the Court of
Justice of the European Communities for a preliminary ruling questions as to whether an employers
refusal to grant travel concessions to the person of the same sex with whom an employee had a stable
relationship constituted discrimination prohibited by art 119 1 of the EC Treaty and Council Directive (EEC)
75/117 on the approximation of the laws of the member states relating to the application of the principle of
equal pay for men and women, where such concessions were granted to an employees spouse or a
person of the opposite sex with whom an employee had a stable relationship outside marriage.
1
Article 119, so far as material, is set out at p 198 h, post
Held The condition imposed by the employers regulations applied in the same way to female and male
workers and did not therefore constitute discrimination based directly on sex for the purposes of art 119 of
the Treaty. Moreover, in the present state of the law within the Community, stable relationships between
two persons of the same sex were not regarded as equivalent to marriage or stable relationships outside
marriage between two persons of the opposite sex. That could be inferred from, inter alia, the absence of
any Community rule providing for such equivalence, from the treatment of such relationships by member
states, where for the most part they were either treated as equivalent only with respect to a limited
number of rights, or else not recognised in any particular way, and from the fact that national provisions
which accorded more favourable treatment to married persons and stable relationships between two
persons of the opposite sex, for the purpose of protecting the family, were not considered to be contrary
to art 14 of the Convention for the Protection of Human Rights and Fundamental Freedoms 1950. It
followed that an employers refusal to grant travel concessions 193 to an employees partner of the same
sex, where such concessions were available to a spouse or the partner of the opposite sex with whom the
employee had a stable relationship outside marriage, did not constitute discrimination prohibited by art
119 of the Treaty or Directive 75/117 (see p 207 h, p 208 a to f and p 210 b d e, post).
S v UK (1986) 47 D & R 274, B v UK (1990) 64 D & R 278, Cossey v UK (1990) 13 EHRR 622
considered.
Per curiam. Although the court has previously argued against a restrictive interpretation of art 119, that
reasoning only applies to discrimination based essentially, if not exclusively, on the sex of the person
concerned. It is therefore limited to the case of a workers gender reassignment and does not apply to
differences of treatment based on a persons sexual orientation (see p 209 b, post); P v S Case C-13/94
[1996] All ER (EC) 397 distinguished.
Notes
For the principle of equal pay for men and women, see 52 Halsburys Laws (4th edn) paras 2111, and
2112, and for cases on the subject, see ibid paras 21162117.
For the EC Treaty, art 119, see 50 Halsburys Statutes (4th edn) 306.
Cases cited
B v UK (1990) 64 D & R 278, E Com HR.
C v UK App No 14753/89 (9 October 1989, unreported) E Com HR.
Coloroll Pension Trustees Ltd v Russell Case C-200/91 [1995] All ER (EC) 23, [1994] ECR I-4389, ECJ.
Cossey v UK (1990) 13 EHRR 622, E Ct HR.
Davis v Johnson [1978] 1 All ER 1132, [1979] AC 264, [1978] 2 WLR 553, HL.
Defrenne v Sabena Case 43/75 [1981] 1 All ER 122, [1976] ECR 455, ECJ.
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990]
ECR I-3941.
Dzodzi v Belgium Joined cases C-297/88 and C-197/89 [1990] ECR I-3763.
Enderby v Frenchay Health Authority Case C-127/92 [1993] ECR I-5535.
Garland v British Rail Engineering Ltd Case 12/81 [1982] 2 All ER 402, [1983] AC 751, [1982] 2 WLR 918,
[1982] ECR 359, ECJ.
Gillespie v Northern Health and Social Services Board Case C-342/93 [1996] All ER (EC) 284, [1996]
ECR I-475, ECJ.
Kerkhoven v the Netherlands App No 15666/89 (19 May 1992, unreported), E Com HR.
McDermott v Minister for Social Welfare Case 286/85 [1987] ECR 1453.
Neath v Hugh Steeper Ltd Case C-152/91 [1994] 1 All ER 929, [1993] ECR I-6935, ECJ.
Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297.
Opinion 2/94 [1996] ECR I-1759.
Orkem v EC Commission Case 374/87 [1989] ECR 3283.
P v S Case C-13/94 [1996] All ER (EC) 397, [1996] ECR I-2143, ECJ.
Rees v UK (1986) 9 EHRR 56, E Ct HR.
S v UK (1986) 47 D & R 274, E Com HR.
Society for the Protection of Unborn Children Ireland Ltd v Grogan Case C-159/90 [1991] ECR I-4685.
Toonen v Australia Communication [1994] 1-3 IHRR 97, HR Committee.
Van Cant v Rijksdienst voor Pensioenen Case C-154/92 [1993] ECR I-3811.
X v UK (1983) 32 D & R 220, E Com HR.
194
Reference
By decision of 19 July 1996, the Industrial Tribunal, Southampton, referred to the Court of Justice of the
European Communities for a preliminary ruling under art 177 of the EC Treaty six questions (set out at p
205 d to g, post) on the interpretation of art 119 of that Treaty, Council Directive (EEC) 75/117 on the
approximation of the laws of the member states relating to the application of the principle of equal pay for
men and women, and Council Directive (EEC) 76/207 on the implementation of the principle of equal
treatment for men and women as regards access to employment, vocational training and promotion, and
working conditions. Those questions were raised in proceedings between Ms Grant and her employer
South-West Trains Ltd (SWT) concerning the refusal by SWT of travel concessions for Ms Grants female
partner. Written observations were submitted on behalf of: Ms Grant, by C Booth QC, and by P Duffy and
M Demetriou, Barristers; SWT, by N Underhill QC and M Shanks, Barrister; the UK government, by J E
Collins, of the Treasury Solicitors Department, acting as agent; and S Richards and D Anderson,
Barristers; the French government, by C de Salins, Deputy Director in the Legal Affairs Department of the
Ministry of Foreign Affairs, and A de Bourgoing, Charg de Mission in that department, acting as agents;
and the European Commission, by C Docksey, M Wolfcarius and C OReilly, of its Legal Service, acting
as agents. Oral observations were made by: Ms Grant, represented by C Booth QC, P Duffy QC and M
Demetriou; SWT, represented by N Underhill QC and M Shanks; the UK government, represented by J E
Collins, D Anderson and P Elias QC; and the Commission, represented by C OReilly and M Wolfcarius.
The language of the case was English. The facts are set out in the opinion of the Advocate General.
30 September 1997.
The case before the national court and the questions referred for a preliminary ruling
2.
On 4 June 1993 Lisa Grant was engaged as a clerical officer by the British Railways Board. On 31
March 1995 the employment relationship was transferred to South-West Trains Ltd (SWT), a wholly-
owned subsidiary, which was privatised on 4 February 1996. Clause 18 of her contract of employment,
entitled Travel facilities, states:
You will be granted such free and reduced rate travel concessions as are applicable to a
member of your grade. Your spouse and dependants will also be granted travel concessions. Travel
concessions are granted at the discretion of [the employer] and will be withdrawn in the event of
their misuse.
3.
Those travel concessions are further regulated in the Staff Travel Facilities Privilege Ticket Regulations
(the ticket regulations), issued by the British Railways Board and adopted by SWT after privatisation.
Clause 8 of the ticket regulations, entitled Spouses, provides inter alia:
195
Privilege tickets are granted for one common law opposite sex spouse of staff subject to a
statutory declaration being made that a meaningful relationship has existed for a period of two
years or more
4.
Under cls 10 and 11 of the ticket regulations, the employee is also entitled to concessions for
unmarried children living at home. Under cl 12 it is further stated thatPrivilege tickets may be issued
for a relative acting as a bona fide permanent resident housekeeper to and entirely dependent upon the
applicant if the employee is either living alone or with an invalid spouse. Under that clause relative is
defined as a mother, father, brother sister, daughter or son.
5.
Mr Potter, who was Lisa Grants predecessor in post, had in his time made a statutory declaration that
a meaningful relationship had existed between him and his female cohabitee for a period of two years or
more, and on that basis had obtained travel concessions for her.
6.
On 9 January 1995 Lisa Grant similarly applied for travel concessions for her female cohabitee, Jillian
Percey, at the same time making a declaration that she lived together with
the individual described as my common law spouse on my application for concessionary travel
facilities in a Common law relationship and that I have so lived for a continuous period of two
years or more
Lisa Grants application was rejected on the ground that, under cl 8 of the ticket regulations, travel
concessions were not granted for cohabitees of the same sex.
7.
Lisa Grant then brought a case against SWT before the Industrial Tribunal, Southampton, United
Kingdom, claiming that art 119 of the EC Treaty precluded her being denied part of her pay consisting in
obtaining travel concessions for her female cohabitee, when a male employee in the same circumstances
would obtain travel concessions for his female cohabitee.
8.
By order registered at the Court of Justice of the European Communities on 22 July 1996 the Industrial
Tribunal stayed the proceedings and referred the following questions to the Court of Justice:
(1) Is it (subject to (6) below) contrary to the principle of equal pay for men and women
established by Article 119 of the Treaty establishing the European Community and by Article 1 of
Council Directive 75/117 for an employee to be refused travel concessions for an unmarried
cohabiting same-sex partner where such concessions are available for spouses or unmarried
opposite-sex cohabiting partners of such an employee?
(2) For the purposes of Article 119 does discrimination based on sex include discrimination
based on the employees sexual orientation?
(3) For the purposes of Article 119, does discrimination based on sex include discrimination
based on the sex of that employees partner?
(4) If the answer to Question (1) is yes, does an employee, to whom such concessions are
refused, enjoy a directly enforceable Community right against his employer?
(5) Is such a refusal contrary to the provisions of Council Directive 76/207?
(6) Is it open to an employer to justify such refusal if he can show (a) that the purpose of the
concessions in question is to confer benefits on married partners or partners in an equivalent
position to married partners and (b) that relationships between same-sex cohabiting partners have
not traditionally been, and are not generally, regarded by society as equivalent to marriage;
196rather than on the basis of an economic or organizational reason relating to the employment in
question?
Does the case concern a family law issue falling outside the EC Treaty?
27.
A further question that must, however, be examined is whether that discrimination is a consequence of
the family law legislation in the member state in question. The European Commission has thus stated that
the case concerns the definition of a common law spouse and is thus a family law issue which does not
fall under the EC Treaty.
28.
Had cl 8 of the ticket regulations specified, as the determinant criterion, that the employee and the
cohabitee must have contracted marriage, that would, in my opinion, have been a restriction on the travel
concessions which was not contrary to Community law, because it would be by reference to a family law
concept, the content of which is laid down by the member states.
29.
There would, nevertheless, have been a precondition that male and female employees and their
spouses be treated in the same way. If an employer, on the basis of his private moral views, wished to
combat the breaking-down of the traditional sex roles by giving employees whose wives stayed at home a
special benefit but refusing to give employees whose husbands stayed at home a corresponding benefit,
such a rule would be contrary to art 119 of the Treaty, since that would involve discrimination based on
both the employees gender and the gender of their spouses, and would not simply refer to family law
status.
30.
Clause 8 of the ticket regulations does not, however, refer to a concept which in English law confers a
family law status, but rather uses the expression common law spouse. However, neither in statute law
nor common law does that expression have any legal significance in England. English law has put
unmarried cohabitees on the same footing as married couples only in limited circumstances, for example
under rent legislation, and here a more precise formulation is used such as, for example a man and a
woman who lived with each other as husband and wife. Such provisions are assumed in general to
require that the couple in question have shared finances, share a social life and have sexual relations,
although the absence of the last is not decisive (see, further, Bromley and Lowe Family Law (1992, 8th
edn) pp 510).
31.
The term common law spouse and similar terms are thus not used in English family law legislation
and, in a case in the social law area, the members of the House of Lords expressed a certain reluctance
to employ the term in a legal context when stating inter alia that the case in question concerned an
unmarried woman commonly but not very appropriately referred to as a common law wife (see Davis v
Johnson [1978] 1 All ER 1132 at 1149, [1979] AC 264 at 340). The expression common law spouse or
similar expressions must therefore be 200 regarded simply as an expression used in everyday language
with no specifically defined content which is liable to change in accordance with changes in the general
view, so that in principle there is nothing to prevent the expression common law spouse extending to
cohabitees of the same gender. In English contract law the expression agency of cohabitation is,
moreover, used to mean that in certain circumstances cohabitation entitles a person to enter into certain
legal transactions which will bind his or her cohabitee (see Cheshire, Fifoot & Furmstons Law of Contract
(1996, 13th edn) pp 4912). Such entitlement is based on societys view of the permanency and
character of the cohabitation, and therefore there does not seem to be anything, in principle, to prevent
cohabitees of the same sex from satisfying the conditions for an agency of cohabitation.
32.
The fact that two persons of the same sex may, in the United Kingdom, be regarded as common law
spouses would also appear to be the case on an a contrario construction of cl 8 of SWTs own ticket
regulations. If the expression common law spouses referred exclusively to persons of different sexes,
there would be no reason to refer to a common law opposite sex spouse .
33.
It was SWT itself which introduced that restriction, leading to gender discrimination, into the term.
34.
Gender discrimination is accordingly, in this case, not the result of family law legislation in the member
state in question and for that reason outside the scope of Community law.
Direct applicability
44.
By its fourth question, the national court wishes to ascertain whether art 119 of the Treaty is directly
applicant and therefore, in a case such as this, may be enforced directly before national courts.
45.
The court held in the judgment in Defrenne [1981] 1 All ER 122, [1976] ECR 455 (paras 1822) that art
119 of the Treaty is directly applicable if direct discrimination is involved, in other words discrimination that
can be ascertained by applying the criteria laid down in the provision. As an example, the court mentions
discrimination which has its origin in legislative provisions or in collective labour agreements, as well as
discrimination in relation to pay, operating in one and the same private or public undertaking or service,
inasmuch as such discrimination can be detected on the basis of a purely legal analysis of the situation.
46.
In this case discrimination against employees whose cohabitees are of the same sex in relation to
employees whose cohabitees are of the opposite sex can be detected in one and the same undertaking
and one and the same set of regulations, namely SWT and cl 8 of the ticket regulations. The precondition
for art 119 having direct effect must, therefore, be satisfied.
47.
The national court is accordingly required to ensure that the disadvantaged group is treated in the
same way as the favoured group2, and thereby to ensure that employees of SWT who have a cohabitee
of the same gender are put on the same footing as employees who have a cohabitee of the opposite
gender and accordingly receive travel concessions for their cohabitee.
2
See the judgment in Coloroll [1995] All ER (EC) 23, [1994] ECR I-4389 (para 32), Van Cant v Rijksdienst voor
Pensioenen Case C-154/92 [1993] ECR I-3811 (para 22) and McDermott v Minister for Social Welfare Case 286/85
[1987] ECR 1453 (para 19).
48.
The answer to that question must therefore, in my opinion, be that art 119 of the Treaty is directly
applicable and it is for the national courts to ensure that the disadvantaged group of employees is treated
in the same way as the favoured group.
Temporal effect
49.
In its observations the United Kingdom requested the court to limit the temporal effect of the judgment
if the questions referred to it are answered in the affirmative. The United Kingdom did not repeat that
request at the hearing and has not produced evidence to show that in this case there is a need for
temporal effect to be restricted. In my view a judgment that followed my opinion would not depart from the
courts case law hitherto and would also be founded on its facts. I do not see any reason for laying down
any temporal restriction on the effect of the judgment.
Conclusion
50.
In the light of the foregoing, I would suggest that the Court of Justice reply to the questions referred by
the Industrial Tribunal, Southampton, as follows:
(1) A provision in an employers pay regulations under which the employee is granted a pay
benefit in the form of travel concessions for a cohabitee of the opposite gender to the employee,
but refused such concessions for a cohabitee of the same gender as the employee, constitutes
discrimination on the basis of gender, which is contrary to art 119 of the EC Treaty.
203
(2) Such discrimination on the basis of gender cannot be justified by reference to the fact that
the employers intention is to confer benefits on heterosexual couples as opposed to homosexual
couples.
(3) Article 119 is directly applicable and it is for the national courts to ensure that the
disadvantaged group of employees is treated in the same way as the favoured group.
17 February 1998.
Costs
51.
The costs incurred by the United Kingdom and French governments and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the action pending before the national
tribunal, the decision on costs is a matter for that tribunal.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Industrial
Tribunal, Southampton, by decision of 19 July 1996, hereby rules: the refusal by an employer to allow
travel concessions to the person of the same sex with whom a worker has a stable relationship, where
such concessions are allowed to a workers spouse or to the person of the opposite sex with whom a
worker has a stable relationship outside marriage, does not constitute discrimination prohibited by art 119
of the EC Treaty or Council Directive (EEC) 75/117 on the approximation of the laws of the member states
relating to the application of the principle of equal pay for men and women.
210
The plaintiff let accommodation to refugees referred to her by the municipal social services department,
which issued her with certificates attesting that it would pay the costs of that accommodation. The
certificates were usually valid for one month but could be extended if necessary. In most cases the
average actual duration of a refugees stay was greater than six months; however, the letting agreements
concluded with the refugees were always signed for less than six months, notwithstanding the plaintiffs
stated wish to let accomodation only to those who would stay for at least six months. Under German law
traders letting short-term (defined as less than six months) living and sleeping accommodation to guests
were liable to value added tax on those transactions and that the criterion of short-term accommodation
referred not to the actual length of stay but to the traders intention as expressed in a letting agreement.
On receiving an assessment to tax in respect of the refugees lettings, the plaintiff brought proceedings
before the Finanzgericht, Mnchen contending that she was not liable. That court stayed the proceedings
and referred to the Court of Justice of the European Communities for a preliminary ruling the question
whether short-term accommodation, as defined by the German legislation, constituted the provision of
accommodation in the hotel sector or in sectors with a similar function for the purposes of art 13B(b)(1) 1
of Council Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to
turnover taxescommon system of value added tax: uniform basis of assessment, which provided that
such accommodation was not exempt from value added tax.
1
Article 13B(b)(1), so far as material, is set out at p 219 j, post
Held The phrase sectors with a similar function in art 13B(b)(1) had to be given a broad construction,
since its purpose was to ensure that the provision of temporary accommodation which was similar to and
hence in potential competition with that provided in the hotel sector was subject to tax. Member states
enjoyed a margin of discretion in defining the provision of accommodation to be taxed by virtue of art
13B(b)(1), and it was for them to introduce appropriate criteria to distinguish between the taxable
provision of accommodation in the hotel and similar sectors and the exempted transactions of leasing and
letting of immovable property. The criterion of duration was an appropriate one for the 211 purpose of
making the necessary distinction and the use of a criterion of less than six months duration was a
reasonable means of ensuring that the transactions of taxable persons whose business was similar to the
essential function of a hotel were subject to tax. Moreover, the German law whereby qualification for
exemption depended on proving an intention, evidenced by a letting agreement, to let for a minimum of
six months, provided a criterion that was easy to apply and appropriate to ensure a correct and
straightforward application of the exemptions for which art 13B provided. Accordingly, art 13B(b)(1) could
be construed as meaning that the provision of short-term accommodation for guests was taxable, as
constituting the provision of accommodation in sectors with a function similar to that of the hotel sector. In
that regard, art 13B(b)(1) did not preclude taxation in respect of agreements concluded for a period of
less than six months, if that duration was deemed to reflect the parties intention. However, it was for the
national court to determine whether, in a case before it, certain factors, such as the automatic renewal of
the letting agreement, suggested that the duration stated in the letting agreement did not reflect the
parties true intention, in which case the actual total duration of the accommodation, rather than that
specified in the letting agreement, would have to be taken into consideration (see p 221 b to p 222 c e to
g, post).
Notes
For exemptions within the territory of a country, see 52 Halsburys Laws (4th edn) para 2028.
Cases cited
Bulthuis-Griffioen v Inspector der Omzetbelasting Case C-453/93 [1995] ECR I-2341, [1995] STC 954,
ECJ.
Skatteministeriet v Henriksen Case 173/88 [1989] ECR 2763, [1990] STC 768, ECJ.
Stichting Uitvoering Financile Acties v Staatssecretaris van Financile Case 348/87 [1989] ECR 1737.
Reference
By order of 20 September 1995 the Finanzgericht Mnchen (the Finance Court, Munich) referred to the
Court of Justice of the European Communities for a preliminary ruling three questions (set out at p 220 c
to e, post) concerning the interpretation of art 13B(b)(1) of Council Directive (EEC) 77/388 on the
harmonisation of the laws of the member states relating to turnover taxescommon system of value
added tax: uniform basis of assessment. Those questions arose in a dispute between Mrs Blasi and the
Finanzamt Mnchen I (Munich I tax office) concerning Mrs Blasis liability to pay value added tax in
respect of the provision of accommodation treated under German law as being short-term because the
letting agreements were entered into for a period of less than six months. Written observations were
submitted on behalf of: the German government, by E Rder, Ministerialrat in the Federal Ministry of
Economic Affairs, and B Kloke, Oberregierungsrat in that ministry, acting as agents; and the European
Commission by J Grunwald, Legal Adviser, acting as agent. Oral observations were submitted by: Mrs
Blasi, represented by H Weindl, Rechtsanwalt, Munich; the German government, represented by E Rder
and C Quassowski, Regierungsdirektor in the Federal Ministry of Economic Affairs, acting as agent; and
the Commission, represented by J Grunwald. The language of the case was German. The facts are set
out in the opinion of the Advocate General.
212
25 September 1997.
16.
However, while generally exempting the leasing or letting of immovable property, art 13B(b) also
provides for exclusion of certain transactions from exemption. The common feature of those transactions
is that they entail more active exploitation of the immovable property justifying further taxation in addition
to that levied upon its initial sale.
17.
With more particular reference to art 13B(b)(1), it may be noted, first, that its terms, in particular the
phrases accommodation, as defined in the laws of the Member States and sectors with a similar
function, are somewhat imprecise. It seems to me that the intention was to leave the member states
some latitude in defining the precise limits of the exclusion.
18.
Secondly, as already noted, art 13B(b)(1) lays down an exclusion from the exemption and therefore
does not fall to be construed strictly. Indeed it seems to me that the words sectors with a similar function
should be given a broad construction since their purpose is to ensure that the provision of temporary
accommodation similar to, and hence in potential competition with, that provided in the hotel sector is
subject to tax.
19.
As regards the German provision, it is true that the short-term letting of residential property may not
entail all of the additional supplies of goods and services, such as provision of meals and drinks, cleaning
of rooms, provision of bed linen etc, normally provided in hotels. Nevertheless, there can be no doubt that
a taxable person offering, for example, short-term holiday lets of residential property fulfils essentially the
same function asand is in a competitive relationship witha taxable person in the hotel sector. The
essential distinction between such lettings and exempt lettings of residential property is the temporary
nature of the accommodation. In any event, short-term lets are more likely to involve additional services
such as provision of linen and cleaning of common parts of buildings or even of the accommodation itself
(indeed a number of such services are provided by Mrs Blasi); moreover, they involve more active
exploitation of the property than long-term lets in so far as greater supervision and management is
required.
20.
Against that background it seems to me that, althoughunlike art 13B(b)(1)the German provision
does not expressly focus on the nature of the establishment providing the accommodation or the sector in
which it is provided, the criterion of the provision of short-term accommodation to guests which it employs
represents a reasonable means of achieving the underlying aim of the provision. It ensures that the
transactions of taxable persons whose business is similar to the essential function performed by a hotel,
namely the provision of temporary accommodation on a commercial basis, are subject to tax. While it may
be true that it is not unknown for persons to stay for long periods in hotels, any inadequacies of the
German provision in that respect are not material to the present case and may in any event be of minimal
practical significance.
216
21.
Moreover, it seems to me that the requirement flowing from the case law of the Bundesfinanzhof that,
in order for the letting of an immovable property to qualify for exemption, there must be an intention,
evidenced by a lease or other agreement, to let the property for a minimum period of six months is not
unreasonable. It provides a workable and legally certain means of distinguishing between short-term
accommodation similar to that provided in the hotel sector and the longer term letting of residential
property for which the directive provides exemption. A hotel or hostel will be willing to accept guests for
potentially short stays, whereas a landlord interested in more passive longer term lets will require an
agreement providing confirmation of the tenants intention to stay for a longer period. I see no reason to
interpret the directive as imposing a maximum of three months as the European Commission suggests.
22.
It may be noted that the opening words of art 13B require member states to lay down conditions for
ensuring the correct and straightforward application of the exemptions and of preventing any possible
evasion, avoidance or abuse. Germany is in my view entitled to consider that the other criteria suggested
by Mrs Blasi, such as whether the accommodation is the centre of interests of the persons concerned or
whether additional services are provided, would be too uncertain and difficult to apply. For example, a
residential caravan on a camping site in Spain might be regarded as the centre of interests of a retired
person who sells his house and goes to live there throughout the year; it would be difficult for the camping
site owner to apply such a criterion. Moreover, the level of services and facilities provided by hotels,
hostels and camping sites varies considerably. There are hotels which offer no more than a room and
camping sites which provide little more than a camping field. Moreover, the German government might
reasonably consider that such criteria would be less likely than one based on the period of stay to achieve
the aim of competitive neutrality.
23.
In so far as Mrs Blasis genuine intention is to provide longer-term lets of residential property it would
be open to her to enter into an agreement to that effect. If, on the other hand, the inherently temporary
nature of the stays prevents her from doing so, then it is not unreasonable that the tax authorities should
take the view that what is at issue is short-term commercial exploitation of immovable property and
equate the accommodation which she provides with the taxable accommodation provided by a hostel or
cheaper hotel. Indeed it is conceivable that the City of Munich might equally use such establishments for
the temporary accommodation of asylum seekers and emigrants.
24.
With reference to question 2(b) put by the national court, I do not think the German authorities are
obliged to grant exemption in respect of part of the period of a letting where a letting happens to exceed
six months. The German authorities are in my view justified in considering that a letting is of a long-term
nature and qualifies for exemption only if there is evidence of an intention from the beginning that
accommodation is to be provided for a period of at least six months.
25.
Finally, as I have already explained, in so far as the German rule was considered to go beyond the
terms of art 13B(b)(1) by taxing accommodation such as that provided by Mrs Blasi, it could in any event
be based on the last sentence of art 13B(b).
Conclusion
26.
Accordingly, I am of the opinion that the questions referred by the Finanzgericht Mnchen should be
answered as follows:
217
A national rule subjecting to VAT the provision of short-term accommodation to guests, that is to
say, the provision of accommodation otherwise than under an agreement providing for a minimum
stay of six months, is compatible with art 13B(b)(1) of Council Directive (EEC) 77/388 on the
harmonisation of the laws of the member states relating to turnover taxescommon system of
value added tax: uniform basis of assessment.
12 February 1998.
Costs
28.
The costs incurred by the German government and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the action pending before the national court, the decision on
costs is a matter for that court.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the questions referred to it by the
Finanzgericht Mnchen by order of 20 September 1995, hereby rules: art 13B(b)(1) of Council Directive
(EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover taxescommon
system of value added tax: uniform basis of assessment, may be construed as meaning that the provision
of short-term accommodation for guests is taxable, as constituting the provision of accommodation in
sectors with a function similar to that of the hotel sector. In that regard, art 13B(b)(1) does not preclude
taxation in respect of agreements concluded for a period of less than six months, if that duration is
deemed to reflect the parties intention. It is, however, for the national court to determine whether, in a
case before it, certain factors (such as the automatic renewal of the letting agreement) suggest that the
duration stated in the letting agreement does not reflect the parties true intention, in which case the
actual total duration of the accommodation, rather than that specified in the letting agreement, would have
to be taken into consideration.
222
The taxpayer company carried out investment work on land owned by it in the harbour area of Ghent and
deducted the value added tax paid on the goods and services relating to that work for the tax period from
January 1981 to December 1983. In March 1983 the taxpayer was required by the City of Ghent to
exchange that land for other land in the harbour area and consequently never used the land in respect of
which it had carried out the investment work giving rise to the tax deduction. Although it was not disputed
that the investment would have been used in taxable transactions but for the exchange and that the
exchange had neither been foreseen nor planned in advance by the taxpayer, the tax authorities sought
repayment of the tax deducted on the grounds that the taxpayer had not ultimately used the land in
question for that purpose. In proceedings in which the taxpayer resisted the repayment demand, the
Belgian Court of Cassation stayed the proceedings and referred to the Court of Justice of the European
Communities for a preliminary ruling the questions: (i) whether art 17 1 of Council Directive (EEC) 77/388
(on the harmonisation of the laws of the member states relating to turnover taxescommon system of
value added tax: uniform basis of assessment) allowed a taxable person to deduct value added tax which
he was liable to pay on goods and services supplied to him for the purposes of investment work intended
to be used in connection with taxable transactions; and (ii) if so, whether the right to deduct was retained
where, due to circumstances beyond his control, the taxable person had never made use of that
investment work in order to carry out taxable transactions.
1
Article 17, so far as material, is set out at p 234 g, post
Held The right of deduction granted to taxable persons under art 17 of Directive 77/388 had to be
exercised immediately in respect of all the taxes charged on transactions relating to inputs. On a proper
construction of art 17, therefore, a taxable person acting as such was entitled to deduct the VAT payable
or paid for goods or services supplied to him for the purpose of investment work intended to be used in
connection with taxable transactions. Moreover, in the absence of fraud or abuse, the right to deduct,
once it had arisen, remained acquired even if the planned economic activity did not give rise to taxable
transactions. When circumstances beyond the control of the taxable person had prevented him from 223
using the goods or services giving rise to deduction for the needs of his taxable transactions, there was
no risk of fraud or abuse justifying subsequent repayment (see p 236 e j to p 237 d g h, post).
Intercommunale voor Zeewaterontzilting (INZO) (in liq) v Belgium Case C-110/94 [1996] ECR I-857
applied.
Per curiam. It is possible under the provisions of the directive for the original deduction to be adjusted
where circumstances which affect the factors to be taken into account when calculating the original
deduction subsequently arise (see p 237 c, post).
Notes
For the right to deduct, see 52 Halsburys Laws (4th edn) para 2033.
Cases cited
BP Supergas Anonimos Etaira Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece Case C-62/93
[1995] All ER (EC) 684, [1995] ECR I-1883, ECJ.
EC Commission v France Case 50/87 [1988] ECR 4797.
Intercommunale voor Zeewaterontzilting (INZO) (in liq) v Belgium Case C-110/94 [1996] ECR I-857,
[1996] STC 569, ECJ.
Lennartz v Finanzamt Mnchen III Case C-97/90 [1991] ECR I-3795, [1995] STC 514, ECJ.
Rompelman v Minister van Financin Case 268/83 [1985] ECR 655.
Reference
By decision of 10 February 1995, the Belgian Hof van Cassatie (the Court of Cassation) referred for a
preliminary ruling a question (set out at p 236 b, post) concerning the interpretation of art 17 of Council
Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover taxes
common system of value added tax: uniform basis of assessment. That question arose in a dispute
between the Belgian State and Ghent Coal Terminal NV concerning payment of an amount of value
added tax which it deducted in respect of certain investment work which it had carried out. Written
observations were submitted on behalf of: Belgium, by J Devadder, General Adviser in the Legal Service
of the Ministry of Foreign Affairs, External Trade and Development Co-operation, acting as agent,
assisted by I C Bouaert, Advocate with right of audience before the Belgian Hof van Cassatie, and B van
de Walle de Ghelcke, of the Brussels Bar; Ghent Coal Terminal NV, by P Van Ommeslaghe, Advocate
with right of audience before the Belgian Hof van Cassatie; the German government, by E Rder,
Ministerialrat in the Federal Ministry of Economic Affairs, and G Thiele, Assessor in that ministry, acting as
agents; the Greek government, by M Apessos, Deputy Legal Adviser in the State Legal Council, Maria
Basdeki, Agent for Legal Proceedings in the State Legal Council, and A Rokofyllou, Special Adviser to the
Deputy Minister for Foreign Affairs, acting as agents; and the European Commission, by B J Drijber, of its
legal service, acting as agent. Oral observations were submitted by: the Belgian State, represented by B
van de Walle de Ghelcke; Ghent Coal Terminal NV, represented by M Lebbe, of the Brussels Bar; the
Greek government, represented by M Apessos and A Rokofyllou; and the Commission, represented by B
J Drijber. The language of the case was Dutch. The facts are set out in the opinion of the Advocate
General.
224
11 July 1996.
19.
Article 17(1) of the Sixth Directive provides: The right to deduct shall arise at the time when the
deductible tax becomes chargeable.
226
20.
Article 10(2) provides: The chargeable event shall occur and the tax shall become chargeable when
the goods are delivered or the services are performed.
21.
Article 17(2) provides as follows:
In so far as the goods and services are used for the purposes of his taxable transactions, the
taxable person shall be entitled to deduct from the tax which he is liable to pay: (a) value added tax
due or paid in respect of goods or services supplied or to be supplied to him by another taxable
person
22.
Article 20(1) refers to the adjustment of deductions, in the following terms:
The initial deduction shall be adjusted according to the procedures laid down by the Member
States, in particular: (a) where that deduction was higher or lower than that to which the taxable
person was entitled; (b) where after the return is made some change occurs in the factors used to
determine the amount to be deducted, in particular where purchases are cancelled or price
reductions are obtained
23.
Article 20(2) lays down special rules for the adjustment of deductions in respect of capital goods:
In the case of capital goods, adjustments shall be spread over five years including that in which
the goods were acquired or manufactured. The annual adjustment shall be made only in respect of
one-fifth of the tax imposed on the goods. The adjustment shall be made on the basis of the
variations in the deduction entitlement in subsequent years in relation to that for the year in which
the goods were acquired or manufactured.
By way of derogation from the preceding sub-paragraph, Member States may base the
adjustment on a period of five full years starting from the time at which the goods are first used.
In the case of immovable property acquired as capital goods, the adjustment period may be
extended up to 10 years.
24.
Finally, art 20(3) provides for the situation of capital goods which have been transferred during the
period of adjustment.
26.
The parties submissions differ, however, concerning the content of the question referred to the court.
In Ghent Coals view the way in which the question is worded by the Hof van Cassatie implies that the
right to deduct had 227 already arisen, as demonstrated by the fact that the Hof van Cassatie did not
adopt the wording suggested by the Belgian State in its appeal 4. The question therefore draws a
distinction between the origin of the right and its subsequent continued existence.
4
The suggested wording was: Does art 17 mean that the right to deduct arises and remains in existence when the
investments have not in fact been put into use by the undertaking?
27.
The Belgian government, however, takes the view that the failure to use the investment work carried
out by Ghent Coal means that the deduction must be rejected ab initio, outright and in full. In other
words, the right to deduct had never legally arisen.
28.
The problem is accentuated when it is combined with the system of review or adjustment 5 of
deductions. Adjustment is the mechanism whereby the Sixth Directive (art 20) allows subsequent
changes to be made to deductions.
5
The word normally used is adjustment, in preference to review.
29.
Article 20 provides that the initial deduction is to be adjusted where that deduction proves to be higher
or lower than that to which the taxable person was entitled or where some change subsequently occurs in
the factors used to determine the amount to be deducted.
30.
In might be thought, in principle, that the Hof van Cassatie, by asking whether the right to deduct
remains in existence, seeks to ascertain whether or not it is possible to apply the procedure for adjusting
deductions to the present case in order to amend the deductions already effected, since it appears to be
the specific procedure provided for by the Sixth Directive. Neither of the parties to the main proceedings
supports that approach, however.
31.
According to the Belgian government, rejection of the right to deduct ab initio is not to be confused
with adjustment of a deduction of VAT and, since the right to deduct did not arise in this case, it is not
correct to speak of the adjustment of such a deduction.
32.
Ghent Coal, on the other hand, maintains that the question of adjustment was not in dispute between
the parties and was not raised before the Hof van Cassatie. It therefore falls outside the scope of the
proceedings between those parties. On the basis that the original deduction was lawful, however, and that
subsequent events deprived the investments of their intended purpose, Ghent Coal suggests that the
court should answer the Hof van Cassatie by confirming that, in principle, the deduction may be adjusted
subject to the limits and conditions laid down in the Sixth Directive 6.
6
That does not prevent Ghent Coal from maintaining that, as it was a case of economic force majeure, comparable to
the destruction or loss of the goods (a situation provided for in the Sixth Directive as an exceptional case in which the
deduction is not to be adjusted), the original deduction had become definitive, which allowed Ghent Coal, inter alia, to
claim full reimbursement, in separate proceedings, of the VAT which it had deducted in respect of the investments in
question and had subsequently repaid on demand by the Belgian State.
33.
I consider that the Court of Justices answer to the Hof van Cassatie should essentially be confined to
the actual terms of the question, which do not refer directly toalthough they do not excludeproblems
of adjustment.
34.
I shall therefore analyse, first of all, the requirements necessary to give rise to the right to deduct the
business expenditure incurred with a view to setting up Ghent Coals project. That analysis will extend to
the possible effect on the right to deduct of the fact that the project initially envisaged was abandoned.
35.
Secondly, if, as seems likely at first sight, that analysis should favour the existence of the right to
deduct, I shall consider to what extent the usefulness of 228 the courts answer would be enhanced by
going on to examine the problems of the adjustment of the deductions.
38.
It is sufficient, then, that the goods or services are acquired and used by an undertaking within the
framework of an economic activity for the VAT paid or due to be deductible. Where art 17(2) of the Sixth
Directive speaks of goods and services used for the purposes of his taxable transactions, it seeks to
emphasise that the use must be specifically aimed at the business activity and not at other activities of a
different kind.
39.
That does not mean, however, that the purpose or objective for which the goods acquired or services
received are to be used in the normal course must always be achieved in every case. On the contrary, it
is perfectly possible that certain business transactions for the realisation of which goods or services were
acquired may subsequently be frustrated. The right to deduct the VAT paid does not cease to exist for that
reason.
40.
I believe that the terms employed by the court in its decisions on the deduction of VAT and, specifically,
in its judgments in Rompelman v Minister van Financin Case 268/83 [1985] ECR 655, Lennartz v
Finanzamt Mnchen III Case C-97/90 [1991] ECR I-3795, [1995] STC 514, and Intercommunale voor
Zeewaterontzilting (INZO) (in liq) v Belgium Case C-110/94 [1996] ECR I-857, [1996] STC 569 are
sufficient to resolve the present case. For that reason I consider it necessary to set out some of those
considerations before analysing their application to this case.
41.
The judgment in Lennartz [1991] ECR I-3795, [1995] STC 514 (para 8) begins by stating:
Pursuant to Article 17(1) of the Sixth Directive, which is entitled Origin and scope of the right to
deduct, the right to deduct arises at the time when the deductible tax becomes chargeable.
Consequently, only the capacity in which a person is acting at that time can determine the
existence of the right to deduct. By virtue of Article 17(2), in so far as a taxable person, acting as
such, uses the goods for the purposes of his taxable transactions, he is entitled to deduct the tax
due or paid in respect of those goods.
229
42.
As regards the scope of the right to deduct the VAT due, the judgment in Lennartz [1991] ECR I-3795,
[1995] STC 514 (paras 1314) refers to the judgment in Rompelman and reiterates:
(13) the economic activities referred to in Article 4(1) may consist in several consecutive
transactions, as is indeed suggested by the wording of Article 4(2). Amongst such transactions
preparatory activities, such as the acquisition of operating assets, must be treated as constituting
economic activities within the meaning of that article.
(14) a person who acquires goods for the purposes of an economic activity within the
meaning of Article 4 does so as a taxable person, even if the goods are not used immediately for
such economic activities.
43.
Consequently, according to the judgment in Lennartz [1991] ECR I-3795, [1995] STC 514 (para 15), it
is the acquisition of the goods by a taxable person acting as such that gives rise to the application of the
VAT system and therefore of the deduction mechanism. The use to which the goods are put, or intended
to be put, merely determines the extent of the initial deduction to which the taxable person is entitled
under art 17 and the extent of any adjustments in the course of the following periods.
44.
More recently, in the INZO judgment the Court of Justice answered a question referred by another
Belgian court (the Rechtbank van Eerste Aanleg, Bruges) which presents great similarities to the question
referred in these proceedings.
45.
The question for the court in INZO was whether or not an undertaking which had acquired certain
capital goods and commissioned a study on the profitability of a project for the construction of a
desalination plant (in respect of which supply of goods and services the undertaking paid VAT) could
deduct the VAT paid, despite the fact that owing to profitability problems and the withdrawal of some
investors it subsequently abandoned the project without commencing the activity envisaged 8.
8
Rather than deduction stricto sensu, the case concerned the repayment of the VAT paid, which was initially agreed by
the tax authority pursuant to art 76 of the Belgian VAT code. On subsequently finding in the course of a tax inspection
that INZO had not carried out any taxable transaction, the tax authority claimed repayment of the VAT recovered by
INZO. INZO contested that claim before the Rechtbank van Eerste Aanleg, relying on the doctrine formulated by the
Court of Justice in Rompelman.
46.
In INZO the court observed that it had held (in Rompelman) that even the first investment expenditure
incurred for the purposes of a business may be regarded as an economic activity within the meaning of
art 4 of the Sixth Directive and that, in that context, the tax authority must take into account the declared
intention of the business.
47.
Next, the judgment stated that where the tax authority had accepted that a company which had
declared its intention to begin an economic activity giving rise to taxable transactions had the status of a
taxable person for the purposes of VAT, the carrying out of a study into the profitability of the activity
envisaged may be regarded as an economic activity within the meaning of art 4 of the Sixth Directive
even if the purpose of that study is to investigate the degree of profitability of the activity concerned.
48.
In the courts view, it followed that, if the same requirements were met, VAT paid in respect of such a
profitability study might in principle be deducted in accordance with art 17 of the Sixth Directive, even if it
had subsequently been 230 decided, in view of the results of that study, not to move to the operational
phase but to put the company into liquidation, with the result that the economic activity envisaged had not
given rise to taxed transactions9.
9
The judgment based that conclusion on two principles. (a) The principle of legal certainty, according to which the rights
and obligations of taxable persons cannot depend on facts, circumstances or events which occurred after they were
recognised by the tax authority. It follows that, as from the time when the tax authority accepted, on the basis of
information provided by a business, that it should be accorded the status of a taxable person, that status cannot, in
principle, subsequently be withdrawn retroactively on account of the fact that certain events have or have not occurred.
(b) The principle that VAT should be neutral as regards the tax burden on a business. Any other interpretation of the
directive, according to the court, would be liable to create, as regards the tax treatment of the same investment
activities, unjustified differences between businesses already carrying out taxable transactions and other businesses
seeking by investment to commence activities which will in future be a source of taxable transactions. Likewise, arbitrary
differences would be established between the latter businesses, in that final acceptance of the deductions would
depend on whether or not the investment resulted in taxable transactions.
49.
In accordance with those legal principles, the court gave the following answers to the questions
referred to it in INZO [1996] ECR I-857, [1996] STC 569 (operative part):
where the tax authority has accepted that a company which has declared an intention to
commence an economic activity giving rise to taxable transactions has the status of a taxable
person for the purposes of VAT, the commissioning of a profitability study in respect of the
envisaged activity may be regarded as an economic activity within the meaning of that article, even
if the purpose of that study is to investigate to what degree the activity envisaged is profitable, and
that except in cases of fraud or abuse, the status of taxable person for the purpose of VAT may
not be withdrawn from that company retroactively where, in view of the results of that study, it has
been decided not to move to the operational phase, but to put the company into liquidation with the
result that the economic activity envisaged has not given rise to taxable transactions.
61.
Nor can it be said that the problem is extraneous to the appeal to the Hof van Cassatie: indeed,
counsel for the Belgian State claimed that the appeal court had erred in law by stating, inter alia, that the
right to deduct had arisen and that the only available means of correcting the deduction was adjustment 11.
11
The judgment of the appeal court stated: in so far as it is apparent that after the return has been made a change has
occurred in the factors used to determine the amount to be deducted, as happened in the present case, since as a
result of the exchange the purpose normally attributed to the goods in question could not be achieved, the only possible
way of correcting it is by adjustment, as provided for in Article 48 of the VAT Code and Articles 6 and 10 of Royal Decree
No 3
62.
Moreover, in their observations to the court both the Commission and Ghent Coal suggest answers to
the questions referred which expressly include a confirmation of the possibility of adjustment 12.
12
The Commission maintains that the right to deduct the VAT paid in respect of those investments originally intended to be
used in the undertaking remains in existence even where the undertaking, for reasons beyond its control, has
subsequently been unable to use them; it adds thatin any event, it is appropriate to adjust the deductions, to the
extent and subject to the conditions provided for by Article 20(3) of the Sixth Directive, in the ease of tax-exempt
deliveries of capital goods during the adjustment period. Ghent Coal suggests that the court should answer the question
referred to it by stating, first, that the deduction in respect of the investments intended for a business activity aimed at
taxable activities is valid. In its view the courts answer should further state thatwhere it transpires that such
investments subsequently became devoid of purpose and, consequently, were never actually used in the undertaking,
there should then, in principle, be an adjustment within the limits and subject to the conditions determined by the Sixth
Directive. The fact that the investments have become devoid of purpose and consequently have never actually been
used, for reasons beyond the control of the undertaking, cannot affect the lawfulness of the deduction already made,
except that, at the very most, it may be possible to adjust the deduction.
63.
That, in my view, is the more reasonable position. If the courts answer were simply to confirm the
applicability of the deduction, without further distinction, it might lead to confusion, since it would only
address part of the problem (the validity of the original deduction) but not the associated problem.
64.
The answer should therefore contain an express reference to the possibility of adjusting the original
deduction owing to the existence of subsequent circumstances which affected the factors taken into
account to establish that deduction.
65.
On that point, however, I do not believe that the courts answer should go much beyond a reference to
art 20 of the Sixth Directive. I do not in fact believe that the court should become involved in the argument
concerning the actual extent of the adjustment (the number of years to be taken into account, the possible
extension of the delivery of the land under Belgian law, the different schemes applicable to the delivery of
capital goods and to the services received, the rules applicable where capital goods are delivered during
the adjustment period, etc).
66.
An answer going into a detailed analysis of such questions would in my view go beyond the terms in
which the courts interpretation was sought in the question referred for a preliminary ruling. In order to
remain faithful to the question raised and at the same time provide further elements based on 233
Community rules to which the national court did not refer, it is sufficient, in this case, to indicate that art 20
of the Sixth Directive lays down the procedure for the adjustment of deductions validly made.
Conclusion
67.
I therefore propose that the Court of Justice should answer the question referred by the Hof van
Cassatie as follows:
Article 17(2) of Council Directive (EEC) 77/388 on the harmonisation of the laws of the member
states relating to turnover taxescommon system of value added tax: uniform basis of
assessment, allows an undertaking to deduct the VAT paid in connection with the acquisition of
goods and the receipt of services corresponding to investment works originally intended to be used
in its business activity but which, for reasons beyond its control, were never in fact put to use by the
undertaking. The adjustment of those deductions must be effected as provided for in art 20 of that
directive.
15 January 1998.
Costs
25.
The costs incurred by the German and Greek governments and by the European Commission, which
have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are,
for the parties to the main proceedings, a step in the action pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Second Chamber), in answer to the question referred to it by
the Belgian Hof van Cassatie by decision of 10 February 1995, hereby rules: art 17 of Council Directive
(EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover taxescommon
system of value added tax: uniform basis of assessment, must be construed as allowing a taxable person
acting as such to deduct the VAT payable by him on goods or services supplied to him for the purpose of
investment work intended to be used in connection with taxable transactions. The right to deduct remains
acquired where, by reason of circumstances beyond his control, the taxable person has never made use
of those goods or services for the purpose of carrying out taxable transactions. A supply of investment
goods during the adjustment period, where such occurs, may give rise to an adjustment of the deduction
under the conditions set out in art 20(3) of the directive.
237
The first plaintiff was a national of both the United Kingdom and the United States of America but was
resident in Florida; the second plaintiff was a company established in the United States. Both plaintiffs
sought an injunction restraining the defendant, an Austrian company in which they were both
shareholders, from selling or transferring certain shares without the approval of a general meeting of
shareholders. The defendant thereupon applied for and was granted an order requiring the plaintiffs, as
foreign nationals, to provide security for the costs of the proceedings pursuant to para 57(1) of the
Austrian Code of Civil Procedure. Austria subsequently acceded to the European Union and to the
treaties on which it was founded. On the plaintiffs appeal, the Oberlandesgericht set aside the order for
security in so far as the first plaintiff was concerned, on the grounds that he was a British national and it
would be contrary to the prohibition of discrimination on grounds of nationality set out in art 6 1 of the EC
Treaty to require him to lodge security for costs when Austrian nationals in the same situation were not
required to do so. The defendant appealed to the Oberster Gerichtshof, which stayed the proceedings
and referred to the Court of Justice of the European Communities for a preliminary ruling the question
whether art 6 precluded a member state from requiring security for costs in such circumstances. As a
preliminary point, the defendant contended that the matter at issue was outside the scope of Community
law, since the order predated Austrias accession to the EC Treaty.
1
Article 6, so far as material, is set out at p 248 c, post
Held (1) Since the Act of Accession contained no specific provisions with regard to art 6 of the EC
Treaty, that provision had to be regarded as being immediately applicable and binding on Austria from the
date of its accession. It followed that art 6 applied to the future effects of situations arising prior to
Austrias accession to the Community with effect from the date of that accession. Accordingly, from that
date, nationals of other member states could no longer be made subject to a procedural rule which
discriminated on grounds of nationality provided that that rule came within the scope of the Treaty (see p
249 d e, post).
238
(2) The fact that a national of a member state was also a national of a non-member country in which
he was resident did not deprive him of the right, as a national of that member state, to rely on the
prohibition of discrimination on grounds of nationality set out in art 6. Moreover, national rules which
sought to protect the interests of shareholders fell within the scope of the Treaty and were therefore
subject to the art 6 prohibition. It followed that art 6 precluded a member state from requiring security for
costs from a national of another member state, who was also a national of a non-member country in
which he was resident, where he had brought proceedings before its civil courts, in his capacity as a
shareholder, against a company established in that state, if such a requirement was not imposed on its
own nationals who similarly were not resident and had no assets there (see p 249 f, p 250 g and p 251 f j,
post); Micheletti v Delegacin del Gobierno en Cantabria Case C-369/90 [1992] ECR I-4239 and Cowan
v Trsor Public Case 186/87 [1989] ECR 195 applied.
Notes
For the general principle of non-discrimination, see 51 Halsburys Laws (4th edn) para 140, and for cases
on the subject, see 21(1) Digest (2nd reissue) 251, 740746.
For the EC Treaty, art 6 (formerly the EEC Treaty, art 7), see 50 Halsburys Statutes (4th edn) 267, and
for the Treaty on European Union, art G.8, amending art 7 of the EEC Treaty, see Current Service, ibid
53.
Cases cited
Amministrazione delle Finanze dello Stato v Simmenthal SpA Case 106/77 [1978] ECR 629.
Cowan v Trsor Public Case 186/87 [1989] ECR 195.
Data Delecta Aktiebolag v MSL Dynamics Ltd Case C-43/95 [1996] All ER (EC) 961, [1996] ECR I-4661,
ECJ.
EC Commission v Italy Case 104/86 [1988] ECR 1799.
EC Commission v Italy Case 168/85 [1986] ECR 2945.
EC Commission v Netherlands Case 72/85 [1986] ECR 1219.
Giloy v Hauptzollamt Frankfurt am Main-Ost Case C-130/95 (1997) Transcript, 17 July, ECJ.
Hayes v Kronenberger GmbH (in liq) Case C-323/95 [1997] ECR I-1711.
Kleinwort Benson Ltd v Glasgow City Council Case C-346/93 [1995] All ER (EC) 514, [1995] ECR I-615,
ECJ.
Leur-Bloem v Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2 Cases C-28/95 [1997] All ER
(EC) 739, ECJ.
Micheletti v Delegacin del Gobierno en Cantabria Case C-369/90 [1992] ECR I-4239.
Opinion 1/92 [1992] ECR I-2821.
Opinion 2/94 [1996] ECR I-1759.
Reference
By order of 11 March 1996, the Oberster Gerichtshof referred to the Court of Justice of the European
Communities for a preliminary ruling under art 177 of the EC Treaty a question (set out at p 248 g to j,
post) on the interpretation of the first paragraph of art 6 of that Treaty. That question arose in proceedings
brought by Mr Saldanha and MTS Securities Corp against Hiross Holding AG, an Austrian company in
which they are shareholders, seeking an injunction to restrain Hiross from selling or transferring certain
shares, without the approval of the general meeting of shareholders. Written observations were submitted
on behalf of: Mr 239 Saldanha and MTS Securities Corp, by P Lambert, Rechtsanwalt, Vienna; Hiross
Holding AG, by G Zeiler, Rechtsanwalt, Vienna; the Austrian government, by F Cede, Ambassador,
Federal Ministry of Foreign Affairs, acting as agent; the UK government, by S R Ridley, of the Treasury
Solicitors Department, acting as agent; and the European Commission, by U Wlker, of its Legal Service,
acting as agent. Oral observations were made by: Mr Saldanha and MTS Securities Corp, Hiross Holding
AG and the Commission. The language of the case was German. The facts are set out in the opinion of
the Advocate General.
6 May 1997.
I INTRODUCTION
1.
In this case, the Court of Justice of the European Communities is called upon once again to rule on
whether certain national procedural provisions are compatible with the rules of Community law, in
particular the principle of non-discrimination laid down in art 6 of the EC Treaty. The national provisions in
question are those of the Austrian legal system which, in this case, require foreign nationals bringing legal
proceedings against nationals of the country in which the action has been brought to lodge a sum of
money as security for the costs of the legal proceedings (caulio judicalum solvi).
A. Admissibility
6.
The question submitted to the Court of Justice in this case raises a delicate preliminary problem
concerning the application ratione temporis of the provisions of the EC Treaty. The court is being asked to
rule on the interpretation of a Treaty provision in relation to facts which occurred at a time when the
Republic of Austria, whose procedural provisions are in dispute in this case, did not yet belong to the
Community. It is for that reason necessary to consider how the above Community provisions are dealt
with in the domestic legal system and, more generally, to examine the criterion governing the application
ratione temporis of primary Community law.
7.
A situation quite similar in several respects to that here under examination was recently considered by
the court in Data Delecta Aktiebolag v MSL Dynamics Ltd Case C-43/95 [1996] All ER (EC) 961, [1996]
ECR I-4661. The facts giving rise to that dispute before the national court had occurred before the
Kingdom of Sweden acceded to the European Communities. The court, however, addressed the merits of
the question submitted to it without having previously examined whether and how the facts in issue came
within the scope ratione temporis of Community law; in that case, the court did not provide the national
court with any interpretative criteria regarding the exact definition of the temporal context in which
Community law produces its effects and did not, therefore, make it clear whether the case in question fell
to be resolved according to Community law or according to rules derived from some other legal system.
What actually happened in the case was that, in ruling on the merits, the Court of Justice set out the
principles of law with which the national court, in casu the Swedish Supreme Court, had to comply. This
latter court, however, subsequently ruled that the dispute did not come within the scope of the EC Treaty 2.
The result was that the ruling of the Court of Justice was set aside since it had become irrelevant in
regard to the dispute before the national court; it ought therefore to be said, if one reflects on the case,
that that question could not and ought not to have been submitted for a preliminary ruling.
2
See the judgment of the Hgsta Domstol of 13 November 1996.
8.
The facts of the dispute at present before the court also occurred prior to the entry into force in Austria
of the EC Treaty. In the Data Delecta case, the national court making the reference had not specified the
reasons in law which could have justified retroactive application of the rules of Community law to the
dispute. In the present case, however, the national court making the reference has itself indicated, albeit
with a certain amount of doubt, that Community law does apply to facts dating back to a period when
Austria did not yet belong to the Community. The reason for this retroactive application of Community law,
the national court states, lies in the mandatory nature of Community law, which, as ius superveniens, is
directly applicable, under Austrian procedural law, to all cases in which final decisions had not yet been
delivered by the date on which the EC Treaty entered into force in Austria.
9.
This line of argument regarding the application ratione temporis of Community law, however, gives rise
to perplexity on a number of counts. I for my part, doubt whether Community law can in itself govern
situations arising under different legislation which does not, unless in special circumstances such as
those allowing retroactive application of more favourable penal provisions, show 242 sufficient connecting
factors with the Community rules which could have been relied on at the period in which those situations
arose. In the absence of express provisions to the contrary, the principle tempus regit actum governs the
temporal effect of Community law. Situations arising at a time when the rules in question were not yet law
in relation to the facts underlying the dispute do not therefore come within the scope ratione temporis of
the Treaty. It follows that the above-mentioned principle tempus regit actum must be uniformly applied
within the Community. Otherwise, the regulation of the temporal effects of the Treaty rules could vary, with
obvious and unjustified different treatment of similar situations depending on the national legal system
called on each particular time to guarantee the provisions of the Community legal system.
10.
Another consequence which should be pointed out follows from the foregoing considerations. A
member state may, on the basis of its own independent choice, decide that certain rules of Community
law are to be retroactively applicable to situations arising at a period prior to that states accession to the
Community, for the specific purpose of conferring on the persons concerned rights and privileges to which
they would not otherwise be entitled under the Treaty. The Community legal system does not, in my view,
prohibit national legislatures from adopting such legislation. The problem is that these would, in any
event, be internal rules, which certainly do not change their nature simply through the fact of being
adopted by reference to Community rules. It is not the Community legal system that imposes these latter
rules within the domestic sphere of the state, but rather the national system that has taken them over by
conferring on them a temporal effect which they would be lacking in their original legal system. In my
view, the Court of Justice would therefore not be competent to rule, in proceedings for a preliminary
ruling, on the provisions thus introduced into the domestic legal system, precisely because they are not
rules which come within its jurisdiction under art 177 of the Treaty 3.
3
See in this regard the judgment and opinion in Kleinwort Benson Ltd v Glasgow City Council Case C-346/93 [1995] All
ER (EC) 514, [1995] ECR I-615. See also the opinions of Advocate General Jacobs in Leur-Bloem v Inspecteur der
Belastingdienst/Ondernemingen Amsterdam 2 Case C-28/95 [1997] All ER (EC) 739 and Giloy v Hauptzollamt
Frankfurt am Main-Ost Case C-130/95 (1997) ECJ Transcript, 17 July.
11.
The reasoning just outlined cannot in any way be altered by the possible application to this case of the
rules set out in the EEA Agreement, which entered into force on 1 January 1994 and to which Austria was
a party on that date. Even if the court wished to reformulate the question along these lines in order to
bring it within the ambit of the corresponding provision in the EEA Agreement (art 4), the court would in
my view lack jurisdiction to rule on the question submitted to it for a preliminary ruling. The question in this
case comes from a national court which, at the time when the facts in issue occurred or at the time
subsequently when the main proceedings were instituted, was not competent to address a question to the
Court of Justice pursuant to that agreement. It is true that, under art 107 of the EEA Agreement and
Protocol 34 thereto4, a European Free Trade Association (EFTA) state may allow a court or tribunal to ask
the Court of Justice of the European Communities to decide on the interpretation of an EEA rule. The
exercise of that option, however, is expressly made subject to prior performance of the obligation, set out
in art 2 of Protocol 34, to notify the 243 Depositary and the Court of Justice of the European Communities
to what extent and according to what modalities the protocol is to apply to the courts and tribunals of the
state in question. Austria, however, has not exercised that power or satisfied the obligation to which such
exercise is subject. Nor can it be argued that the court gained that jurisdiction as a result of Austrias
subsequent accession to the Community. The protocol referred to does not contain any provision to that
effect. There is also no reason to assume that the power in question was implicitly authorised by the
protocol but left dormant, so to speak, until the country concerned had acceded to the EC Treaty.
4
See Protocol 34 on the possibility for courts and tribunals of EFTA states to request the Court of Justice of the European
Communities to decide on the interpretation of EEA rules corresponding to EC rules (see OJ 1994 L1 p 204).
12.
Nor can it be argued that the Court of Justice may substitute itself for the EFTA Court in order to
interpret, in its place, provisions of the EEA Agreement which it had no jurisdiction to interpret at the time
when the contested facts occurred or when the proceedings were instituted. On this point, moreover, it
must be recalled that art 108 of the EEA Agreement provided for the establishment of an EFTA Court
equipped with a jurisdictional remit similar in some respects to that established by art 177 of the EC
Treaty, to which national courts of countries which are party to the EEA Agreement but are not Community
member states may have recourse5. At the time when Austria, Finland and Sweden acceded to the
Community, an ad hoc agreement6 laid down rules allowing the courts and tribunals of those three
member states, albeit for a short period, to refer cases of the type mentioned to the EFTA Court, even
following accession to the Community. In those cases in which the jurisdiction of the EFTA Court is
expressly provided for, the national court called on to apply the provisions of the EEA Agreement is
certainly not empowered alternatively to raise the question for a preliminary ruling before the Court of
Justice rather than before the EFTA Court. There is no such possibility of choice, nor could such a choice
have been provided for without running counter to the principle of exclusive jurisdiction which the Court of
Justice has, moreover, confirmed even in specific relation to the EEA Agreement (see Opinion 1/92 [1992]
ECR I-2821)7.
5
Article 108 was given effect by the EFTA states when they concluded the Agreement on the Establishment of a
Surveillance Authority and a Court of Justice. Article 34 of that agreement provides that: (1) The EFTA Court shall
have jurisdiction to give advisory opinions on the interpretation of the EEA Agreement. (2) Where such question is raised
before any court or tribunal in an EFTA state, that court or tribunal may, if it considers it necessary to enable it to give
judgment, request the EFTA Court to give such an opinion.
6
See the Agreement on Transitional Arrangements for a Period after the Accession of Certain States to the European
Union. See esp art 5(1), which provides that: After accession, new proceedings may only be instituted before the EFTA
Court in cases in which the events giving rise to an action under the EEA Agreement on the Surveillance and Court
Agreement occurred before accession and an application is lodged with the EFTA Court within three months after
accession.
7
The clear distinction in the areas of jurisdiction between the EC Court and the EFTA Court, introduced after the adoption
of the initial text of the Agreement, in fact made it possible to regard as compatible with the EC Treaty the jurisdictional
mechanism created by art 108 of the EEA Agreement (para 19). The need to comply with arts 164 and 219 of the Treaty
was further clearly underlined by the Court of Justice in Opinion 2/94 [1996] ECR I-1759 (para 20).
B. Merits
13.
In the event that the court should rule that it does have jurisdiction, I shall set out below some thoughts
on the merits of the question submitted for a preliminary ruling.
There is here, in my view, one single real problem, which arises on the basis of this courts case law
regarding the compatibility of the security for legal costs with 244 the principle of non-discrimination. It is
necessary to determine whether the proceedings brought by the plaintiff involve a substantive right
protected by the Community legal system or whether the court is faced with proceedings brought
exclusively by reference to the provisions of company law in force at the time within the Austrian legal
system.
14.
The European Commission wishes to place the present case in the context of the provisions of art
54(3)(g) and the fourth indent of art 220 of the EC Treaty. For his part, the plaintiff submits that the
proceedings relate to the rights provided for by arts 52 and 54(3)(g) of the Treaty. It seems to me,
however, that the proceedings in question cannot have any basis in the rules of Community law, precisely
because of the time at which they were instituted, which was prior to Austrias accession to the
Community. The only possibility which seems to me to be reasonably well founded is therefore that of
bringing the legal proceedings instituted by the plaintiff into relation with the provisions of the EEA
Agreement and specifically with those set out in arts 31 to 35 seeking to eliminate restrictions on freedom
of establishment, which also relate to companies, as well as art 77, dealing with company law, which
refers to Annex XXII, which imposes an obligation on EFTA states party to the Agreement to give effect
within the EEA to a series of Community directives, with a view to rendering equivalent the guarantees
designed to protect the interests of shareholders and others in the corporate context and with a view to
regulating specific matters relating to companies, such as secessions, mergers and so forth.
15.
In the light of the courts case law on the matter, there is also no basis to the arguments set out by the
defendant regarding the plaintiffs nationality and the alleged absence of discrimination in the treatment to
which he is subject under the Austrian legislation (see the judgment in Micheletti v Delegacin del
Gobierno en Cantabria Case C-369/90 [1992] ECR I-4239). The courts case law is clear on this point: the
key factor with regard to exercise of the rights conferred by the Treaty is the fact of being a national of a
Community member state. That criterion must also be valid with regard to the scope ratione personae of
the EEA Agreement: the fact that the person concerned may have another, non-Community (or non-EEA)
nationality neither adds to nor detracts from the rights to which he is entitled under the Community legal
order and that established by the EEA Agreement.
16.
The other issue in dispute concerns the nature and the effects of the rule of Austrian procedural law
underlying the dispute which has been referred to the court. On this point, for considerations of a general
nature regarding the legality under Community law of the security for costs and the criteria permitting
application thereof, I refer to the judgments given most recently by the court on this subject and the
opinions which I delivered in those cases (see the judgments in Data Delecta [1996] All ER (EC) 961,
[1996] ECR I-4661 and Hayes v Kronenberger GmbH (in liq) Case C-323/95 [1997] ECR I-1711).
The provision in question is also clearly based on a criterion involving discrimination between nationals
and non-nationals. An Austrian national is exempted from providing the security even if he is resident
outside Austria or does not own sufficient assets within the national territory to satisfy a defendants
claims for reimbursement of legal costs incurred by the latter. The rule is thus in no way designed to
protect a party against whom unfounded or vexatious proceedings have been brought, except in those
cases where such proceedings have been instituted by a non-national. No special consideration need
therefore 245 be paid to the objectivesof ensuring equality or providing guaranteeswhich the
defendant, in my view unjustifiably, attributes to it.
17.
In contrast, consideration should be paid to the reasoning set out by the Austrian government, which
argues that the disputed provision of national law is compatible with Community law because it provides
an exception for contrary provisions under international treaties or conventions, with the result that
Community nationals are exempt from having to provide the security. The same, it need hardly be
mentioned, applies with regard to the EEA. This interpretation, in conformity with Community law, put
forward by the Austrian government does not alter, but rather confirms, the conclusion which I have
reached: the only difference is that it shifts the obligation to comply with the Community or EEA rule from
the legislature, which would be required to repeal or amend the provision contrary to the principle of non-
discrimination, to the courts, which would also be required not to apply that provision in order to ensure
compliance with the rules in which that principle is set out. What matters, in any event, for the purpose of
proceedings which are the subject matter of a reference to the court, is that the rules with which it must
ensure compliance should be fully and directly applied within the national legal order. The member state,
thus, remains competent in regard to solutions at the constitutional level which it considers appropriate or
preferable for the purpose of achieving such a result, on condition that individuals can enjoy effectively
and with certainty the rights conferred on them by the Community legal order or that of the EEA (see the
judgments on EC Commission v Netherlands Case 72/85 [1986] ECR 1219, EC Commission v Italy Case
168/85 [1986] ECR 2945 and EC Commission v Italy Case 104/86 [1988] ECR 1799). In any event, the
national courts are required to take the view that the contested security cannot be applied to or held
against a Community or EEA national (see the judgment in Amministrazione delle Finanze dello Stato v
Simmenthal SpA Case 106/77 [1978] ECR 629).
IV CONCLUSION
18.
On the basis of the foregoing, I propose that the Court of Justice reply as follows to the question
referred by the Oberster Gerichtshof in Vienna:
The court does not have jurisdiction to rule on the question submitted for a preliminary ruling by
the Oberster Gerichtshof in Vienna, in so far as the facts underlying the dispute pending before that
court predate the Republic of Austrias accession to the European Community and thus fall outside
the scope ratione temporis of the EC Treaty.
In the alternative, should the court consider that it does have jurisdiction to rule on the question submitted,
I propose that it reply along the following lines:
Article 4 of the Agreement on the European Economic Area precludes nationals of Community
member states or of states party to the EEA Agreement from being required to provide security for
the costs of legal proceedings, as provided for under para 57 of the Austrian Code of Civil
Procedure, where Austrian nationals, in similar circumstances, are not required to provide such
security.
246
2 October 1997.
The application ratione temporis of the first paragraph of art 6 of the Treaty
12.
As a preliminary point, Hiross argues that the matter at issue in the main proceedings is outside the
scope ratione temporis of Community law, since the facts, including the order of the Handelsgericht
requiring Mr Saldanha to provide security, predate the Republic of Austrias accession to the European
Communities. From this Hiross concludes that there cannot be any discrimination contrary to art 6 of the
Treaty.
13.
Article 2 of the Act of Accession (1994); OJ 1994 C241 p 21 (Norway, Austria, Finland, Sweden)
provides that, from the date of accession, the provisions of the original Treaties on which the European
Union is founded are to be binding on the new member states and are to apply in those states under the
conditions laid down in those Treaties and in the Act of Accession.
14.
In view of the fact that the Act of Accession contains no specific conditions whatsoever with regard to
the application of art 6 of the Treaty, the latter provision must be regarded as being immediately
applicable and binding on the Republic of Austria from the date of its accession, with the result that it
applies to the future effects of situations arising prior to that new member states accession to the
Communities. From the date of accession, therefore, nationals of another member state can no longer be
made subject to a procedural rule which discriminates on grounds of nationality, provided that such a rule
comes within the scope ratione materiae of the EC Treaty.
The scope ratione materiae et personae of the first paragraph of art 6 of the Treaty
15.
It is first necessary to point out that the mere fact that a national of a member state is also a national of
a non-member country, in which he is resident, does not deprive him of the right, as a national of that
member state, to rely on the prohibition of discrimination on grounds of nationality enshrined in the first
paragraph of art 6 (see to that effect, with regard to art 52 of the Treaty, Micheletti v Delegacin del
Gobierno en Cantabria Case C-369/90 [1992] ECR I-4239 (para 15)).
16.
Since art 6 of the Treaty produces effects within the area covered by the Treaty, it is necessary to
consider next whether that article applies to a provision in a member state, such as that at issue in the
main proceedings, which requires nationals of another member state to provide security for costs where,
in their capacity as shareholders, they bring proceedings against a company established in that member
state, even though its own nationals are not subject to such a requirement.
17.
In this connection, the court has held, in Data Delecta Aktiebolag v MSL Dynamics Ltd Case C-43/95
[1996] All ER (EC) 961, [1996] ECR I-4661 (para 15) and in Hayes v Kronenberger GmbH (in liq) Case C-
323/95 [1997] ECR I-1711 (para 17), that such a rule of domestic procedure falls within the scope of
application of the Treaty within the meaning of the first paragraph of art 6, where the main proceedings
relate to the exercise of the fundamental freedoms guaranteed by Community law, such as, in those
cases, proceedings to recover payment for the supply of goods.
18.
Hiross argues that, in this case, the main proceedingswhich seek to prevent Hiross from selling or
transferring shares which it holds in a number of its subsidiaries to its Italian subsidiary, or subsidiaries of
that company established in 249 Italy, without the approval of the general meeting of shareholdersare in
no way connected with the exercise of a fundamental freedom guaranteed by Community law. Moreover,
it contends that the national provision at issue in the main proceedings does not come within the scope of
application of the Treaty by virtue of art 220 of the EC Treaty.
19.
It should be noted in this regard that, while a rule of procedure such as that at issue in the main
proceedings is in principle a matter for which the member states are responsible, the court has
consistently held that such a provision may not discriminate against persons to whom Community law
gives the right to equal treatment or restrict the fundamental freedoms guaranteed by Community law
(see the judgment in Cowan v Trsor Public Case 186/87 [1989] ECR 195 (para 19)).
20.
In the above-mentioned judgments in Data Delecta [1996] All ER (EC) 961, [1996] ECR I-4661 (para
15) and Hayes [1997] ECR I-1711 (para 17), the court held that a rule of domestic procedure requiring for
judicial proceedings, such as those at issue in those cases, the provision of security for costs was liable to
have an effect, even though indirect, on trade in goods and services between member states and
therefore fell within the scope of application of the Treaty.
21.
Without its being necessary to examine the argument of Hiross that, in view of the subject-matter of
the dispute in the main proceedings, the contested rule cannot in this case restrict, even indirectly, any
fundamental freedom guaranteed by Community law, it must be held that such a rule cannot, in any
event, discriminate against persons on whom Community law confers the right to equal treatment.
22.
The dispute in the main proceedings concerns the protection of interests relied on by a shareholder
who is a national of one member state against a company established in another member state.
23.
Article 54(3)(g) of the EC Treaty empowers the Council and the Commission, for the purpose of giving
effect to the freedom of establishment, to co-ordinate to the necessary extent the safeguards which, for
the protection of the interests of members and others, are required by member states of companies or
firms within the meaning of the second paragraph of art 58 of the EC Treaty with a view to making such
safeguards equivalent throughout the Community. It follows that rules which, in the area of company law,
seek to protect the interests of shareholders come within the scope of the Treaty and are for that reason
subject to the prohibition of all discrimination based on nationality.
24.
If Community law thus prohibits all discrimination based on nationality in regard to the safeguards
required, in the member states, of companies or firms within the meaning of the second paragraph of art
58 of the Treaty for the purpose of protecting the interests of shareholders, nationals of a member state
must also be in a position to seise the courts of another member state of disputes to which their interests
in companies there established may give rise, without being subject to discrimination vis--vis nationals of
that state.
Discrimination within the meaning of the first paragraph of art 6 of the Treaty
25.
By prohibiting any discrimination on grounds of nationality, art 6 of the Treaty requires, in the member
states, complete equality of treatment between persons in a situation governed by Community law and
nationals of the member state in question.
26.
It is clear that a provision such as that at issue in the main proceedings amounts to direct
discrimination on grounds of nationality. Under that provision, 250a member state does not require its
own nationals to provide security, even if they are not resident and have no assets in that state.
27.
Hiross, however, takes the view that the distinction based on nationality is justified on objective
grounds. In support of this view, it argues that the object of the provision in dispute is to ensure that a
defendant will be able to exercise his right to recover his costs if successful. It refers in particular to the
problems of enforcement which might arise where the plaintiff is not resident and has no assets in the
Community, as is the position in the main case.
28.
In this context, Hiross submits that the possession of Austrian nationality as a criterion permitting
exemption from the obligation to provide security is justified by the likelihood of obtaining enforcement,
within the national territory, of a right to reimbursement of costs awarded against a solvent national, a
likelihood attributable, in particular, to the assumed existence of assets linked to the national territory and
the tendency to comply with decisions of national courts.
29.
Suffice it in this regard to point out that, even though the object of a provision such as that at issue in
the main proceedings, namely that of ensuring enforcement of a decision on costs in favour of a
defendant who has been successful in proceedings, is not as such contrary to art 6 of the Treaty, the fact
remains that that provision does not require Austrian nationals to provide security for costs, even if they
are not resident and have no assets in Austria and are resident in a non-member country in which
enforcement of a decision on costs in favour of a defendant is not guaranteed.
30.
In those circumstances, the answer to the question submitted must be that the first paragraph of art 6
of the Treaty must be construed as precluding a member state from requiring provision of security for
costs by a national of another member state who is also a national of a non-member country, in which he
is resident, where that national, who is not resident and has no assets in the first member state, has
brought proceedings before one of its civil courts in his capacity as a shareholder against a company
established in that member state, if such a requirement is not imposed on its own nationals who are not
resident and have no assets there.
Costs
31.
The costs incurred by the Austrian and UK governments and by the European Commission, which
have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are,
for the parties to the main proceedings, a step in the action pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the question referred to it by the
Oberster Gerichtshof by order of 11 March 1996, hereby rules: the first paragraph of art 6 of the EC
Treaty must be construed as precluding a member state from requiring provision of security for costs by a
national of another member state who is also a national of a non-member country, in which he is resident,
where that national, who is not resident and has no assets in the first member state, has brought
proceedings before one of its civil courts in his capacity as a shareholder against a company established
in that member state, if such a requirement is not imposed on its own nationals who are not resident and
have no assets there.
251
The defendant undertaking marketed cans of pineapples in Italy. The labels on the cans stated only the
name and address of the producer and packager, which was an undertaking established outside the
Community. The administrative authorities of the Province of Trento subsequently fined the defendant on
the grounds that the labels did not bear the details of a trader established within the Community in
accordance with the Italian measures implementing art 3(1)(6) 1 of Council Directive (EEC) 79/112 on the
approximation of the laws of the member states relating to the labelling, presentation and advertising of
foodstuffs for sale to the ultimate consumer. That provision made compulsory the inclusion of the name
or business name and address of the manufacturer or packager, or of a seller established within the
Community on the labelling of foodstuffs. The defendant appealed against the fine and the Pretura
Rovereto allowed the appeal on the grounds that the expression established within the European
Economic Community in the relevant Italian provision referred only to sellers and that it was sufficient to
indicate name and address of the producer and packager established in a third country. The provincial
authorities appealed against that ruling, contending that the protection of the ultimate consumer was only
fully guaranteed if details of at least one trader established within the Community were indicated on the
label, whether of the manufacturer, the packager, or the seller. Since the Italian legislation reproduced art
3(1)(6) of the directive almost exactly, the Corte Suprema di Cassazione stayed the proceedings and
referred to the Court of Justice of the European Communities for a preliminary ruling a question on the
interpretation of art 3(1)(6).
1
Article 3, so far as material, is set out at p 259 j, post
Held Directive 70/112 was intended to ensure the information and protection of the ultimate consumer
of foodstuffs in relation to the nature, identity, properties, composition, quantity, durability, origin or
provenance and method of manufacture or production of those products. In particular, art 3(1)(6) was
intended to enable the consumer to contact a person responsible for the manufacture or packaging of the
foodstuffs with a view to expressing any positive or negative criticism about the product purchased. That
goal could only be achieved if the ultimate consumer could easily identify the person responsible for 252
the product. In that respect, producers and packagers were generally established, easily identifiable
traders, so that the fact that they might be situated outside the Community did not present a problem;
sellers, however, were generally much smaller traders and consequently more difficult to identify,
particularly if established outside the Community. It followed that a label on the packaging could indicate
details of either the manufacturer or the packager, whether established within the Community or not; with
regard to sellers, the label could only indicate details of a trader established within the Community.
Accordingly, art 3(1)(6) was to be interpreted as meaning that the expression established within the
Community referred only to the seller (see p 261 c to g j, post).
Cases cited
Aannemersbedrijf PK Kraaijeveld B v Gedeputeerde staten van Zuid-Holland Case C-72/95 [1996] ECR I-
5403.
Coperatieve Zuivelindustrie Twee Provincin WA (Criminal proceedings against) Case C-285/92 [1993]
ECR I-6045.
EC Commission v UK Case 100/84 [1985] ECR 1169.
R v Bouchereau Case 30/77 [1977] ECR 1999.
Rockfon A/S v Specialarbeijderforbundet i Danmark Case C-449/93 [1995] ECR I-4291.
Smanor SA (Proceedings for compulsory reconstruction against) Case 298/87 [1988] ECR 4489.
Reference
By order of 4 December 1995, the Corte Suprema di Cassazione (the Supreme Court of Cassation)
referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the
EC Treaty a question (set out at p 260 d, post) on the interpretation of art 3(1)(6) of Council Directive
(EEC) 79/112 on the approximation of the laws of the member states relating to the labelling, presentation
and advertising of foodstuffs for sale to the ultimate consumer. That question was raised in proceedings
between, on the one hand, the Provincia Autonoma di Trento (the Autonomous Province of Trento) and
the Ufficio del Medico Provinciale di Trento (the Medical Office of the Province of Trento) and, on the
other, the partnership Dega di Depretto Gino (Dega) concerning the latters failure to comply with the
Italian legislation on labelling. Written observations were submitted on behalf of: the Italian government,
by Professor U Leanza, Head of the Legal Department of the Ministry of Foreign Affairs, acting as agent,
assisted by D Del Gaizo, Avvocato dello Stato; the Greek government, by K Vasileios and M Basdeki,
Assistant Legal Adviser and Legal Representative respectively in the State Legal Service, acting as
agents; and the European Commission, by A Aresu and P Stancanelli, of its Legal Service, acting as
agents. Oral observations were made by: the French government, represented by R Loosli-Surrans, Head
of Section in the Legal Directorate of the Ministry of Foreign Affairs, acting as agent; the Italian
government, represented by D Del Gaizo; the Greek government, represented by K Vasileios; and the
Commission, represented by P Stancanelli. The language of the case was Italian. The facts are set out in
the opinion of the Advocate General.
253
29 May 1997.
2.
It is in considering a reference for a preliminary ruling from that court, seeking clarification of one of the
requirements of the Community rules on the labelling and presentation of foodstuffs 3 concerning the
indication of details of a trader, that the finesses and nuances of good punctuation become apparent.
3
See Council Directive (EEC) 79/112 on the approximation of the laws of the member states relating to the labelling,
presentation and advertising of foodstuffs for sale to the ultimate consumer (OJ 1979 L33 p 1).
3.
Let us first consider the facts and procedure in this case.
5
The Italian text, as reproduced by the national court at point 1 of the order, is drafted as follows: il nome o la ragione
sociale o il marchio depositato e la sede del fabbricante o del confezionatore o di un venditore stabilito nella Communit
economica europea.
5.
The appeal against that administrative fine was upheld by the Pretura (the Magistrates Court),
Rovereto, which, by judgment of 20 November 1990, annulled the fine on the ground that it had been
imposed on the basis of an incorrect interpretation of the legal provision cited above. That court, ruling on
the substance, held that the expression established within the European Economic Community referred
only to sellers and that an indication of the name and address of the producer and packager established
in a non-member country, as in this case, was sufficient.
6.
The Provincia Autonoma di Trento (the Autonomous Province of Trento) and the Ufficio del Medico
Provinciale di Trento (the Medical Office of the Province of Trento) lodged an appeal seeking to have the
judgment set aside on a single ground: they challenged the interpretation given by the Pretura to the
national provision at issue. They claimed that protection of the ultimate consumer is only fully guaranteed
if at least one trader (producer, packager or seller) established within the Community is indicated on the
label.
7.
The Corte Suprema di Cassazione noted that the national provision which it was asked to interpret
reproduces almost exactly the wording of art 3(1)(6) of 254 Directive 79/112, the French version of which
provides that the labelling of foodstuffs must indicate le nom ou la raison sociale et ladresse du fabricant
ou du conditionneur,6 ou dun vendeur tablit lintrieur de la Communaut; the Italian version reads as
follows: il nome o la ragione sociale e lindirizzo del fabbricante o del condizionatore o di un venditore
stabilito nella Communit.
6
I would highlight the presence of this comma, to which I shall return later.
8.
It concluded that the judgment to be given entails, as a matter of necessity and priority, an
interpretation of that Community provision, since the Italian provision is obviously merely a re-enactment
of it, and has therefore asked the Court of Justice to rule on the following question:
Must Article 3(1)(6) of Council Directive 79/112/EEC (on the approximation of the laws of the
member states relating to the labelling, presentation and advertising of foodstuffs for sale to the
ultimate consumer) be interpreted as meaning that the expression established within the
Community used in it refers only to the seller or refers, in the absence of a seller established within
the Community, also to the manufacturer and/or packager? Must that provision therefore be taken
to mean that, in the absence of a seller established in the Community, the manufacturer and/or the
packager must be established in the Community?
Legal background
9.
The directive on the labelling of foodstuffs enacts Community rules of a general nature applicable
horizontally to all foodstuffs put on the market (third recital in the preamble to the directive). The
harmonisation of laws carried out by the directive is intended to prevent barriers to the free movement of
such products, which can lead to unequal conditions of competition, in order to contribute to the smooth
functioning of the common market (first and second recitals). The prime consideration, however, is the
need to inform and protect the consumer (sixth recital). In order to do so, the directive provides in
particular that the labelling must indicate certain information, to the exclusion of any other. That
information is set out in art 3(1), (1) to (8).
the different language versions of a Community text must be given a uniform interpretation and
in the case of divergence between the versions the provision in question must therefore be
interpreted by reference to the purpose and general scheme of the rules of which it forms part.
(See the judgment in Rockfon A/S v Specialarbeijderforbundet i Danmark Case C-449/93 [1995]
ECR I-4291 (para 28) (my emphasis), which refers to R v Bouchereau Case 30/77 [1977] ECR
1999 (para 14).8
8
See also eg EC Commission v UK Case 100/84 [1985] ECR 1169 (para 17) and Aannemersbedrijf PK Kraaijeveld B v
Gedeputeerde staten van Zuid-Holland Case C-72/95 [1996] ECR I-5403 (para 28).
15.
In view of the uncertainty which persists after reading the different language versions and since none
of them can be given precedence, the court must endeavour, in accordance with its case law, to interpret
the text referred for its consideration in a manner which is consistent with the purpose and general
scheme of the rules of which it forms a part.
16.
However, before doing so, I suggest account should be taken of one factor which appears to me to be
conclusive.
17.
The importance of the distinction in meaning resulting from the insertion of the comma, at least in the
French and English versions, did not escape the notice of the Economic and Social Committee which, in
its opinion on what was then merely the proposal for Directive 79/112 9, proposed that the punctuation be
amended specifically in order that the condition of Community establishment should apply to each of the
traders mentioned in that text.
9
See the opinion on the proposal for a Council Directive on the approximation of the laws of the member states relating
to the labelling, presentation and advertising of foodstuffs for sale to the ultimate consumer (OJ 1976 C285 p 3).
18.
Point 2.7.1 of the Committees specific comments in respect of art 3 of the proposed directive thus
reads as follows:
The Committee considers that an accountable party within the Community must be specified on
the labelling. The Committee, therefore, 256asks that Article 3(6) should be reworded to read: 6.
The name or business name of the manufacturer, packer or seller, together with his address, which
must be within the Community.10
10
The French version of the proposed wording (Le nom ou la raison sociale et ladresse du fabricant ou du conditionneur,
ou dun vendeur, tabli linteneur de la Communaut) includes two commas, separating the expression ou dun
vendeur from the rest of the sentence.
11
It should be noted that, in the Italian version, the proposed amendment concerned the plural agreement of the past
participle of the verb to establish (stabiliti instead of stabilito), thus referring to all the traders mentioned and not merely
to one of them.
19.
The fact that that proposal was not taken up in the final draft of the provision at issue 12 can, in my
opinion, mean only that the Community legislature considered that the requirement of Community
establishment should apply only to the seller.
12
The wording in Directive 79/112 is exactly the same as that originally proposed by the European Commission in its
proposal for a Council directive on the harmonisation of the laws of the member states relating to the labelling,
presentation and advertising of foodstuffs for sale to the ultimate consumer, submitted to the EC Council on 30 March
1976 (OJ 1976 C91 p 3), including the Italian version.
20.
A purposive interpretation of the provision at issue only confirms that view.
21.
In that respect, as the Italian and Greek governments have rightly recalled, the court has already
identified the purpose and general scheme of Directive 79/112 as follows:
it is clear from both the statement of the reasons on which the directive is based and the
terms of Article 2 thereof, that its object was to inform and protect the ultimate consumer of
foodstuffs, in particular as regards the nature, identity, properties, composition, quantity, durability,
origin or provenance, and the method of manufacture or production thereof. (See the judgment in
Proceedings for compulsory reconstruction against Smanor SA Case 298/87 [1988] ECR 4489
(para 30).)13
13
See also the judgment in Criminal proceedings against Coperatieve Zuivelindustrie Twee Provincin WA Case C-
285/92 [1993] ECR I-6045 (paras 1415).
22.
I do not consider that it would detract from the information and protection of consumers to permit
indication of the manufacturer or packager of the product established in a non-member country.
23.
More specifically, art 3(1)(6) of the directive
is mainly intended to enable the consumer to contact a person responsible for the manufacture
or packaging of the foodstuff with a view to expressing any positive or negative criticism about the
product purchased (see the European Commissions answer to written question E-2170/95; OJ
1995 C340 p 19).
24.
In order to ensure that that aim is achieved, as the Commission observes, the final consumer must be
able easily to identify the person responsible for the 257 product. That is why the Community legislature
chose expressly to separate the three main traders involved in bringing the foodstuff from production to
distribution, without giving more weight to one than to the others. However, that decision logically involves
drawing some distinction between those traders.
25.
On the one hand, manufacturers and packagers have in common the fact that they are generally
established, easily identifiable traders who can therefore be contacted without difficulty. Those
characteristics mean that they satisfy the conditions necessary for achieving the aim pursued.
26.
However, contrary to what has been argued by the Italian authorities and the Greek government,
subjecting those traders to the requirement of Community establishment contained in art 3(1)(6) would
have, at the very least, surprising consequences.
27.
The two categories of trader referred to by the directive play a unique role in the chain whereby the
foodstuff is made available to the final consumer 14. Therefore, if the labelling were required to indicate
their establishment within the Community, access to the Community market would effectively be restricted
to foodstuffs manufactured or packaged within the territory of the Community. That can most certainly not
have been the intention of the legislature.
14
Moreover, the French version of art 3(1)(6) uses the words du fabricant and du conditionneur (del in Italian; the in
English), but to un vendeur (un in Italian; a in English). Du is a definite article (more specifically, a contracted definite
article: a contraction of the preposition de and the definite article le), whereas un is an indefinite article.
28.
If, none the less, it were desired to follow that interpretation without entailing such a consequence, the
text at issue could be understood as systematically requiring reference to the establishment within the
Community of one of the three traders mentioned, so that reference to a seller established within the
Community would be required if the product were not manufactured or packaged within the Community.
But in that case how is it possible to explain the legislatures failure to take up the wording proposed by
the Economic and Social Committee in its opinion?
29.
When a seller is indicated, however, the requirement of Community establishment is justified with
regard to the aim pursued. Whilst the directive only refers to the manufacturer or to the packager, a
number of different sellers may be involved in marketing a product. Therefore, the requirement that the
seller indicated on the label must be established within the Community does not amount to a requirement
that only Community products may be distributed within the territory of the Union, in contrast to what
could be inferred if the same requirement were to apply to the producer or to the packager. Furthermore,
as the Commission notes, sellers are, by their nature, less established and less easily identifiable than
manufacturers or packagers and the requirement that they should be established within the Community
makes it possible to limit the drawbacks of such a circumstance.
30.
In the light of those considerations, the court should not accept that art 3(1)(6) of the directive requires
the expression established within the Community to refer to the manufacturer or to the packager.
Conclusion
31.
To conclude, I propose that the question referred by the Corte Suprema di Cassazione should be
answered as follows:
258
Article 3(1)(6) of Council Directive (EEC) 79/112 on the approximation of the laws of the
member states relating to the labelling, presentation and advertising of foodstuffs for sale to the
ultimate consumer is to be interpreted as meaning that the expression established within the
Community used in it refers only to the seller, and not to the manufacturer or packager, details of
whom may appear on the labelling, even if they are established outside the Communities.
17 September 1997.
Costs
21.
The costs incurred by the Italian, Greek and French governments and by the European Commission,
which have submitted observations to the Court of Justice, are not recoverable. Since these proceedings
are, for the parties to the main proceedings, a step in the action pending before the national court, the
decision on costs is a matter for that court.
On those grounds, the Court of Justice (First Chamber), in answer to the question referred to it by the
Corte Suprema di Cassazione by order of 4 December 1995, hereby rules: art 3(1)(6) of Council Directive
(EEC) 79/112 on the approximation of the laws of the member states relating to the labelling, presentation
and advertising of foodstuffs for sale to the ultimate consumer is to be interpreted as meaning that the
expression established within the Community used in it refers only to the seller.
261
The plaintiff undertaking submitted a tender for a public contract requiring architectural and engineering
services. On learning that its tender had been unsuccessful, the plaintiff applied to the appropriate review
body in order to have the procedure stopped, contending that the awarding authority had breached the
relevant Community and domestic provisions coordinating public procurement award procedures. The
review body declined jurisdiction on the ground that domestic public procurement legislation had not yet
been extended to cover contracts for services as required under Council Directive (EEC) 90/50
coordinating procedures for the award of public service contracts. The plaintiff subsequently applied for a
determination to the Federal Public Procurement Awards Supervisory Board, contending that in so far as
the Community provisions concerning public service contracts had not been transposed into German
legislation, the Community provisions were directly applicable and had to be complied with by the review
body. The supervisory board stayed the proceedings and referred to the Court of Justice of the European
Communities for a preliminary ruling a question on the interpretation of Directive 90/50. However, a
preliminary issue arose as to whether the supervisory board which was set up by the
Haushaltsgrundstzgesetz (the Budget Principals Law), in which it was described as a quasi-judicial
body, was to be regarded as a court or tribunal within the meaning of art 177 1 of the Treaty and therefore
whether the reference was admissible.
1
Article 177, so far as material, provides: Where a question is raised before any court or tribunal of a Member State,
that court or tribunal may request the Court of Justice to give a ruling
Held The question whether a body making a reference was a court or tribunal for the purposes of art
177 of the Treaty was governed by Community law, which required that the court take account of various
factors including: whether the body was established by law; whether it was permanent; whether its
jurisdiction was compulsory; whether its procedure was inter partes; whether it applied rules of law and
whether it was independent. In the instant case, since the supervisory board was established by the
Haushaltsgrundstzgesetz, its establishment by law 262 and its permanence could not be disputed.
Moreover, under German legislation the board was the only body with the power to review the legality of
determinations made by a review body, which, following a ruling that a determination was unlawful, would
be directed to make a fresh determination in conformity with the boards findings; the legislation also
required the board to apply provisions of Community directives and the domestic provisions transposing
them, and provided, inter alia, that the principal rules on the appointment and independence of the
judiciary applied to the boards official and lay members. It followed that the board fulfilled all of the
required criteria, except that of an inter partes procedure, which was not in any case an absolute criterion.
Accordingly, in the procedure which led to the instant reference, the supervisory board was a court or
tribunal for the purposes of art 177, with the result that the question referred was admissible (see p 284 e
f j, p 285 b to j and p 286 c, post).
Vaassen (ne Gbbels) v Management of the Beambtenfonds voor het Mijnbedrejf Case 61/65 [1966]
ECR 261, Pretore di Sal v Persons Unknown Case 14/86 [1987] ECR 2545, Handels- og
Kontorfunktionrernes Forbund i Danmark v Dansk Arbejds- giverforening acting on behalf of Danfoss
Case 109/88 [1989] ECR 3199, Municipality of Almelo v Energiebedrijf IJsselmij NV Case C-393/92
[1994] ECR I-1477 and Non-contentious proceedings brought by Job Centre Coop arl Case C-111/94
[1995] ECR I-3361 applied.
Notes
For Community provisions on courts which may refer, see 51 Halsburys Laws (4th edn) para 2181.
For the EC Treaty, art 177 (as amended by art G.56 of the Treaty on European Union), see 50
Halsburys Statutes (4th edn), Current Service 98.
Cases cited
Almelo (Municipality of) v Energiebedrijf IJsselmij NV Case C-393/92 [1994] ECR I-1477.
Borker Case 138/80 [1980] ECR 1975.
Bozetti v Invernizzi SpA Case 179/84 [1985] ECR 2301.
Broekmeulen v Huisarts Registratie Commissie Case 246/80 [1981] ECR 2311.
Corbiau v Administration des Contributions du Grand-Duch de Luxembourg Case C-24/92 [1993] ECR I-
1277.
Dillenkofer v Germany Joined cases C-178179/94 and C-188190/94 [1996] All ER (EC) 917, [1996]
ECR I-4845, ECJ.
Direccin General de Defensa de la Competencia v Asociacin Espaola de Banca Privada (AEB) Case
C-67/91 [1992] ECR I-4785.
European Commission v Germany Case C-253/95 [1996] ECR I-2423.
European Commission v Germany Case C-433/93 [1995] ECR I-2303.
Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325, ECJ.
Greis Unterweger (Criminal proceedings against) Case 318/85 [1986] ECR 955.
Hagen OHG v Einfuhr- und Vorratsstelle fr Getreide und Futtermittel Case 49/71 [1972] ECR 23.
Handels- og Kontorfunktionrernes Forbund i Danmark v Dansk Arbejdsgiverforening acting on behalf of
Danfoss Case 109/88 [1989] ECR 3199.
Job Centre Coop arl (Non-contentious proceedings brought by) Case C-111/94 [1995] ECR I-3361.
263
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135.
Pretore di Sal v Persons Unknown Case 14/86 [1987] ECR 2545.
SEIMSociedade de Exporto e Importo de Materiais Ld v Subdirector-Geral das Alfndegas Case C-
446/93 [1996] ECR I-73.
Simmenthal SpA v Amministrazione delle Finanze dello Stato Case 70/77 [1978] ECR 1453.
Vaassen (ne Gbbels) v Management of the Beambtenfonds voor het Mijnbedrejf Case 61/65 [1966]
ECR 261.
Wagner Miret v Fondo de Garanta Salarial Case C-334/92 [1993] ECR I-6911.
Reference
By order of 5 February 1996, the Vergabeberwachungsausschu des Bundes (the Federal Public
Procurement Awards Supervisory Board) referred to the Court of Justice of the European Communities
for a preliminary ruling under art 177 of the EC Treaty a question (set out at p 281 e, post) on the
interpretation of art 41 of Council Directive (EEC) 92/50 relating to the coordination of procedures for the
award of public service contracts. The question was raised in proceedings between Dorsch Consult
Ingenieurgesellschaft mbH (Dorsch Consult) and Bundesbaugesellschaft Berlin mbH concerning a
procedure for the award of a service contract. An initial question arose as to the admissibility of the
reference. Written observations were submitted on behalf of: Dorsch Consult, by F G Siebeck,
Rechsanwalt, Munich; the German government, by E Rder, Ministerialrat at the Federal Ministry for
Economic Affairs, and B Kloke, Oberregierungsrat at the same ministry, acting as agents; and the
European Commission, by H van Lier, Legal Adviser, and C Schmidt, of its Legal Service, acting as
agents. Oral observations were made by Dorsch Consult, the German government and the Commission.
The language of the case was German. The facts are set out in the opinion of the Advocate General.
15 May 1997.
Community legislation
3.
Article 36 of the services directive lays down the criteria which a contracting authority is required to
follow in awarding a contract. In particular, art 36(1)(a) provides that, where the award is made to the
economically most advantageous tender, the contracting authority must take into account
various criteria relating to the contract: for example, quality, technical merit, aesthetic and
functional characteristics, technical assistance and after-sales service, delivery date, delivery
period or period of completion, price
In other cases, sub-para (b) provides that the lowest price only is to be taken into account.
Article 44 of the services directive sets 1 July 1993 as the date by which member states are required
to adopt and communicate the necessary transposition measures.
4.
The review directive requires member states to take the measures necessary to ensure that award
procedures for public works contracts and public supply contracts governed by the relevant Community
directives2 may be reviewed rapidly and effectively where the grounds of alleged illegality involve (directly
or indirectly) Community law (art 1(1)).
2
These are, of course, contracts covered by Council Directives (EEC) 71/305 (OJ 1971 L185 p 5) and (EEC) 77/62 (OJ
1977 L13 p 1), now Council Directive (EEC) 93/37 (OJ 1993 L199 p 54) and Council Directive (EEC) 93/36 (OJ 1993
L199 p 1) respectively.
Following the entry into force of the services directive, the review directive also applies to procedures
for the award of service contracts; art 41 of the services directive, which the referring body is now asking
the court to interpret, amended the wording of art 1 of the review directive to extend its scope to include
the review of service contract awards.
5.
Article 2(8) of the review directive provides that, where bodies responsible for review procedures are
not judicial in character, written reasons for their decisions must be given. In such a case, the member
states must also guarantee that
any allegedly illegal measure taken by the review body or any alleged defect in the exercise of
the powers conferred on it can be the subject of judicial review or review by another body which is
a court or tribunal within the meaning of Article 177 of the EEC Treaty and independent of both the
contracting authority and the review body.
In order to ensure the independence of such bodies, the second sub-paragraph of art 2(8) further
requires that their members be subject to the same conditions as members of the judiciary as regards the
authority responsible for their appointment, their period of office and their removal; and that at least the
president shall have the same legal and professional qualifications as members of the judiciary. Finally,
the sub-paragraph provides that the body in question is to 265 adopt its decisions following a procedure in
which both sides are heard and that its decisions are to be legally binding.
The national legislation
6.
The Community public procurement directives were transposed into German domestic law by means
of an amendment of the Haushalts- grundstzegesetz (the Budget Principles Law) (the HGrG). In
particular, the Second Law Amending the HGrG (BGBl 1993, I, pp 1928ff), which came into effect in 1993,
inserted new paras 57a to 57c, which were intended by the German legislature to give effect to the
directives on the award of public works contracts and public supply contracts, and to the review directive 3.
3
This legislative technique is commonly referred to as the budget solution by German academic writers.
The services directive, however, has not been transposed into German law, and this is confirmed by
the order for reference.
7.
Paragraph 57a of the HGrG constitutes the general legal basis for the adoption of the measures
implementing the Community directives on public procurement. It confers power on the Federal
government to issue regulations, with the assent of the Bundesrat, governing the award of public supply
contracts, public works contracts and public services contracts, which are put out to tender by the bodies
listed in the said paragraph.
The ensuing provisions (paras 57b and 57c), which deal with the remedies available in the case of
infringement of rules of Community law (or of national provisions transposing them), set up a two-tier
review procedure for this purpose. Initial recourse lies to the award review bodies (Vergabeprfstellen)
whilst their decisions may in turn be challenged before the supervisory boards
(Vergabeberwachungsausschsse) set up by each of the Lnder, or, in cases where the impugned
contract-award procedure falls within a federal authoritys province, before the Federal Supervisory
Board.
8.
Paragraph 57b of the HGrG regulates, in particular, the operation of the review bodies. According to
sub-para (2) thereof, the terms of reference of these bodies are to be determined by the federal
government by means of regulations and with the prior assent of the Bundesrat. Sub-paras (3), (4) and
(5) contain a series of provisions concerning the commencement of the review procedure, the suspension
of award procedures adjudged suspect and the information which applicants are required to provide to the
review bodies.
Sub-para (6) provides that the lodging of an application with a review body does not preclude the right
of the individual concerned to bring an action in the ordinary courts for damages for loss suffered as a
result of an award procedure.
9.
Paragraph 57c of the HGrG lays down a series of rules applicable to the supervisory boards 4; the
members of such boards, the composition of which is regulated in detail in sub-paras (2), (3) and (4) of
this provision, perform their functions independently and on their own responsibility. In particular, para
57c(3) provides that certain provisions of the Deutsches Richtergesetz (the Law on the Judiciary) (the
DRiG) are to apply by analogy to the official members of the supervisory boards as regards annulment or
withdrawal of their appointment and their independence and dismissal 5.
4
These rules also apply to the Federal Supervisory Board, save for the specific provisions contained in para 57c(7).
5
The relevant paragraphs of the DRiG are:para 18(1) and (2), which specifies the circumstances in which the
appointment of a judge is void (appointment by an authority acting outside its powers, appointment of a person who is
not a German national or is not qualified to hold public office); however, para 18(3) (which provides that the nullity of an
appointment may not be relied upon until declared in a court decision having the force of res judicata) is not applicable
and in its place para 57c(3) provides that the nullity of an appointment may not be relied upon until it has been declared
by the authority which made the appointment and that decision has become final; para 19(1) and (2), which deals with
the cases in which appointments can be withdrawn. Paragraph 19(3), which makes withdrawal of an appointment
subject to the consent of the party concerned or a court decision having the force of res judicata, does not apply,
however; para 26(1) and (2), which provides that administrative supervisory control over members of the judiciary
may not limit their independence;para 27(1), judges are assigned to a particular court); para 30(1) and (3), paras 31
to 33, and para 37, which lay down the conditions for removing a judge from his office or for transferring him; in general,
this may happen pursuant to formal disciplinary proceedings or on the grounds of court restructuring. It is to be noted
that para 30(2), which provides that removal from office or transfer other than for organisational reasons shall require a
court order having the force of res judicata, does not apply.
266
The supervisory boards review only the legality of the award procedures and do not examine the
findings of fact on which the determinations of review bodies are based; they may, where appropriate, set
aside the determinations of review bodies and direct them to make fresh determinations (para 57c(5)).
Any person claiming that provisions governing the award of contracts have been infringed may make an
application to a supervisory board (sub-para (6)).
10.
Finally, para 57c(7) lays down specific rules applicable to the Federal Supervisory Board. Its official
members are selected from the chairmen and assessors serving in the decision making departments of
the Bundeskartellamt (the national administrative authority responsible for competition matters). The
chairmen of the chambers of the supervisory board are appointed from the chairmen of the
Bundeskartellamt decision-making departments. The president of the Bundeskartellamt appoints lay
assessors6 on a proposal from the top public-law trade boards, decides on the formation and composition
of chambers and exercises administrative supervisory control on behalf of the Federal government.
6
As well as the official members (Bundeskartellamt personnel), the Federal Supervisory Board also has outside or lay
assessors. At present it is composed of a single chamber, presided over by a Bundeskartellamt department chairman,
and has four official members, five lay members and five alternate lay members (see Stockmann Die
Vergabeberwachung des Bundes WUW (1995) pp 572ff; the author is the president of the Federal Supervisory Board).
This sub-para also provides that the Federal Supervisory Board is to adopt its own internal rules of
procedure to regulate the allocation and conduct of cases.
11.
On the basis of the provisions described above, the Federal government adopted two implementing
regulations on 22 February 1994, after having obtained the assent of the Bundesrat. The first regulation,
governing the award of public procurement contracts, expressly applies only to public works contracts and
public supply contracts and does not therefore apply to public service contracts (see BGBl 1994, I, pp
321ff).
The second regulation, however, is of general application and contains provisions fulfilling the
obligation to provide for appropriate review procedures in the field of public procurement (the review
regulation)7. Paragraph 1 of this regulation designates the bodies competent to conduct reviews in
respect of each of the awarding authorities listed in para 57a of the HGrG. Under para 2, the review body
has power to suspend the award procedure; its determinations are 267 to be given in writing, contain a
statement of reasons and be notified to the awarding authority and to the person claiming an infringement
of the procurement rules; the review body must draw the latters attention to the possibility of challenging
the determination before a supervisory board and specify the supervisory board competent to hear such a
challenge.
7
See BGBl 1994, I, pp 324ff
12.
Finally, para 3 of the review regulation deals with the operation of the supervisory boards. It provides
that the supervisory boards must make a reference to the Court of Justice under art 177 when they
consider that a ruling on the interpretation of the EC Treaty or on the validity or interpretation of legal acts
adopted on the basis of the Treaty is necessary.
It also provides that the supervisory boards are to adopt internal rules of procedure in the light of the
principles set out in the law amending the HGrG. They must issue reasoned determinations in writing
after having heard the parties. Finally, para 3(4) provides that the supervisory boards, unlike the review
bodies, shall not be empowered to suspend a procedure for the award of a contract.
13.
The rules of procedure of the Federal Supervisory Board came into effect on 1 August 1995 and have
not been published. The version produced by the German government in these proceedings consists of
five sections regulating the organisation and allocation of cases within the board, the conduct of
procedure, which includes a written stage and an oral hearing, and its decisions and other technical
matters, including formalities relating to final determinations.
This version of the internal rules of procedure seems to be an amended version of rules which came
into effect in June 1994 and was likewise not published. According to the European Commission, which
supplied this information without challenge at the hearing, there are a number of differences between the
original version and the one now in force, in particular as regards the openness and necessity of hearings
and procedural time limits8.
8
The Commission indicated in fact that it had doubts as to which version of the rules of procedure was to be regarded as
in force. It explains that the only version officially submitted by the German government which has not been followed by
any official revision or amendment is that of June 1994, which was produced as an official document in the course of an
enforcement action brought by the Commission against Germany under art 169.
14.
To complete this survey of the legal background it should be noted that the transposition of the
Community public procurement directives has been the subject of two recent judgments of this court, in
which it found that the German government had failed to comply with its obligations under the Treaty. The
first judgment concerned the incorrect transposition of the directives on the award of public works
contracts and public supply contracts9 and the second concerned the failure to transpose the services
directive (see the judgments in European Commission v Germany Case C-433/93 [1995] ECR I-2303 and
European Commission v Germany Case C-253/95 [1996] ECR I-2423 respectively).
9
The directives applicable at the time of the relevant facts were Council Directive (EEC) 88/295 in respect of public
supply contracts (OJ 1988 L127 p 1) and Council Directive (EEC) 89/440 in respect of public works contracts (OJ 1989
L210 p 1). In line with its established case law, the court confirmed the breach of obligations by reference to the legal
position existing at the expiry of the period set by the Commission in its reasoned opinion (in this case, 3 February
1993).
As regards transposition of the review directive, the Commission has commenced enforcement
proceedings which are still pending10. The 268 Commission contends, essentially, that in the national
measures transposing the directive the German government has provided individuals with less judicial
protection than the corresponding directive.
10
The letter of formal notice dated 31 December 1995 has been published in German, in Zeitschrift fr Wirtschaftsrecht
und Insolvenzpraxis, N 23/95, pp 1940ff. The reasoned opinion in the case was delivered on 29 July 1996 (see
Commission press release No IP/96/614).
FACTS
15.
Unlike the legislative background, the facts which led to the main proceedings are straightforward and
may be summarised as follows.
In 1995, the Bundesbaugesellschaft Berlin mbH (the contracting authority) issued an invitation to
tender for the award of a general planning services contract relating to new government buildings in
Berlin11. As the services in question were of an intellectual nature, the contracting authority opted to use a
negotiated procedure with prior publication of the contract notice, as permitted by art 11(2)(c) of the
services directive.
11
Published in the Amtsblatt Berlin of 23 June 1995 and in OJ 1995 S120 p 166.
16.
Dorsch Consult Ingenieurgesellschaft mbH (the applicant) took part in the tendering procedure and
submitted its tender on 25 August 1995.
The contracting authority examined the 18 tenders received and drew up a short list of seven. It then
decided to award the contract to two of the other firms which had submitted a tender, which were required
to form a working party to provide the services in question. The contract was signed on 12 January 1996,
after the working party had already commenced its work.
17.
The applicant took the view that the elimination of its tender constituted a breach of the services
directive and of the relevant national legislation and applied to the Federal Ministry for Regional Planning,
Building and Urban Planning (in its capacity as the competent review body) seeking, by way of interim
relief, to have the contract awarding procedure suspended and, by way of primary relief, to be awarded
the contract. In support of its claim, the applicant contended that it had been repeatedly informed by the
contracting authority that it was technically competent to perform the contract and that its tender was the
most attractive in terms of price.
By letter of 20 December 1995, the review body declined jurisdiction and dismissed the application
without consideration of the merits of the claim. The decision was based on the grounds that the federal
regulation provided for under the legislation, by which the Federal government was to have extended the
jurisdiction of the review bodies to include the hearing and determination of disputes concerning service
contracts, had still not been enacted.
18.
In its notification to the applicant of the outcome of its application, the review body also informed it of
its right to challenge the legality of the decision before the Federal Supervisory Board. The applicant
thereupon made an application to that Board for the setting aside of the review bodys decision to decline
jurisdiction, the suspension of the contract awarding procedure and the award of the contract to the
applicant; alternatively, it asked for a reference to be made to the Court of Justice for a preliminary ruling
on the point in issue.
The Federal Supervisory Board decided to stay the proceedings and to refer to the Court of Justice the
question whether art 41 of the services directive is to be interpreted as meaning that the bodies set up by
the member states for the purposes of the review directive are also competent, from the date by which the
services directive ought to have been transposed into national law, to review procedures for the award of
public service contracts.
269
ADMISSIBILITY
19.
Before considering the substance of the question referred, it is necessary to determine whether the
Court of Justice has jurisdiction to entertain the reference made by the Federal Supervisory Board. From
the foregoing survey of the legislation establishing the board and of the rules governing its procedure
serious doubts arise as to whether that body can be regarded as a court or tribunal within the meaning of
art 177 of the Treaty and, accordingly, whether the reference is admissible 12.
12
The sole purpose of this examination is, incidentally, to determine whether the subjective conditions for acceptance of
the reference are satisfied and not to establish whether the review directive was properly transposed, which may
eventually be the subject of separate proceedings. Of course, the enforcement action brought by the Commission
against the German government for failure correctly to transpose the review directive, which I mentioned earlier, has
points in common with the present case; but there are also many dissimilarities, so that a rigorous distinction between
the two cases should be maintained, with regard to both form and substance.
The issue was the subject of lively argument between the parties, both in their written observations
and at the hearing. It is noteworthy that the applicant itself, which had expressly requested (albeit as an
alternative relief) a reference to be made to the Court of Justice for a preliminary ruling on the point in
issue, accepted that the Federal Supervisory Board does not constitute a court or tribunal within the
meaning of art 177; it submitted none the less that the court should in any case answer the question
referred to it, butnot without self-contradictionon grounds relating to the effective protection of
individual rights by the courts.
The Commission considered that the question was so clearly inadmissible that it felt it unnecessary to
address its substance. The German government, for its part, argued that the body in question does
constitute a court or tribunal within the meaning of art 177. But it explicitly conceded in the course of the
hearing that it had begun the process of amending the relevant provisions to allow, inter alia,
determinations of the supervisory boards to be challenged in the ordinary courts in order to ensure the
effective protection by the courts of the rights of the persons concerned 13.
13
This point was raised at the hearing by the Commission, which saw it as further proof that the supervisory boards as
presently constituted are not courts; this was disputed by the German government, which at the hearing argued that the
amendments in question were aimed solely at making a number of improvements to a system already providing
satisfactory legal protection, and it pointed out that this information had been supplied in the course of other, separate
proceedings.
20.
My first observation in considering this issue is that, in German domestic law itself, the Federal
Supervisory Board (as well as the supervisory boards of the Lnder) are described as quasi-judicial
bodies (gerichtshnliche Einrichtungen) and not as courts or tribunals strictu sensu 14.
14
See the preamble to the Second Law Amending the HGrG, which inserted new paras 57a to 57c, discussed above (BT-
Drucksache 12/4636, p 12). The designation is not surprising if one has regard to the particularities of German
constitutional law. Were a fully-fledged Federal court to have been established by means of an ordinary law (such as the
HGrG) this would have been in breach of the relevant constitutional provisions (at least as regards the Federal
Supervisory Board); this is because the German Basic Law (arts 95 and 96) contains an exhaustive list of all Federal
courts, any addition to which would require a constitutional amendment.
This fact, whilst not being conclusive on its own since the concept of court or tribunal within the
meaning of art 177 is a term of Community law15 within the audit of which the Court of Justice has seen fit
(on occasion) to include bodies which were not so regarded in the eyes of their own national law, none
the less 270 calls for a detailed analysis of the nature of the body in question and the manner in which it is
required to carry out its functions, in order to ascertain whether it possesses those organisational and
functional characteristics which the court has in previous cases held to be necessary in order for a body
which is not a court to still be able to fall within the scope of art 177 (see eg Vaassen (ne Gbbels) v
Management of the Beambtenfonds voor het Mijnbedrejf Case 61/65 [1966] ECR 261).
15
The definition of which, in the obvious interests of the uniform application of Community law, cannot be left to the
discretion of the courts of the member states (see in general Hagen OHG v Einfuhr- und Vorratsstelle fr Getreide und
Futtermittel Case 49/71 [1972] ECR 23).
21.
I shall therefore begin by briefly reviewing those leading decisions of the court in this area which are
relevant here, but it should be borne in mind that the case law developed by reference to the individual
cases that have come before the court has not led to a general, exhaustive definition of the concept of
court or tribunal within the meaning of art 177.
22.
The first case concerned a Dutch industrial arbitration tribunal (Scheidsgericht) which made a
reference to the Court of Justice for a preliminary ruling even though it stated that it did not consider itself
to be a judicial body under Dutch law. In the now landmark judgment of Vaassen (ne Gbbels), the court
decided that it had jurisdiction to rule on the questions submitted to it, having found that the referring body
in question possessed the characteristics of a court or tribunal within the meaning of art 177.
The court expressly took the following factors into account: the Scheidsgericht was a body duly
established under Dutch law; it was permanent; it was charged with the settlement of disputes and had to
follow rules of inter partes procedure similar to those applying in the ordinary courts of law; it was required
to apply rules of law; furthermore, all those belonging to the relevant industry had to bring any dispute
with their insurer before the Scheidsgericht; finally, the members of the body in question were appointed
by the minister responsible, who also designated its chairman and laid down its rules of procedure 16.
16
In more recent decisions the court also confirmed that employment arbitration tribunals which satisfy the aforementioned
criteria are courts or tribunals within the meaning of art 177. See eg the judgment in Handels- og Kontorfunktionrernes
Forbund i Danmark v Dansk Arbejdsgiverforening acting on behalf of Danfoss Case 109/88 [1989] ECR 3199, in which
the court found that the body making the reference, a Danish industrial arbitration board, had been established by law
(which laid down detailed rules governing its composition, the number of members to be nominated by the parties and
the manner of appointment of the umpire), had exclusive and final jurisdiction over the relevant disputes and could hear
a case brought by either party irrespective of the objections of the other. Advocate General Lenz also pointed out that
the board was also required to apply rules of law, such as the provisions of the relevant collective agreements.
23.
By adopting this approach, the court thus made it clear from the outset that in deciding whether a
referring body is a court or tribunal for the purposes of the Treaty it does not attach importance to its
formal designation but considers its substantive characteristics (establishment by law, permanence,
compulsory jurisdiction, transparent rules of procedure and the application of rules of law). This approach
was entirely justified, especially in view of the historical context in which it evolved. For at the time of the
Vaassen (ne Gbbels) case the mechanism of co-operation between national courts and the Court of
Justice had only just begun to operate and the Court of Justice was very mindful of the need to encourage
the use of the mechanism in order to ensure the spread and uniform application of Community law, with
the aidif necessaryof a broad interpretation of the category of bodies entitled to make references to it.
24.
A number of subsequent judgments should also be read in this light, like that in, for example,
Broekmeulen v Huisarts Registratie Commissie Case 246/80 [1981] ECR 2311 (discussed in greater
detail in paras 39 and 40, below), in which 271 the court held to be admissible a question submitted to it
by a (Netherlands) appeals committee which heard appeals from medical practitioners who had been
refused authorisation to practise or enrolment on the medical register. In this case, too, the court found
that the appeals committee possessed a number of organisational and functional characteristics which
warranted it being treated as having a judicial function. The court took into account the fact that the
appeals committee concerned was permanent, that the public authorities were involved in deciding its
composition, that it had internal rules of procedure providing for inter partes procedure, that its jurisdiction
was exclusive and that its determinations were final. Given also the fact that it was called upon to apply
Community law, which had been pleaded by the applicants in the main proceedings, the court held that it
was necessary, in the interest of the practical effect of Community law, to answer the question submitted.
25.
The line of judgments beginning with Simmenthal SpA v Amministrazione delle Finanze dello Stato
Case 70/77 [1978] ECR 1453 is to be viewed in the same light. In that case, a reference was made to the
court by the Preture di Alessandria in proceedings for an interlocutory order. The Italian government
contested the jurisdiction of the court to reply to the questions submitted by the Preture on the grounds
that the procedure was not inter partes, pointing out that the judge in question had power in the course of
it to make a determination based solely on the plaintiffs submissions. Having found that the Preture was
exercising the functions of a court or tribunal within the meaning of Article 177, the court held that the
Pretures capacity to make a reference for a preliminary ruling could not depend on whether or not the
proceedings in which the reference was made were defended; it did, however, add that
it may where necessary prove to be in the interests of the proper administration of justice that a
question should be referred for a preliminary ruling only after both sides have been heard.
In other words, the court established that, whenever a referring body is unquestionably a court or tribunal,
the fact that a reference is made before any inter partes hearing does not render it inadmissible (see
[1978] ECR 1453 (paras 910)).
26.
While adopting this broad interpretation, the court has none the less set clear limits to the concept of
court or tribunal within the meaning of the Treaty. In its order in Borker Case 138/80 [1980] ECR 1975
(para 4), subsequently confirmed in Criminal proceedings against Greis Unterweger Case 318/85 [1986]
ECR 955, the court held that it had jurisdiction to give preliminary rulings only on questions submitted by a
court or tribunal called upon to give judgment in proceedings intended to lead to a decision of a judicial
nature. The referring bodies in question in those cases were, respectively, the Paris Bar Council (which
had been requested by a lawyer on its register to issue a declaration to be produced as evidence in legal
proceedings pending before the courts of another member state) and the Italian Consultative Committee
for Currency Offences (whose function was to give reasoned, non-binding opinions to the Italian
Treasury), and in both cases the court found that this condition was not satisfied 17.
17
See also, on this point, the recent judgment in Non-contentious proceedings brought by Job Centre Coop arl Case C-
111/94 [1995] ECR I-3361, which concerned voluntary proceedings involving an application for approval of a companys
memorandum of association with a view to its registration. The Court of Justice held that the Tribunale di Milano, which
made the reference, was in this instance performing the functions of an administrative authority rather than those of a
judicial body.
27.
In addition, the Court of Justice subsequently held that, in order to qualify as a court or tribunal within
the meaning of art 177, the body making the reference must be independent. This criterion, perhaps
because it goes to the very essence of the judicial function, was explicitly identified for the first time 272
only in Corbiau v Administration des Contributions du Grand-Duch de Luxembourg Case C-24/92 [1993]
ECR I-1277, in which the court declined jurisdiction on the ground that the body making the reference,
although a court under national law, did not, in the courts view, offer the necessary guarantees of
impartiality between parties to disputes which it was called upon to resolve 18. That case involved
Luxembourgs Director of Taxation and Excise who had jurisdiction under the law to hear at first instance
disputes between taxpayers and the departments (of which he was director) which had charged them to
tax.
18
There had, in fact, already been some fairly explicit references to the criterion of independence in previous decisions:
see eg the judgment in Pretore di Sal v Persons Unknown Case 14/86 [1987] ECR 2545 (para 7), in which the Court of
Justice had regard, among other factors, to the referring courts independence in reaching the conclusion that it
constituted a court or tribunal within the meaning of art 177.
The criterion of independence also appears to have been a key factor, albeit with the opposite result,
in Direccin General de Defensa de la Competencia v Asociacin Espaola de Banca Privada (AEB)
Case C-67/91 [1992] ECR I-4785. In that case the body making the reference was Spains Tribunal de
Defensa de la Competencia, which Advocate General Jacobs, in his opinion, found to present a number
of characteristics constitutive of a court or tribunal within the meaning of art 177; these included the
adversarial nature of the procedure which was clearly laid down by law, the independent exercise by its
members of their functions and the fact that its members could not be removed from office (see the
opinion in AEB [1992] ECR I-4785 (para 11)). In its judgment the court did not specifically address the
issue; but the fact that it replied to the questions submitted indicates that the court implicitly endorsed the
view of the Advocate General.
28.
These decisions therefore clearly show that, even in the absence of a general definition of the concept
of court or tribunal within the meaning of art 177, the court has developed a number of tests which must
be satisfied in order for a body to be entitled to make a reference for a preliminary ruling.
These tests concern the manner of establishment of the body, which must have been established by
law and not by agreement between the parties; its connection to the exercise of public authority; its
permanent nature, in the sense that it must not exercise a judicial function only on an occasional basis; its
competence to resolve a dispute by a decision of a judicial nature; the conduct, before it, of a procedure
analogous to that which is followed in ordinary courts of law, involving (within the limits discussed above)
exchange of argument inter partes; the application by the body in question of rules of law (rather than
principles of fairness); compulsory jurisdiction, which means that alternative remedies are not available;
and finally independence, in the sense that it acts as a third party in relation to the parties to the dispute
and that its members may not be removed from office.
29.
To return to the case in hand, it is now therefore necessary to establish whether the Federal
Supervisory Board possesses the characteristics allowing it to be regarded as performing a judicial
function, as required by the Court of Justice for the purposes of art 177 of the Treaty.
273
As already mentioned, the Commission takes the view that the Federal Supervisory Board does not
satisfy any of the tests laid down by the court in the cases referred to above. Its main argument is that the
Federal Supervisory Board was established by a framework law (the Second Law amending the HGrG),
which does not impose obligations or confer rights on individuals and which must be supplemented by
regulations; moreover, the body in question could easily be deprived of its legal basisand thereby of its
capacity to give judgment in cases such as the present case where there is no competent review body at
first instance. The Commission also makes these points: that the referring body does not make its
determinations following an inter partes procedure, as is confirmed in the grounds of its first decision 19;
that its proceedings are governed by internal rules of procedure which have not been published and
which may be amended autonomously at any time; that there is no legislative provision for its
determinations to have binding legal effect; that it is not an independent body, since it is linked to the staff
and organisational structure of the Bundeskartellamt, which is itself an administrative rather than a judicial
body; and that the minimum term of office of its official members and of its chairman is not fixed by law.
19
See the decision of 2 August 1994 (published in EU Public Contract Law, No 3/94, pp 47ff), in which the Federal
Supervisory Board stated that it did not conduct an inter partes procedure and that the parties applications were only
requests for a particular determination.
30.
In view of the nature of the Federal Supervisory Board, the legislative technique by which it was
established and, above all, the provisions governing the way in which it functions, I must confess that I
agree with at least some of the Commissions observations, which I also consider to be particularly
important.
To begin with, I do not believe that the rules governing the review procedure before the supervisory
boards can be regarded as comparable to the rules governing procedure before ordinary courts of law.
On the contrary, the fact that, under the legislation, rules of procedure are to be adopted autonomously by
each supervisory board, which may subsequently amend them autonomously, and that in addition there is
no requirement that they be published, leads me to conclude that the degree of transparency and legal
certainty required in any judicial process is not guaranteed here.
31.
I am not only referring here to the absence of any inter partes procedure, which has now been proved
in practice: of far greater significance, to my mind, is the absence of the minimal functional requirements
which characterise judicial proceedings, as found in Vaassen (ne Gbbels) [1966] ECR 26120. In that
case, as I have explained, the rules of procedure governing proceedings before the referring body were
subject to the approval of the minister responsible, so that there could be no doubt as to the certainty,
transparency and ascertainability of the procedural rules applicable. That fact, which was indeed
expressly mentioned was taken into consideration both by the Advocate General and by the court in
arriving at the conclusion that the body in question in that case was bound by rules of adversary
procedure similar to those used by the ordinary courts of law (my emphasis)21.
20
Of course, in attaching less importance, in Simmenthal (within the limits referred to above), to the specific requirement
of inter partes procedure, the court certainly did not intend to dispense with the more general requirement for the
procedure to be of a judicial nature. It is in fact a fundamental requirement which played a decisive role not only in
Vaassen (ne Gbbels), where it was expressly addressed, but also, as we have seen, in the reasoning underlying the
other decisions of the court on this issue.
21
See Vaassen (ne Gbbels) [1966] ECR 261 (para 1), and the opinion of Advocate General Gand in the same case,
where he states: The procedure which is followed is of a judicial nature.
274
32.
In the present case, however, I find it difficult to see similar procedural safeguards; if they do exist,
they are subject to opaque autonomous amendment by the decision making body and this seems to me
to run counter to the most basic requirements of legal certainty. The point is borne out, indeed, by the
Commissions doubts, referred to above, as to the version of the rules of procedure now in force due to
the discrepancies between the version provided by the German government in the course of the
enforcement proceedings and the version produced in this case.
In these circumstances, I do not consider that the review proceedings conducted before the Federal
Supervisory Board can be regarded as having the character of judicial proceedings as required by the
court. In this regard, the present case falls clearly outside even the generously broad parameters laid
down in Vaasen (ne Gbbels).
33.
There are also serious doubts, in my opinion, regarding the independence of the Federal Supervisory
Board, at least as regards the question of unremoveability of its members from office.
Of significance in this regard is para 57c(7) of the HGrG, which I shall recapitulate for the sake of
convenience: the official members of the Federal Supervisory Board are Bundeskartellamt department
chairmen and assessors, with the former acting as chairmen of the chambers of the board. The president
of the Bundeskartellamt appoints the lay assessors, decides on the formation and composition of
chambers and exercises administrative supervisory control by delegation from the government 22. The
Federal Supervisory Board also uses the Bundeskartellamts facilities and services.
22
This control is limited to reproach (Vorhalt) and reprimand (Ermahnung) and consequently, according to legal writers,
should in no case concern the content of judicial determinations. The case law appears to confirm this view, although
there are exceptions in cases of purportedly manifest error. See also, in this regard, paras 26(1) and 26(2) of the DRiG,
which are applicable to the body in issue and which provide that administrative supervisory control over the actions of
members of the judiciary cannot limit their independence. Paragraph 26(3), which gives judges the right to challenge
administrative supervisory measures addressed to them, does not, however, apply to official board members (para
57c(3)).
34.
In other words the official members of the board are also members of the Bundeskartellamt and
formally remain on its staff. In practice, this means that they simultaneously perform the functions of
Federal Supervisory Board members and those of Bundeskartellamt members. Moreover, the legislation
establishing the body in question does not include any provision as to the term of office of its official
members, and the fact that the term of office of the lay members is fixed (at five years) 23 suggests that the
omission was not inadvertent.
23
See the HGrG, para 57c(2).
What all this amounts to, in effect, is that not only do the members of the Federal Supervisory Board
enjoy no guarantee against dismissal, but neither do they have the assurance of a fixed term of office,
which is an essential prerequisite of independence. On the contrary, they can be relieved of their
additional duties and reassigned to their ordinary duties at any moment and by means of purely internal
organisational measures. While it is true, as we have seen, that some of the provisions of the DRiG
regarding the permanence and independence of members of the judiciary apply by analogy to the
members of the board when acting in that capacity, it is also the case that the latter are not covered by
the 275 DRiG provisions which give members of the judiciary the right to challenge their removal from
office or reassignment, with the result that they may be freely dismissed at any time by the president of
the Bundeskartellamt.
35.
Nor do I believe that the petitio principii contained in para 57c(3), which provides that the members of
the board are to be independent and unremovable, is sufficient to justify taking a different view, since it is
contradicted by the fact that the board members belong to the administrative authority and continue to
belong to it, even from a functional point of view. Such a system, under which a limited number of
administrative officials are, temporarily and for the performance of specific functions, given the title of
judge and then made subject to an equally limited number of provisions applicable to members of the
judiciary, but excluding the safeguards which ordinarily apply to the judiciary in relation to removal from
office and reassignment, appears to me to be too complicated and too intransparent to guarantee in
practice the stability required to ensure the independence of those performing judicial functions.
36.
One can have further doubts about the specific question of the impartiality of the Federal Supervisory
Board in relation to disputes falling within its area of jurisdiction. This body is, as we have seen, part of the
Bundeskartellamt, which is part of the public administration, but it is given power, in spite of this, to
adjudicate in disputes involving public procurement awards, that is to say in disputes between the public
administration itself and citizens. This fact alone would make it impossible to regard the Federal
Supervisory Board as acting as a third party, thus independently. Unless, of course, one regards judicial
independence as a moral quality of the actual persons who sit on the bench (see the judgment in Corbiau
[1993] ECR I-1277)24.
24
It is true that in that case the referring body was linked to the very departments which had made the disputed tax
assessment: however, the rationale of the courts judgment (and of the Advocate Generals opinion) is not unlike the
approach which should prevail in the present case, since the Federal Supervisory Board is, after all, an integral part of
the public administration and thus is not a third party in relation to disputes between the administration and citizens.
37.
Lastly, the Commission put forward a further telling argument with which I would agree. The legislation
establishing the Federal Supervisory Board makes no provision concerning the legal effects of its
determinations, especially their binding force. Since the body in question is one which, under national law,
is not a court, the general principle that all judicial determinations are binding does not apply. So, in the
absence of express provisions, the fact that the body in question was established using the so-called
budget solution, with the declared aim of not creating individual rights for those taking part in public
tendering procedures25, gives rise to doubts as to the binding nature of its decisions 26.
25
See the explanatory memorandum to the Draft Amending Law to the HGrG (BT-Drucksache 12/4636, p 12).
26
See the doubts expressed by legal writers, in particular by Boesen, (1996) EuZW 586, who points out that the decisions
of the Federal Supervisory Board are not enforceable; see also, on the same point, the letter of formal notice and the
reasoned opinion sent by the Commission to the German government in the enforcement proceedings referred to
above.
This is a factor which produces further doubts as to the judicial nature of the decisions which the board
is called upon to take and thus as to whether it can be regarded as having the attributes of a court or
tribunal within the meaning of art 177.
38.
So, in view of all of the points I have made, I consider that the Federal Supervisory Board does not
satisfy the requirements, certainly as far as 276 procedural safeguards and guarantees of independence
are concerned, for it to qualify as a court or tribunal within the meaning of art 177 and therefore that its
reference is inadmissible.
39.
It could be argued, on the other hand, that when a reference is made by a body which offers the only
legal remedy available to an individual relying on Community law, the court should accept the reference in
any event, in order to prevent the applicant from being deprived of an effective remedy and to ensure the
uniform application of Community law.
This is, in substance, the argument put forward by the applicant. As mentioned above, even though
the applicant submits that the Federal Supervisory Board is not a court or tribunal within the meaning of
art 177, it suggests that the court should turn a blind eye to this and nevertheless answer the question
submitted by the board on the ground that not to do so would be detrimental to the applicant.
This proposal might be supported, it claims, by the judgment in Broekmeulen [1981] ECR 2311 (para
17) in which, as explained above, the court accepted a reference from a professional body having the
power to hear appeals concerning the registration of members of the profession and held, inter alia:
in the absence, in practice, of any right of appeal to the ordinary courts, the Appeals
Committee, which operates with the consent of the public authorities and with their cooperation,
and which, after an adversarial procedure, delivers decisions which are in fact recognized as final,
must, in a matter involving the application of Community law, be considered as a court or tribunal of
a Member State within the meaning of Article 177 of the Treaty.
40.
I cannot subscribe to the applicants argument; the ratio of Broekmeulen should not be stretched too
far. The subjective and objective conditions for the functioning of the system of co-operation between
national courts and the Court of Justice, which was created by art 177 of the Treaty, cannot vary in
accordance with the particular circumstances of each case. If a body is not a judicial body, it does not
become one simply because there is no better solution. To hold otherwise and interpret Broekmeulen to
that effect would mean conferring crucial importance on an aspect of the procedural system of which the
body in question is part rather than on features of the body itself, so that it would no longer matter
whether the requirements expressly laid down by the court were satisfied or not.
41.
In any event, even with the best of will to make concessions, the circumstances of the present case
are altogether different in this respect. The decisive factor in Broekmeulen was, as quoted above, that in
practice there was no right of appeal to the ordinary courts for a citizen relying on a point of Community
law.
In the present case, however, a person who considers himself to have been unlawfully excluded from
a contract award procedure is expressly given the possibility of bringing an action in damages for any loss
suffered, which in itself could well provide, at least in principle, a satisfactory remedy.
42.
Moreover, even in the absence of any express legislative provision and despite the doubts expressed
by legal writers, ordinary German courts seem to have come round to the view that they have jurisdiction
to hear cases brought by participants in contract award procedures for alleged infringements of the
relevant provisions, including those of Community law. This is borne out by two recent decisions in which
the Kammergericht (the Appeal Court) of Berlin ruled 277 admissiblebefore dismissing them on the
meritsapplications for interlocutory relief by tenderers who had been excluded from public tendering
procedures and were seeking the suspension of the award procedures. 27
27
See Kammergericht Berlin, decisions of 10 April 1995 (KartU 7605/94 (1995) EuZW 645ff) and of 31 May 1995 (KartU
3259/95 (1996) NVwZ 415ff).
Furthermore, as I have already mentioned, the German government has notified the Commission that
it has commenced the process of amending its legislation to bring it into conformity with the review
directive; the new rules will make express provision for, inter alia, review by the ordinary courts of the
determinations of the supervisory boards.28
28
I would point out that the legislative changes which are being enacted could mean that the ruling which the court is now
called upon to give will have only historical significance, in relation, that is, to the issue of admissibility, concerning the
question whether or not the existing supervisory boards are entitled to make a reference for a preliminary ruling.
43.
So, as matters stand, it would not only be entirely in line with the case law of the Court of Justice but
also pose no problem for the effective judicial protection of individual rights, in the sense explained above,
if the Federal Supervisory Board were held not to be a court or tribunal within the meaning of art 177.
On the contrary, I hold the view that the solution which I have advocated, that is to say that the court
should declare that it has no jurisdiction to rule on this reference, offers a wider perspective going beyond
the present case and affords a greater safeguard of individual rights, for which only a court of law can
provide effective protection. Underlying this conclusion is, quite clearly, the conviction that only those
bodies which are able to provide all the safeguards of individual rights developed by the Court of Justice
can be treated as courts or tribunals for the purposes of art 177, and no others.
44.
Lastly, one final consideration, based on the underlying purpose of the review directive, should not go
unmentioned. As is well known, this directive was adopted to meet a strongly felt need to raise and make
uniform the level of judicial protection of individual rights in the field of public procurement. In some
member states, neither the award itself nor the other related administrative acts were capable of being
challenged in a court of law, or if they were, then with unsatisfactory implications for subsequent contract
award procedures. It was in order to remedy these very defects that the review directive introduced the
obligation for member states to put in place a system capable of effectively ensuring the vindication of the
substantive rights conferred by the relevant Community instruments (the directives on public works
contracts, public supply contracts and public service contracts) on those taking part in public procurement
procedures. This is the light in which the provisions of the directive should be read and, according to the
Commission at least, in which the other member states have implemented them until now. At the hearing
the Commission produced a document providing an overview of the bodies to which the individual
member states have given jurisdiction in the matter of public procurement awards in order to transpose
the review directive: the majority of member states have designated the ordinary courts or, in those
member states where they exist, the administrative courts, subject to the appellate jurisdiction of the
Council of State29. This is a significant factor which, in my view, should be given due 278 weight, whilst
observing the distinction between this case and the enforcement action brought by the Commission under
art 169 of the Treaty.
29
The Commission has thus declared itself satisfied with the transposition measures adopted by all the member states
(with the exception, of course, of the Federal Republic of Germany, against which it has commenced art 169
proceedings).
45.
Having regard to all the considerations set forth above, I propose, in conclusion, that the reference for
a preliminary ruling should be declared inadmissible on the ground that the body which made it is not a
court or tribunal within the meaning of art 177 of the Treaty.
SUBSTANCE
46.
On the substance of the reference, which I shall consider solely for the sake of completeness, a few
remarks will suffice.
The question is, as I have stated, whether, after expiry of the period for transposition of the services
directive, the review bodies are also competent to review procedures for the award of public service
contracts in the absence of any express measure conferring such jurisdiction upon them (in this case, a
Federal regulation, although this is provided for by statute).
47.
Both the applicant and the German government argue that, since the relevant provisions of the
services directive must be regarded as having direct effect 30, the bodies set up for the purposes of the
review directive should also be able to adjudicate in disputes in relation to public service contracts.
30
Such direct effect, besides deriving from the sufficiently precise and unconditional character of the provisions in issue,
was, it is argued, confirmed by the court, albeit indirectly, in the judgment in European Commission v Germany Case C-
253/95 [1996] ECR I-2423, where it was held that the German government had failed in its obligation to transpose the
services directive.
Clearly, however, this is an issue which cannot be determined by the court in these proceedings. For
the court may not take the place of the national legislature, to which the relevant power has been
expressly reserved by law, and decide whether the review bodies should also review procedures for the
award of public service contracts.
48.
Relying on the direct effect of the provisions of the services directive does not change matters. Even if
the court were to find that the relevant provisions are indeed directly effective, this would merely mean
that an individual had the right to rely on those provisions before a court; under no circumstances could it
go so far as to indicate before which court that should be, for this would encroach on the domain of the
national legislature31.
31
See, on this very point, Bozetti v Invernizzi SpA Case 179/84 [1985] ECR 2301 (para 17) and the more recent judgment
in SEIMSociedade de Exporto e Importo de Materiais Ld v Subdirector-Geral das Alfndegas Case C-446/93
[1996] ECR I-73 (para 32), where it was held: it is for the legal system of each Member State to determine which
court has jurisdiction to hear disputes involving individual rights derived from Community law, but at the same time the
Member States are responsible for ensuring that those rights are effectively protected in each case. Subject to that
reservation, it is not for the court to intervene in order to resolve questions of jurisdiction to which the classification of
certain legal situations based on Community law may give rise in the national judicial system.
If an individual had no actual possibility of relying on a directly effective provision of Community law for
want of a court competent to hear his case, this would, of course, indicate the existence of a clear
violation of Community law32. Such a violation could, of course, be pursued by the competent authorities
using the procedures provided for in such cases and could also bring into play the remedies which the
court has established in the area of state liability towards individuals who have suffered material loss as a
result of the failure of the state in 279 question to fulfil its obligations under Community law. But, to repeat,
these are remedies which, both in form and in substance, are distinct from the procedure now in point and
therefore have no bearing on the solution which I have proposed in this case.
32
And, in all likelihood, a breach of art 6(1) of the Convention for the Protection of Human Rights and Fundamental
Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969), which enshrines the right of access to a court of law.
49.
In view of the considerations set out above, I therefore propose that the court should declare the
reference for a preliminary ruling inadmissible, on the ground that the Federal Public Procurement Awards
Supervisory Board, which made the reference, is not a court or tribunal within the meaning of art 177 of
the Treaty.
17 September 1997.
Legal background
8.
The purpose of Directive 92/50 is to regulate the award of public service contracts. It applies to
contracts having a value above a certain limit. As far as the matter of legal protection is concerned, art 41
provides:
Article 1(1) of Council Directive 89/665/EEC shall be replaced by the following: 1. The
Member States shall take the measures necessary to ensure that, as regards contract award
procedures falling within the scope of Directives 71/305/EEC, 77/62/EEC, and 92/50/EEC,
decisions taken by the contracting authorities may be reviewed effectively and, in particular, as
rapidly as possible in accordance with the conditions set out in the following Articles and, in
particular, Article 2(7) on the grounds that such decisions have infringed Community law in the field
of public procurement or nation[al] rules implementing that law.
9.
In accordance with art 44(1), Directive 92/50 had to be transposed by the member states before 1
June 1993.
10.
Article 2(8) of Directive 89/665 provides:
Where bodies responsible for review procedures are not judicial in character, written reasons
for their decisions shall always be given. Furthermore, in such a case, provision must be made to
guarantee procedures whereby any allegedly illegal measure taken by the review body 281 or any
alleged defect in the exercise of the powers conferred on it can be the subject of judicial review or
review by another body which is a court or tribunal within the meaning of Article 177 of the EEC
Treaty and independent of both the contracting authority and the review body.
The members of such an independent body shall be appointed and leave office under the same
conditions as members of the judiciary as regards the authority responsible for their appointment,
their period of office, and their removal. At least the President of this independent body shall have
the same legal and professional qualifications as members of the judiciary. The independent body
shall take its decisions following a procedure in which both sides are heard, and these decisions
shall, by means determined by each Member State, be legally binding.
11.
Directive 89/665 was transposed into German law by a Law of 26 November 1993 (BGBl I, p 1928),
which supplemented the HGrG by adding paras 57a to 57c.
12.
Paragraph 57a(1) of the HGrG provides:
In order to meet obligations arising from directives of the European Communities, the Federal
government shall regulate, by means of regulations, with the assent of the Bundesrat, the award of
public supply contracts, public works contracts and public service contracts and the procedures for
awarding public service contracts
13.
Paragraph 57b(1) of the HGrG makes provision for the procedures for awarding public supply
contracts, public works contracts and public service contracts mentioned in para 57a(1) to be reviewed by
review bodies. Under para 57b(2), the Federal government is to adopt, in the form of regulations, with the
assent of the Bundesrat, the provisions governing the competence of those review bodies. According to
sub-para (3), a review body must initiate a review procedure if there is evidence of a breach of
procurement rules applicable under a regulation adopted pursuant to para 57a. In particular, it must
initiate that procedure where a person who has, or had, an interest in a particular contract claims that the
aforementioned provisions were contravened.
14.
According to para 57b(4) of the HGrG, the review body must determine whether the provisions
adopted pursuant to para 57a have been complied with. It may compel the awarding authority to annul
unlawful measures or decisions or to take lawful measures or decisions. It may also provisionally suspend
a procedure for the award of a contract. Under para 57b(5), a review body may require the awarding
authority to provide the information necessary for it to carry out its task. Sub-para (6) provides that actions
for damages in the event of breach of the provisions applicable in relation to the award of contracts are to
be brought before the ordinary courts.
15.
Paragraph 57c(1) of the HGrG provides that the Federation and the Lnder must each establish a
supervisory board, performing its functions independently and on its own responsibility, to supervise
procedures for the award of contracts in the fields concerning them. According to sub-paras (2), (3) and
(4) of that provision, each supervisory board is to sit in chambers composed of a chairman, an official
assessor and a lay assessor, who are to be independent and subject only to observance of the law. The
chairman and one of the assessors must be public officials. As regards annulment or withdrawal of their
appointment and their independence and dismissal, various provisions of the Richtergesetz (the Law on
282 the Judiciary) apply by analogy. As regards the annulment or withdrawal of a lay members
appointment, certain provisions of the Richtergesetz also apply by analogy. Where a lay member commits
a serious breach of his duties, his appointment must be annulled. The term of office of a supervisory
boards lay members is five years.
16.
Under sub-para (5), the supervisory board is to determine the legality of determinations made by
review bodies but it does not review the way in which they ascertain the facts. Where a determination is
found to be unlawful, the supervisory board directs the review body to make a fresh determination taking
account of its own legal findings. Paragraph 57c(6) of the HGrG provides that any person claiming that
the provisions governing the award of public contracts have been infringed may make application to the
supervisory board within a period of four weeks following the relevant determination of the review body.
17.
Paragraph 57c(7) of the HGrG establishes a Federal Supervisory Board
(Vergabeberwachungsausschu des Bundes). Its official members are the chairman and assessors from
the decision making departments of the Bundes- kartellamt (the Federal Cartel Office). The president of
the Bundeskartellamt decides on the composition of the Federal Supervisory Board and the formation and
composition of its chambers. He appoints lay assessors and their deputies on a proposal from the leading
public-law trade boards. He also exercises administrative supervisory control on behalf of the Federal
government. The Federal Supervisory Board adopts its own internal rules of procedure.
18.
Pursuant to para 57a of the HGrG the Federal government adopted a regulation on the award of
contracts. This regulation is, however, applicable only to supply contracts and works contracts and not to
contracts for services. Directive 92/50 has not yet been transposed by the Federal Republic of Germany.
19.
Pursuant to paras 57b and 57c of the HGrG, the Federal government has adopted a regulation on the
procedure for review of public procurement awards (the Verordnung ber das Nachprfungsvesfahren fr
ffentliche Vertrge; BGBl I 1994, p 324). Paragraph 2(3) of the regulation provides:
The review bodys determination regarding the awarding authority shall be given in writing,
contain a statement of reasons and be notified without delay. The review body shall send without
delay to the person claiming that there has been a breach of public procurement provisions the text
of its determination, shall draw attention to the possibility of making application for a determination
by the supervisory board within a period of four weeks and shall name the competent supervisory
board.
20.
Paragraph 3 provides:
(1) Procedure before the Public Procurement Awards Supervisory Board shall be governed by
Paragraph 57c of the Haushaltsgrundstzegesetz and by this regulation according to the rules of
procedure which the board shall adopt. (2) The Public Procurement Awards Supervisory Board
shall be obliged, under art 177 of the Treaty establishing the European Community, to make a
reference to the Court of Justice of the European Communities when it considers that a preliminary
ruling on a question relating to the interpretation of that Treaty or to the validity and interpretation of
a legal act adopted on that basis is necessary in order to enable it to make its determination. (3)
Before a chamber makes any determination, the parties to the procedure before the procurement
review body shall be heard. (4) A 283 chamber shall not be empowered to suspend a procedure for
the award of a contract or to give other directions concerning a procedure for the award of a
contract. (5) A chamber shall reach its determination by an absolute majority of votes.
Determinations shall be in writing, contain a statement of reasons and shall be sent to the parties
without delay.
21.
The rules of procedure of the Federal Supervisory Board regulate the organisation and allocation of
cases and the conduct of procedure, which consists of a hearing to which the persons concerned are
called, and the conditions governing determinations of the Federal Supervisory Board.
Admissibility
22.
Before the question submitted by the national court is addressed, it is necessary to examine whether
the Federal Supervisory Board, in the procedure which led to this reference for a preliminary ruling, is to
be regarded as a court or tribunal within the meaning of art 177 of the Treaty. That question must be
distinguished from the question whether the Federal Supervisory Board fulfils the conditions laid down in
art 2(8) of Directive 89/665, which is not in point in this case.
23.
In order to determine whether a body making a reference is a court or tribunal for the purposes of art
177 of the Treaty, which is a question governed by Community law alone, the court takes account of a
number of factors, such as whether the body is established by law, whether it is permanent, whether its
jurisdiction is compulsory, whether its procedure is inter partes, whether it applies rules of law and
whether it is independent (see esp the judgments in Vaassen (ne Gbbels) v Management of the
Beambtenfonds voor het Mijnbedrejf Case 61/65 [1966] ECR 261, Pretore di Sal v Persons Unknown
Case 14/86 [1987] ECR 2545 (para 7), Handels- og Kontorfunktionrernes Forbund i Danmark v Dansk
Arbejdsgiverforening acting on behalf of Danfoss Case 109/88 [1989] ECR 3199 (paras 78), Municipality
of Almelo v Energiebedrijf IJsselmij NV Case C-393/92 [1994] ECR I-1477 and Non-contentious
proceedings brought by Job Centre Coop arl Case C-111/94 [1995] ECR I-3361 (para 9)).
24.
As regards the question of establishment by law, the European Commission states that the HGrG is a
framework budgetary law which does not give rise to rights or obligations for citizens as legal persons. It
points out that the Federal Supervisory Boards action is confined to reviewing determinations made by
review bodies. However, in the field of public service contracts, there is, as yet, no competent review
body. The Commission therefore concludes that in such matters the Federal Supervisory Board has no
basis in law on which it can act.
25.
It is sufficient to note in this regard that the Federal Supervisory Board was established by para 57c(7)
of the HGrG. Its establishment by law cannot therefore be disputed. In determining establishment by law,
it is immaterial that domestic legislation has not conferred on the Federal Supervisory Board powers in
the specific area of public service contracts.
26.
Nor is there any doubt about the permanent existence of the Federal Supervisory Board.
27.
The Commission also submits that the Federal Supervisory Board does not have compulsory
jurisdiction, a condition which, in its view, may mean two things: either that the parties must be required to
apply to the relevant review body for settlement of their dispute or that determinations of that body are to
be 284 binding. The Commission, adopting the second interpretation, concludes that German legislation
does not provide for the determinations made by the Federal Supervisory Board to be enforceable.
28.
It must be stated first of all that para 57c of the HGrG establishes the supervisory board as the only
body for reviewing the legality of determinations made by review bodies. In order to establish a breach of
the provisions governing public procurement, application must be made to the supervisory board.
29.
Secondly, under para 57c(5) of the HGrG, when the supervisory board finds that determinations made
by a review body are unlawful, it directs that body to make a fresh determination, in conformity with the
supervisory boards findings on points of law. It follows that determinations of the supervisory board are
binding.
30.
The Commission also submits that since, according to the Federal Supervisory Boards own evidence,
procedure before that body is not inter partes, it cannot be regarded as a court or tribunal within the
meaning of art 177 of the Treaty.
31.
It must be reiterated that the requirement that the procedure before the hearing body concerned must
be inter partes is not an absolute criterion. Besides, under para 3(3) of the Verordnung ber das
Nachprfungsverfahren fr ffentliche Auftrge, the parties to the procedure before the procurement
review body must be heard before any determination is made by the chamber concerned.
32.
According to the Commission, the criterion relating to the application of rules of law is not met either,
because, under para 57c of the HGrG and para 3(1) of the Verordnung ber das Nachprfungsverfahren
fr ffentliche Auftrge, procedure before the Federal Supervisory Board is governed by rules of
procedure which it itself adopts, which do not take effect in relation to third parties and which are not
published.
33.
It is, however, undisputed that the Federal Supervisory Board is required to apply provisions governing
the award of public contracts which are laid down in Community directives and in domestic regulations
adopted to transpose them. Furthermore, general procedural requirements, such as the duty to hear the
parties, to make determinations by an absolute majority of votes and to give reasons for them are laid
down in para 3 of the Verordnung ber das Nachprfungsverfahren fr ffentliche Auftrge, which is
published in the Bundesgesetzblatt. Consequently, the Federal Supervisory Board applies rules of law.
34.
Finally, both Dorsch Consult and the Commission consider that the Federal Supervisory Board is not
independent. They point out that it is linked to the organisational structure of the Bundeskartellamt, which
is itself subject to supervision by the Ministry for Economic Affairs, that the term of office of the chairman
and the official assessors is not fixed and that the provisions for guaranteeing impartiality apply only to lay
members.
35.
It must be observed first of all that, according to para 57c(1) of the HGrG, the supervisory board
carries out its task independently and under its own responsibility. According to para 57c(2) of the HGrG,
the members of the chambers are independent and subject only to observance of the law.
36.
Under para 57c(3) of the HGrG, the main provisions of the Richtergesetz concerning annulment or
withdrawal of their appointments and concerning their independence and removal from office apply by
analogy to official members of 285 the chambers. In general, the provisions of the Richtergesetz
concerning annulment and withdrawal of judges appointments apply also to lay members. Furthermore,
the impartiality of lay members is ensured by para 57c(2) of the HGrG, which provides that they must not
hear cases in which they themselves were involved through participation in the decision making process
regarding the award of a contract or in which they are, or were, tenderers or representatives of tenderers.
37.
It must also be pointed out that, in this particular instance, the Federal Supervisory Board exercises a
judicial function, for it can find that a determination made by a review body is unlawful and it can direct the
review body to make a fresh determination.
38.
It follows from all the foregoing that the Federal Supervisory Board, in the procedure which led to this
reference for a preliminary ruling, is to be regarded as a court or tribunal within the meaning of art 177 of
the Treaty, so that the question it has referred to the court is admissible.
Substance
39.
By its question, the Federal Supervisory Board is asking in effect whether it follows from art 41 of
Directive 92/50 that, if that directive has not been transposed by the end of the period laid down for that
purpose, the appeal bodies of the member states having competence in relation to procedures for the
award of public works contracts and public supply contracts may also hear appeals relating to procedures
for the award of public service contracts.
40.
It must be stated first of all that it is for the legal system of each member state to determine which
court or tribunal has jurisdiction to hear disputes involving individual rights derived from Community law.
However, it is the member states responsibility to ensure that those rights are effectively protected in
each case. Subject to that reservation, it is not for the court to involve itself in the resolution of questions
of jurisdiction to which the classification of certain legal situations based on Community law may give rise
in the national judicial system (see the judgment in SEIMSociedade de Exporto e Importo de
Materiais Ld v Subdirector-Geral das Alfndegas Case C-446/93 [1996] ECR I-73 (para 32)).
41.
Although art 41 of Directive 92/50 requires the member states to adopt the measures necessary to
ensure effective review in the field of public service contracts, it does not indicate which national bodies
are to be the competent bodies for this purpose or whether these bodies are to be the same as those
which the member states have designated in the field of public works contracts and public supply
contracts.
42.
It is, however, common ground that paras 57a to 57c of the HGrG were designed to transpose
Directive 89/665 and that para 57a was to be the basis for the transposition of Directive 92/50 which the
Federal government has still not undertaken.
43.
That being the case, it must be reiterated first of all that the member states obligation arising from a
directive to achieve the result envisaged by the directive and their duty under art 5 of the EC Treaty to
take all appropriate measures, whether general or particular, to ensure fulfilment of that obligation is
binding on all the authorities of member states, including, for matters within their jurisdiction, the courts. It
follows that, when applying national law, whether adopted before or after the directive, the national court
having to interpret that law must do so, as far as possible, in the light of the wording and the purpose of
286 the directive so as to achieve the result it has in view and thereby comply with the third para of art
189 of the EC Treaty (see the judgments in Marleasing SA v La Comercial Internacional de Alimentacin
SA Case C-106/89 [1990] ECR I-4135 (para 8), Wagner Miret v Fondo de Garanta Salarial Case C-
334/92 [1993] ECR I-6911 (para 20) and Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1,
[1994] ECR I-3325 (para 26)).
44.
Secondly, the question of the designation of a body competent to hear appeals in relation to public
service contracts is relevant even where Directive 92/50 has not been transposed. Where a member state
has failed to take the implementing measures required or has adopted measures which do not conform to
a directive, the court has recognised, subject to certain conditions, the right of individuals to rely in law on
a directive as against a defaulting member state. Although this minimum guarantee cannot justify a
member state absolving itself from taking in due time implementing measures sufficient to meet the
purpose of each directive (see esp the judgment in European Commission v Germany Case C-253/95
[1996] ECR I-2423 (para 13)), it may nevertheless have the effect of enabling individuals to rely, as
against a member state, on the substantive provisions of Directive 92/50.
45.
If the relevant domestic provisions cannot be interpreted in conformity with Directive 92/50, the
persons concerned, using the appropriate domestic law procedures, may claim compensation for the
damage incurred owing to the failure to transpose the directive within the time prescribed (see esp the
judgment in Dillenkofer v Germany Joined cases C-178179/94 and C-188190/94 [1996] All ER (EC)
917, [1996] ECR I-4845).
46.
The answer to be given to the question referred to the court must accordingly be that it does not follow
from art 41 of Directive 92/50 that, where that directive has not been transposed by the end of the period
laid down for that purpose, the appeal bodies of the member states having competence in relation to
procedures for the award of public works contracts and public supply contracts may also hear appeals
relating to procedures for the award of public service contracts. However, in order to observe the
requirement that domestic law must be interpreted in conformity with Directive 92/50 and the requirement
that the rights of individuals must be protected effectively, the national court must determine whether the
relevant provisions of its domestic law allow recognition of a right for individuals to bring an appeal in
relation to awards of public service contracts. In circumstances such as those arising in the present case,
the national court must determine in particular whether such a right of appeal may be exercised before
the same bodies as those established to hear appeals concerning the award of public supply contracts
and public works contracts.
Costs
47.
The costs incurred by the German government and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the proceedings pending before the national tribunal, the
decision on costs is a matter for that body.
On those grounds, Court of Justice, in answer to the question referred to it by the
Vergabeberwachungsausschu des Bundes by order of 5 February 1996, hereby rules: it does not
follow from art 41 of Council Directive (EEC) 92/50 relating to the coordination of procedures for the
award of public service 287 contracts that, where that directive has not been transposed by the end of the
period laid down for that purpose, the appeal bodies of the member states having competence in relation
to procedures for the award of public works contracts and public supply contracts may also hear appeals
relating to procedures for the award of public service contracts. However, in order to observe the
requirement that domestic law must be interpreted in conformity with Directive 92/50 and the requirement
that the rights of individuals must be protected effectively, the national court must determine whether the
relevant provisions of its domestic law allow recognition of a right for individuals to bring an appeal in
relation to awards of public service contracts. In circumstances such as those arising in the present case,
the national court must determine in particular whether such a right of appeal may be exercised before
the same bodies as those established to hear appeals concerning the award of public supply contracts
and public works contracts.
288
Between 1993 and 1995 three member state courts requested information from the European
Commission concerning the application and interpretation of various aspects of Community competition
rules. The requests were made within the framework of the Commissions Notice 93/C39/05 on co-
operation between national courts and the Commission in applying arts 85 and 86 of the EC Treaty and
were noted in the Commissions 24th Report on Competition Policy. In 1996 the applicant, a lawyer with a
firm which dealt with cases raising questions of competition law at Community level, requested copies of
the Commissions replies. The Commission refused the request on the grounds that the disclosure of the
requested letters would be detrimental to the protection of the public interest in so far as they formed an
integral part of court proceedings. The applicant subsequently brought an action before the Court of First
Instance of the European Communities for the annulment of the Commissions decision refusing access,
on the grounds, inter alia, that the Commission had infringed the Commission Decision (ECSC, EC,
Euratom) 94/90 on public access to Commission documents. The applicant contended, inter alia, that the
exception to the general principle of access in relation to court proceedings applied only to proceedings
to which the Commission was a party and could not therefore be relied on in the instant case.
Held The exception to the general principle of access to Commission documents set out in Decision
94/90, which was based on the protection of the public interest in relation to documents connected with
court proceedings, was designed to ensure respect for the fundamental right of every person to a fair
hearing. The scope of that exception was not therefore restricted solely to the protection of the interests of
the parties in the context of specific proceedings but encompassed the procedural autonomy of the
national and Community courts. The Commission was accordingly entitled to rely on that exception even
when it was not itself a party to the court proceedings which, in the particular case, justified the protection
of the public interest. Moreover, where documents were drafted by the Commission for the sole purposes
of a particular national court on the basis of the co-operation provided for by Notice 93/C39/05, the
decision as to whether to grant access to them was a matter for the appropriate national court on the
basis of its own national procedural law for as long as the court 289 proceedings giving rise to its
incorporation in a Commission document were pending. It followed that the Commission was required to
refuse access to the documents in the instant case (see p 298 c f g, post).
Cases cited
Delimitis v Henninger Bru AG Case C-234/89 [1991] ECR I-935.
European Commission v EU Council Case C-122/94 [1996] ECR I-881.
Johnston v Chief Constable of the Royal Ulster Constabulary Case C-222/84 [1986] 3 All ER 135, [1987]
QB 129, [1986] 3 WLR 1038, [1986] ECR 1651, ECJ.
Opinion 2/94 [1996] ECR I-1759.
Otto BV v Postbank NV Case C-60/92 [1993] ECR I-5683.
Stichting Certificatie Kraanverhuurbedrijf (SCK) v European Commission Joined cases T-213/95 and T-
18/96 (1997) Transcript, 22 October, CFI.
Socit franaise de Biscuits Delacre v EC Commission Case C-350/88 [1990] ECR I-395.
Weddel & Co AG v EC Commission Case C-54/90 [1992] ECR I-871.
WWF UK v European Commission Case T-105/95 [1997] All ER (EC) 300, [1997] ECR II-313, CFI.
Application
Gerard van der Wal, the applicant, applied to the Court of First Instance of the European Communities for
the annulment of the European Commissions decision of 29 March 1996 refusing him access to letters
sent by the Commissions Directorate General for Competition to national courts in the context of the
notice on cooperation between national courts and the Commission in applying arts 85 and 86 of the EC
Treaty. Mr van der Wal was represented initially by C P Bleeker and L Y J M Parret, of the Hague Bar and
the Brussels Bar respectively, and subsequently by L Y J M Parret, with an address for service in
Luxembourg at the Chambers of Aloyse May, 31 Grand-Rue. The Kingdom of the Netherlands intervened
in support of the applicant and was represented by M Fierstra and J S van den Oosterkamp, Legal
Advisers, acting as agents, with an address for service in Luxembourg at the Embassy of the
Netherlands, 5 Rue C M Spoo. The European Commission, the defendant, was represented by W Wils
and U Wlker, of its Legal Service, acting as agents, with an address for service in Luxembourg at the
office of Carlos Gmez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg. The language of the
case was Dutch. The facts are set out in the judgment of the court.
19 March 1998.
LEGAL BACKGROUND
1.
In the Final Act of the Treaty on European Union (the TEU) (Maastricht, 7 February 1992; TS12(1994);
Cmnd 2485) the member states incorporated a declaration (No 17) on the right of access to information in
these terms:
The Conference considers that transparency of the decision-making process strengthens the
democratic nature of the institutions and the publics confidence in the administration. The
Conference accordingly recommends that the Commission submit to the Council no later than 1993
a report on measures designed to improve public access to the information available to the
institutions.
290
2.
In response to that declaration, the European Commission published Communication 93/C 156/05
concerning public access to the institutions documents (OJ 1993 C156 p 5), which it sent to the EU
Council, the European Parliament and the European Economic and Social Committee on 5 May 1993. On
2 June 1993 it adopted Communication 93/C166/04 on openness in the Community (OJ 1993 C166 p 4).
3.
In the context of those preliminary steps towards implementation of the principle of transparency, on 6
December 1993 the Council and the Commission approved a code of conduct concerning public access
to Council and Commission documents (OJ 1993 L340 p 41), which sought to establish the principles
governing access to documents held by those institutions.
4.
Accordingly, in implementation of that agreement the Commission adopted, on 8 February 1994, on
the basis of art 162 of the EC Treaty, Commission Decision (ECSC, EC, Euratom) 94/90 on public access
to Commission documents (OJ 1994 L46 p 58), under art 1 of which the code of conduct was formally
adopted. The text of that code is set out in an annex to Decision 94/90.
5.
The Code of Conduct as thus adopted by the Commission sets out a general principle in these terms:
The public will have the widest possible access to documents held by the Commission and the Council.
6.
For those purposes the term document is defined in the code of conduct as meaning any written text,
whatever its medium, which contains existing data and is held by the Commission or the Council.
7.
After briefly setting out the rules governing the lodging and processing of requests for documents, the
code of conduct describes the procedure to be followed, where it is proposed to reject a request, in these
terms:
Where the relevant departments of the institution concerned intend to advise the institution to
reject an application, they will inform the applicant thereof and tell him that he has one month to
make a confirmatory application to the institution for that position to be reconsidered, failing which
he will be deemed to have withdrawn his original application. If a confirmatory application is
submitted, and if the institution concerned decides to refuse to release the document, that decision,
which must be made within a month of submission of the confirmatory application, will be notified in
writing to the applicant as soon as possible. The grounds of the decision must be given, and the
decision must indicate the means of redress that are available, i.e. judicial proceedings and
complaints to the ombudsman under the conditions specified in, respectively, Articles 173 and
138[e] of the Treaty establishing the European Community.
8.
The code of conduct describes the factors which may be invoked by an institution to ground the
rejection of a request for access to documents in these terms:
The institutions will refuse access to any document where disclosure could undermine: the
protection of the public interest (public security, international relations, monetary stability, court
proceedings, inspections and investigations), the protection of the individual and of privacy, the
protection of commercial and industrial secrecy, the protection of the Communitys financial
interests, the protection of confidentiality as requested by the natural or legal persons that
supplied the information or as 291 required by the legislation of the Member State that supplied the
information. They may also refuse access in order to protect the institutions interest in the
confidentiality of its proceedings.
9.
In 1993 the Commission adopted Notice 93/C39/05 on cooperation between national courts and the
Commission in applying arts 85 and 86 of the EC Treaty (OJ 1993 C39). In the notice, the Commission
stated that:
(37) national courts may, within the limits of their national procedural law, ask the
Commission and in particular its Directorate-General for Competition for the following information.
First, they may ask for information of a procedural nature to enable them to discover whether a
certain case is pending before the Commission, whether a case has been the subject of a
notification, whether the Commission has officially initiated a procedure or whether it has already
taken a position through an official decision or through a comfort letter sent by its services. If
necessary, national courts may also ask the Commission to give an opinion as to how much time is
likely to be required for granting or refusing individual exemption for notified agreements or
practices, so as to be able to determine the conditions for any decision to suspend proceedings or
whether interim measures need to be adopted. The Commission, for its part, will endeavour to give
priority to cases which are the subject of national proceedings suspended in this way, in particular
when the outcome of a civil dispute depends on them.
(38) Next, national courts may consult the Commission on points of law. Where the application
of Article 85(1) and Article 86 causes them particular difficulties, national courts may consult the
Commission on its customary practice in relation to the Community law at issue. As far as Articles
85 and 86 are concerned, these difficulties relate in particular to the conditions for applying these
arts as regards the effect on trade between member states and as regards the extent to which the
restriction of competition resulting from the practices specified in these provisions is appreciable. In
its replies, the Commission does not consider the merits of the case. In addition, where they have
doubts as to whether a contested agreement, decision or concerted practice is eligible for an
individual exemption, they may ask the Commission to provide them with an interim opinion. If the
Commission says that the case in question is unlikely to qualify for an exemption, national courts
will be able to waive a stay of proceedings and rule on the validity of the agreement, decision or
concerted practice.
(39) The answers given by the Commission are not binding on the courts which have requested
them. In its replies the Commission makes it clear that its view is not definitive and that the right for
the national court to refer to the Court of Justice, pursuant to Article 177, is not affected.
Nevertheless, the Commission considers that it gives them useful guidance for resolving disputes.
(40) Lastly, national courts can obtain information from the Commission regarding factual data:
statistics, market studies and economic analyses. The Commission will endeavour to communicate
these data or will indicate the source from which they can be obtained.
292
FACTS
10.
The XXIVth Report on Competition Policy (1994) (the XXIVth Report) stated that the Commission had
received a number of questions from national courts pursuant to the procedure described in para 9,
above.
11.
By letter dated 23 January 1996 the applicant, in his capacity as a lawyer and member of a firm which
deals with cases raising questions of competition at Community level, requested copies of some of the
Commissions replies to those questions, namely: (1) the letter dated 2 August 1993 from the Director-
General of the Directorate-General for Competition (DG IV) to the Oberlandesgericht (the Higher Regional
Court), Dsseldorf, concerning the compatibility of a distribution agreement with Commission Regulation
(EEC) 1983/83 on the application of art 85(3) of the Treaty to categories of exclusive distribution
agreements (OJ 1983 L173 p 1); (2) the letter dated 13 September 1994 from Commissioner van Miert to
the Tribunal dInstance (the District Court), St Brieuc, concerning the interpretation of Council Regulation
(EEC) 26/62 applying certain rules of competition to production of and trade in agricultural products (OJ S
Edn 195962, p 129); and (3) The letter sent by the Commission in early 1995 to the Cour dAppel (the
Court of Appeal), Paris, which had asked it for an opinion on contractual provisions concerning sales
targets for motor vehicle agents in the light of art 85(1) of the Treaty and Commission Regulation (EEC)
123/85 on the application of art 85(3) of the Treaty to certain categories of motor vehicle distribution and
servicing agreements (OJ 1984 L15 p 16).
12.
By letter dated 23 February 1996 the Director-General of DG IV refused the applicants request on the
ground that disclosure of the requested letters would be detrimental to the protection of the public interest
(court proceedings). He explained that:
When the Commission replies to questions submitted to it by national courts before which an
action has been brought for the purposes of resolving a dispute, the Commission intervenes as an
amicus curiae. It is expected to show a certain reserve not only as regards acceptance of the
manner in which the questions are submitted to it but also as regards the use which it makes of the
replies to those questions. I consider that, once the replies have been sent, they form an integral
part of the proceedings and are in the hands of the court which raised the question. The points of
both law and fact contained in the replies must be regarded, in the context of the pending
proceedings, as part of the national courts file. The Commission has sent the replies to that
national court and the decision whether to publish that information and/or make it available to third
parties is a matter primarily for the national court to which the reply is sent.
13.
The Director-General also referred to the need to maintain a relationship of trust between the
Community executive and the national court authorities in the member states. Such considerations, which
are valid in all cases, must apply even more forcibly in cases such as the present, where no final
judgment has yet been given in respect of the matters dealt with in the questions submitted to the
Commission.
14.
By letter dated 29 February 1996 the applicant sent a confirmatory application to the Secretariat-
General of the Commission stating, inter alia, that he did not see how the conduct of the national
proceedings could be undermined if information of a non-confidential nature provided by the Commission
to the 293 national court in the context of application of Community competition law came to the attention
of third parties.
15.
By letter dated 29 March 1996 (the contested decision) the Secretary- General of the Commission
confirmed DG IVs decision on the ground that disclosure of the replies could undermine the protection of
the public interest and, more specifically, the sound administration of justice. He continued as follows:
there is a risk that disclosure of the replies requested, which comprise legal analyses, could
undermine the relationship and the necessary cooperation between the Commission and national
courts. A court which has submitted a question to the Commission would obviously not appreciate
the reply being disclosed, particularly where the question is relevant to a pending case.
16.
The Secretary-General added that the procedure in the present case differed considerably from that
under art 177 of the Treaty to which the applicant had referred in his confirmatory application.
LAW
24.
The applicant raises two pleas in law in support of his action, alleging infringement of Decision 94/90
and infringement of art 190 of the Treaty, respectively.
COSTS
73.
Under art 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, if
they have been asked for in the successful partys pleadings. Since the applicant has been unsuccessful
and the European Commission has asked for costs, he must be ordered to pay the costs. However, under
art 87(4) of the Rules of Procedure, the intervener must bear its own costs.
On those grounds, the Court of First Instance (Fourth Chamber) hereby: (1) dismisses the application;
(2) orders the applicant to pay the costs incurred by the defendant; (3) orders the Kingdom of the
Netherlands to bear its own costs.
301
The applicant, an animal welfare body, requested the Minister for Agriculture, Fisheries and Food to
prohibit or restrict the export of calves intended for rearing in veal crates, a practice which was prohibited
in the United Kingdom. It contended that the UK government had power under art 36 1 of the EC Treaty to
restrict the export of veal calves to other member states, which had implemented Council Directive (EEC)
91/629 laying down minimum standards for the protection of calves, where the veal crate system was
likely to be used during the transitional periods under art 3 2. It relied on the stricter international standards
laid down by the European Convention on the Protection of Animals Kept for Farming Purposes 1976 and
the 1988 recommendation implementing the convention with regard to cattle, to which all the member
states and the Community had agreed to adhere and with which, they contended, the veal crate system
was inconsistent. The minister decided that the UK government had no such power and the applicants
applied for judicial review of that decision. The national court stayed the proceedings and referred to the
Court of Justice of the European Communities for a preliminary ruling the questions (a) whether Directive
91/629 was invalid in so far as it was inconsistent with the convention and the recommendation and (b)
whether a member state which had implemented the recommendation could rely on the derogations from
the principle of free movement of goods provided in art 36 of the Treaty on grounds of public morality,
policy or the protection of the health or life of animals, to restrict the export of live calves in order to
prevent those calves from being reared in veal crate systems in other member states which had
implemented the directive but not the recommendation.
1
Article 36, so far as material, provides: The provisions [on free movement of goods] shall not preclude prohibitions or
restrictions on exports justified on grounds of public morality, public policy the protection of health and life of
humans, animals or plants
2
Article 3, so far as material, is set out at p 325 d e, post
302
Held (1) Although the 1976 convention became an integral part of the Community order on its entry into
force, it was clear from its wording that its provisions were indicative only and limited to setting out
general principles to be elaborated in recommendations. Moreover, the 1988 recommendation expressly
provided that it was not directly applicable in the national law of the contracting parties and was to be
implemented according to the method which each party considered adequate; and it did not contain
legally binding obligations for the contracting parties or the Community. It followed that no factors had
been disclosed which affected the validity of the directive (see p 327 f to p 328 a and p 331 f, post).
(2) Recourse to art 36 of the Treaty was not possible where Community directives provided for the
harmonisation of measures necessary to achieve the specific objective which would be furthered by
reliance on that provision. It was also clear from the wording, context and objectives of Directive 91/629
that it laid down minimum common standards for the protection of calves that were confined for the
purposes of rearing and fattening: those minimum standards and any derogations therefrom were set
down exhaustively, and had to be complied with in accordance with a precise timetable. Since a ban on
exports would strike at the harmonisation achieved by the directive, it followed that a member state could
not rely on art 36 to restrict the export of calves to other member states for reasons relating to the
protection of the health of animals, which was the specific objective of that harmonisation. Nor could a
member state do so for reasons relating to the protection of public policy or public morality, which were
not the subject of the directive since it could not rely on the views or behaviour of a section of national
public opinion in order unilaterally to challenge a harmonising measure adopted by the Community
institutions (see p 329 b and p 330 a to c g to p 331 c g, post); R v Ministry of Agriculture, Fisheries and
Food, ex p Hedley Lomas (Ireland) Ltd Case C-5/94 [1996] All ER (EC) 493, [1996] ECR I-2553 applied.
Notes
For justifications under art 36 for restrictions on trade between member states, see 52 Halsburys Laws
(4th edn) paras 12981204.
For the EC Treaty, art 36, see 50 Halsburys Statutes (4th edn) 278.
Cases cited
Association comit conomique agricole rgional fruits et lgumes de Bretagne v Le Campion Case
218/85 [1986] ECR 3513.
Campus Oil Ltd v Minister for Industry and Energy Case 72/83 [1984] ECR 2727.
Conegate Ltd v Customs and Excise Comrs Case 121/85 [1986] 2 All ER 688, [1987] QB 254, [1987] 2
WLR 39, [1986] ECR 1007, ECJ.
Cullet v Centre Leclerc Toulouse Case 231/83 [1985] ECR 305.
Customs and Excise Comrs v Schindler Case C-275/92 [1994] 2 All ER 193, [1994] QB 610, [1994] 3
WLR 103, [1994] ECR I-1039, ECJ.
Danisco Sugar AB v Allmnna Ombudet Case C-27/96 (1997) Transcript, 27 November, ECJ.
Debus (Criminal proceedings against) Joined cases C-13/91 and C-113/91 [1992] ECR I-3617.
Denkavit (Firma) Futtermittel GmbH v Minister fr Ernhrung, Landwirtschaft und Forsten des Landes
Nordrhein-Westafalen Case 251/78 [1979] ECR 3369.
Deutsche Shell AG v Hauptzollamt Case C-188/91 [1993] ECR I-363.
Direction gnrale des impts v Forest Case 148/85 [1986] ECR 3449.
303
EC Commission v EC Council Case 22/70 [1971] ECR 263.
EC Commission v Germany Case 153/78 [1979] ECR 2555.
Germany v EU Council Case C-280/93 [1994] ECR I-4973.
Gourmetterie Van den Burg (Criminal proceedings against) Case C-169/89 [1990] ECR I-2143.
Greece v EC Commission Case 30/88 [1989] ECR 3711.
Holdijk Joined cases 141143/81 [1982] ECR 1299.
Hnig v Stadt Stockach Case C-128/94 [1995] ECR I-3389.
Kontogeorgas v Kartonpak AE Case C-104/95 [1996] ECR I-6643.
Kramer Joined cases 3/76, 4/76 and 6/76 [1976] ECR 1279.
Opinion 1/76 [1977] ECR 741.
Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347.
Procureur de la Republique v Leclerc Case 34/84 [1985] ECR 2915.
Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837.
R v Bouchereau Case 30/77 [1981] 2 All ER 924, [1978] QB 732, [1977] ECR 1999, ECJ.
R v Henn Case 34/79 [1980] 2 All ER 166, [1981] AC 850, [1980] 2 WLR 597, [1979] ECR 3795, ECJ.
R v Ministry of Agriculture, Fisheries and Food, ex p Hedley Lomas (Ireland) Ltd Case C-5/94 [1996] All
ER (EC) 493, [1996] ECR I-2553, ECJ.
Richardt (Criminal proceedings against) Case C-307/89 [1991] ECR I-4621.
Sevince v Staatssecretaris van Justitie Case C-192/89 [1990] ECR I-3461.
Simmenthal SpA v Italian Minister for Finance Case 35/76 [1976] ECR I-1871.
Socit Civile Agricole du Centre dInsmination de la Crespelle v Cooprative dlevage et
dInsemination Artificielle du Dpartment de la Mayenne Case C-323/93 [1994] ECR I-5077.
Spain v EU Council Case C-350/92 [1995] ECR I-1985.
Tedeschi v Denkavit Commerciale srl Case 5/77 [1977] ECR 1555.
Torfaen BC v B & Q plc Case C-145/88 [1990] 1 All ER 129, [1990] 2 QB 19, [1990] 2 WLR 1330, [1989]
ECR 3851, ECJ.
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER
(EC) 97, [1995] ECR I-4921, ECJ.
Unit Socio-Sanitaria Locale No 47 di Biella (USSL) v Instituto Nazionale per lAssicurazione contro gli
Infortum sul Lavoro (INAIL) Case C-134/95 [1997] ECR I-195.
Reference
By order of 12 December 1995, the Queens Bench Division of the High Court, referred to the Court of
Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty two
questions (set out at p 326 j to p 327 d, post) on the interpretation of arts 34 and 36 of the Treaty and on
the validity of Council Directive (EEC) 91/629 laying down minimum standards for the protection of calves.
Those questions arose in proceedings brought by the Royal Society for the Prevention of Cruelty to
Animals (the RSPCA) and Compassion in World Farming Ltd (CIWF) against the Minister of Agriculture,
Fisheries and Food challenging the ministers refusal to restrict, on the basis of art 36 of the Treaty, the
export of veal calves to other member states. On 8 May 1997, pursuant to an order of the High Court, the
RSPCA ceased to be a party. Written observations were submitted on behalf of: CIWF, by G Barling QC
and P Duffy, instructed by M Rose, Solicitor; the UK government, by J E Collins, Assistant Treasury
Solicitor, acting as agent, R Plender QC and S Masters, Barrister; the 304 French government, by C de
Salins, Assistant Director in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and F Pascal,
Central Administrative Attach in the same directorate, acting as agents; the EU Council, by M Sims-
Robertson, Legal Adviser, acting as agent; and the European Commission, by R Wainwright, Principal
Legal Adviser, and H Stvlbk, of its Legal Service, acting as agents. Oral observations were made by:
CIWF, the UK government, the French government, the Council and the Commission. The language of
the case was English. The facts are set out in the opinion of the Advocate General.
15 July 1997.
5.
According to art 1 of the convention, it applies to the keeping, care and housing of animals and in
particular to animals in modern intensive stock-farming systems.
6.
Chapter I lays down the general principles by which the convention is to ensure protection of animals
in stock-farming systems. Chapter II sets up a standing committee and lays down its rules of organisation
and functioning and defines its powers, whilst Ch III lays down how the convention is to enter into force.
7.
The provisions of the convention more particularly devoted to stock-farming systems, to housing space
for animals and to provision of water, food and care for them are set out in arts 3, 3a, 4 and 6.
305
8.
Under art 9(1), recommendations to the contracting parties are to be elaborated and adopted by the
standing committee for the implementation of the principles set out in the convention.
9.
A protocol of amendment to the convention was approved by art 1 of Council Decision (EEC) 92/583
on the conclusion of the Protocol of Amendment to the European Convention for the Protection of Animals
kept for Farming Purposes (OJ 1992 L395 p 21).
The recommendation concerning cattle
10.
The recommendation concerning cattle, dated 21 October 1988 and adopted by the standing
committee of the Council of Europe at its 17th meeting, in accordance with the rules of the convention,
sets out the general requirements relating to the rearing of cattle.
11.
Article 20 of the recommendation provides that it is not to be directly applicable within the national law
of the contracting parties and is to be implemented according to the method that each such party
considers appropriate, that is to say through legislation or through administrative practice.
Appendix C: special provisions for veal calves
12.
Appendix C to the recommendation, more particularly devoted to veal calves, was adopted on 8 June
1993.
5
See, more recently, the judgment in Unit Socio-Sanitaria Locale No 47 di Biella (USSL) v Instituto Nazionale per
lAssicurazione contro gli Infortum sul Lavoro (INAIL) Case C-134/95 [1997] ECR I-195 (para 12)).
35.
My first observation is that the link between the questions submitted and the proceedings cannot be
seriously contested. The issue in the main proceedings, centred on the adoption of measures restricting
exports based on requirements of animal protection, is indissociable from the plea based on art 36 of the
Treaty, which is the subject matter of the first question. Similarly, the right of a member state to use art 36
depends, at least in part, as we will see, on the existence of a directive harmonising the field concerned,
so that the question of the validity of Directive 91/629, which lays down minimum standards for the
protection of veal calves, is determinative (see paras 51ff, below).
36.
Nor is the problem hypothetical. From the explanation of the factual and legal background of the case
given by the national court in its order for reference it is clear that the main action concerns the discretion
of the minister to refuse to adopt measures based on art 36. Examination of the national file reveals that
the action, which has been brought by bodies having the protection of animals as their object, seeks
precisely to have the ministers decision set aside6.
6
The affidavit of the representative of the RSPCA and CIWF, dated 5 July 1995, is entitled: In the matter of an application
for leave to apply for judicial review against the Minister of Agriculture, Fisheries and Food by the Royal Society for the
Protection of Cruelty to Animals and Compassion in World Farming Limited.
37.
It is true that the proceedings before the national court present the particularity of having arisen not
from any positive action taken by the United Kingdom but from a refusal to take any such action. It is
therefore the absence of any ministerial decision prohibiting or restricting exports of veal calves to the
other member states which is challenged before the High Court and which has led to the referral of the
questions.
38.
Consequently, the interpretation which the court will give of art 36 of the Treaty will not necessarily
enable the High Court to give an assessment of the lawfulness of the government decision.
39.
If that interpretation upholds the right to apply quantitative restrictions on exports, or measures having
equivalent effect, on the grounds indicated by the High Court, this courts ruling could not be of any use in
resolving the dispute since art 36 only lays down a mere right to adopt similar measures and in this case
the minister has stated that he does not consider it expedient to have recourse to them.
40.
Those objections do not suffice, however, to call the courts jurisdiction into question. If, on the other
hand, the court interprets art 36 as not allowing 309 restrictive measures to be taken in the circumstances
of the present case, that would support the lawfulness of the contested decision.
41.
Moreover, by the questions which it submits, the High Court does not expect this court to enable it to
determine the proportionality of a specific measure adopted by the UK minister. It is only a question of
ruling to what extent art 36 may apply in the circumstances of this ease.
42.
In those circumstances, and on any view, the questions submitted must be declared admissible.
47.
The grounds of public morality or public policy, also referred to in art 36 and to which the national court
refers, constitute other reasons capable of justifying a departure, allowed by the Treaty, from the principle
of free movement of goods.
48.
However, recourse to art 36 is no longer justified if Community rules provide for the measures
necessary to guarantee protection of the interests listed in that article (see eg the judgment in Campus
Oil Ltd v Minister for Industry and Energy Case 72/83 [1984] ECR 2727 (para 27)). In particular, the
member states are bound, where there is a regulation establishing a common organisation of the markets
in a particular field, to refrain from taking any measures which might undermine or create exceptions to it
(see the judgments in Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347 (paras 5658), or,
more recently, Direction gnrale des impts v Forest Case 148/85 [1986] ECR 3449 (para 14)).
49.
In the present case, the beef and veal sector is the subject of a common organisation of the markets
but, as the court has held (Holdijk Joined cases 141143/81 [1982] ECR 1299 (para 12)):
310
the establishment of such an organization pursuant to Article 40 of the Treaty does not have
the effect of exempting agricultural producers from any national provisions intended to attain
objectives other than those covered by the common organization, even though such provisions
may, by affecting the conditions or production, have an impact on the volume or the cost of national
production and therefore on the operation of the common market in the sector concerned
50.
However, Regulation 805/68 does not pursue any aim of protecting animals.
51.
On the other hand, that concern is at the centre of Directive 91/629, adopted, for harmonisation
purposes, within the framework of the common agricultural policy. In this regard, the court has reiterated
that recourse to art 36 is no longer possible where Community directives provide for harmonisation of the
measures necessary to achieve the specific objective which would be furthered by reliance upon this
provision (see the judgment in Ex p Hedley Lomas [1996] All ER (EC) 493, [1996] ECR I-2553 (para
18))8.
8
See also the judgments in Tedeschi v Denkavit Commerciale srl Case 5/77 [1977] ECR 1555 (para 35) and Criminal
proceedings against Gourmetterie Van den Burg Case C-169/89 [1990] ECR I-2143 (para 8).
52.
It is therefore necessary to examine the terms of Directive 91/69 in order to determine the latitude left
to a member state which wishes to ensure observance of the aims referred to in art 36.
55.
However one assesses, with particular reference to the values laid down by the 1976 convention and
the 1988 recommendation, the degree of protection thus laid down, which is the issue raised by the
second question, it appears that the fields in which the applicant parties wish art 36 to be used are in fact
dealt with by the directive.
56.
The fact that the applicants claim that the level of protection is insufficient must not be taken as
evidence of incomplete harmonisation. The criterion based on harmonisation of a particular field,
designed to allow the competence left to the member states to be identified, is assessed with regard to
the scale of the area covered by Community rules, the main purpose of harmonisation being above is to
harmonise national laws in a given sector, even if this results in a level which is considered too weak.
57.
From this point of view, the directive fully harmonised the powers of the member states in the area
under consideration.
58.
The member states are certainly authorised to enact more protective measures for the life and health
of animals. This could point to the existence of 311 some leeway left by the directive to art 36 since, under
the first sentence of art 11(2), from the date set in paragraph 1 10, Member States may, in compliance with
the general rules of the Treaty, maintain or apply within their territories stricter provisions for the protection
of calves than those laid down in this Directive.
10
Article 11(1) provides: Member States shall bring into force the laws, regulations and administrative provisions,
including any sanctions, necessary to comply with this Directive not later than 1 January 1994. They shall forthwith
inform the Commission thereof.
59.
However, whilst the directive allows the member states some latitude in the field with which it deals,
where their competence in the matter of the protection of animals may still be exercised to a stricter
standard, the terms used show that the adoption by a member state of measures comparable to those
provided for by the directive is allowed only within the boundaries of its own territory and only in
accordance with the principles laid down by the Treaty.
60.
The measures authorised under art 11 are therefore confined, by the principle of the free movement of
goods, to strictly territorial boundaries; there can be no effect on intra-Community trade. The UK
government has in fact made use of this power when it prohibited the rearing of veal calves according to
the system in question.
61.
It would therefore be possible to conclude, like the United Kingdom, that owing to the exhaustiveness
of Directive 91/629 recourse to art 36 is impossible.
62.
However, it must be pointed out, as the Commission does, that under art 3(1) of the directive, some of
the requirements laid down by it for the accommodation of veal calves 11 apply from 1 January 1994 and
for a transitional period of four years, [to] all holdings newly built or rebuilt and/or brought into use for the
first time after that date.
11
Those requirements contained in art 3(1), are as follows: where calves are housed in groups, they must have
sufficient unobstructed floor space to be able to turn round and lie down without hindrance of at least 15m for each calf
of 150kg live weight, where calves are housed in individual boxes or by tethering in stalls, the boxes or stalls shall
have perforated walls and their width must he no less than 90cm plus or minus 10%, or 080 times the height at the
withers.
63.
Furthermore, art 3(4) states:
The duration of use of installations built: before 1 January 1994 which do not meet the
requirements of paragraph 1 shall under no circumstances extend beyond 31 December 2003;
during the transitional period, in accordance with paragraph 1, shall under no circumstances extend
beyond 31 December 2007, unless on that date they comply with the requirements of this
Directive.
64.
For reasons related to the progressive adaptation of agricultural holdings to the new standards, the
Community legislature has therefore accepted that the new standards are not to apply immediately to all
installations. Until the end of 2003, holdings built before 1 January 1994 can escape the standards
applicable to those built after that date and for a transitional period of four years. Similarly, holdings built
during the transitional period are to be brought into full conformity with the standards before 31 December
200712.
12
The amendments made by Council Directive (EC) 97/2, amending Directive 91/629 (OJ 1997 L25 p 24), in particular art
3(3) and (4), do not change the argument nor the conclusions which I think must be drawn. Standards which are stricter
and more precise than those lad down by the original Directive 91/629 as regards accommodation and floor space for
veal calves are now to apply to new or rebuilt holdings and to those brought into operation after the end of the
transitional period. But, although the date for bringing installations built before 1 January 1994 into conformity with the
standards of the transitional period remains 31 December 2003, the date for bringing installations of the transitional
period into conformity with the new standards is put back to 31 December 2006. Only the level of harmonisation chosen
by the legislature and the schedule for achieving it have therefore been changed, but not the principle of achieving it in
stages. As long as the final stage, to be completed at the end of 2006, has still not been reached, harmonisation cannot
be regarded as having been fully and effectively achieved.
65.
Many categories of agricultural holdings, having different levels of protection for veal calves, may
therefore co-exist, so that harmonisation of the conditions for housing animals will not be truly achieved
until that last date. It is only then that all agricultural holdings covered by the directive will have to comply
with the same rules.
312
66.
Consequently, for a number of years yet, the member states may be obliged to allow the rearing,
export or import of veal calves whose method of rearing departs from the protective rules of the directive,
even as amended.
67.
In those circumstances, I think it is logical to apply to this ease the case law of the court which holds
that a directive does not have the effect of removing the competence which art 36 allows member states
when the period it gives them for adopting the provisions necessary to comply with it has not expired (see
the judgments in Simmenthal SpA v Italian Minister for Finance Case 35/76 [1976] ECR I-1871 (para 19)
and Firma Denkavit Futtermittel GmbH v Minister fr Ernhrung, Landwirtschaft und Forsten des Landes
Nordrhein-Westafalen Case 251/78 [1979] ECR 3369 (paras 1820)).
68.
In the present case, art 3 of the directive lays down no period for the transposition of the Community
standard into national law. It determines the immediate or deferred applicability to the operators
concerned of the obligations provided for by the directive according to the date on which the agricultural
holding was built or brought into service.
69.
However, the two cases are comparable in that actual implementation of the protective rules laid down
by the directive may be deferred in time.
70.
Until the periods for the implementation of the animal housing conditions laid down by the directive
have expired, as at the end of a transposition period, it remains within the power of the member states to
apply art 36 and this article may serve as a basis for action justified on grounds of the protection of the life
and health of animals.
71.
I would add that the directive, which does not have this purpose, is not designed to take into account
considerations of public morality and public policy, as referred to in the first preliminary question, as a
possible justification for recourse to art 36.
72.
Moreover, a directive might exhaustively harmonise a field concerning the protection of animals but
still not pacify pressure groups which, judging the level of protection adopted to be insufficient, would still
be likely to disturb public order.
73.
For those different reasons, Directive 91/629 does not suffice to prohibit the use of art 36 in the case
submitted to the court, so that it appears necessary for the court to rule on the scope of that article.
B. Scope of art 36
(1) The judgment in Ex p Hedley Lomas
74.
This case may be compared in many respects to the judgment in Ex p Hedley Lomas [1996] All ER
(EC) 493, [1996] ECR I-2553.
313
75.
The two cases specifically concern the fields covered by art 34 and art 36 in so far as the latter article
is relied on to advocate quantitative restrictions based on grounds of the protection of the life and health
of animals.
76.
Above all, the most characteristic point in common between them is that the restrictive measure
adopted, or sought, has its cause outside the territory of the member state which adopted it, or which is
asked to adopt such a measure, and within the territory of the Community.
77.
This circumstance places the member state concerned in a situation delicate from the point of view of
Community principles and in particular from the point of view of the free movement of goods in which it is
has to judge the necessity or expediency of restricting exports of its goods to another member state for
reasons based or a practice which is largely unknown to it.
78.
However, in Ex p Hedley Lomas, the question was whether art 36 could be invoked by a member state
to justify a restriction on exports of animals to another member state on the ground that the latter state
was not complying with the requirements of a Community directive providing for harmonisation of the
measures necessary for achieving the aim in view. In the present case, on the other hand, farmers in
some member states rear veal calves using the veal crate method but without contravening the
provisions of the directive harmonising the protection standards.
79.
In spite of those differences, the aspects of the problem posed in each of the two cases could have
prompted the same approach.
80.
The directive in question in Ex p Hedley Lomas brought about full harmonisation of the measures
necessary to achieve the aim covered by recourse to art 36 but the minister contended that it was not
always respected in the member state of destination.
81.
In the case now before the court, the directive is applied but it does not bring about full harmonisation.
82.
In both cases, failure to implement measures enabling the aim stated by art 36 to be achieved can
make recourse to that provision legitimate.
83.
However, the factual context of Ex p Hedley Lomas, characterised by uncertainty as to the breach of
the Community legislation by the member state of importation, did not allow the court to rule on this point
nor on the fact that the acts in question were going on outside the territory of the state of exportation 13.
13
I stated in my opinion in Ex p Hedley Lomas [1996] All ER (EC) 493, [1996] ECR I-2553 (paras 2425) that breach
of the directive was not certain, or at any rate was not demonstrated, which was sufficient for the court to rule out, in
such circumstances, any recourse to art 36 by the member state of exportation.
84.
The court made a point of explaining more than once that the decision was given in that context 14. As a
result, the effect of the judgment is relative15. The answer given by the court is confined to the case where
non-observance of the provisions of a harmonising directive would be hypothetical 16. It is easy to see why,
in such a case, a member state cannot be entitled to take unilateral measures to restrict exports.
14
Ibid, paras 16, 2021.
15
The judgment in Ex p Hedley Lomas [1996] All ER (EC) 493, [1996] ECR I-2553 (para 16) is worded as follows: It
is against that factual background that the first question asked by the national court must be answered.
16
The court does not consider that a member state has a right to have recourse to art 36 in order to obviate any breach
by a member state of rules of Community law judgment in Ex p Hedley Lomas [1996] All ER (EC) 493, [1996]
ECR I-2553 (para 20); my emphasis).
314
85.
In view of those particular aspects, I consider that the present case lends itself better to the
interpretation of art 36 invoked to oppose extra-territorial practices.
(2) Use of art 36 to uphold certain of its aims against extra-territorial practices
86.
The national court inquires whether a member state has a right to justify, by reference to
considerations relating to public morality, public policy or the protection of the health and life of animals,
restrictions on the export of veal calves to member states in which the veal crate system is used.
87.
As I explained in my opinion in Ex p Hedley Lomas [1996] All ER (EC) 493, [1996] ECR I-2553 (para
31) I consider that a member state can rely on art 36 of the Treaty only in order to ensure protection,
within its own national territory, of an interest safeguarded by that article.
88.
In that same opinion, I cite Advocate General Trabucchi who, in his opinion in Procureur du Roi v
Dassonville Case 8/74 [1974] ECR 837 at 860, concluded:
states can derogate in the said manner [under art 36] only for the purpose of the protection
of their own interests and not for the protection of the interests of other states Article 36 allows
every state the right to protect exclusively its own national interests. Consequently, for the purpose
of protecting industrial and commercial property, each state can restrict the freedom of movement
of goods only with reference to the protection of individual rights and economic interests falling
under its own sphere of [responsibility].17
17
Cited in my opinion in Ex p Hedley Lomas [1996] All ER (EC) 493, [1996] ECR I-2553 (para 32).
89.
I simply refer to that part of my opinion explaining the reasons justifying, in my view, a strict limitation
of the scope of art 36 (see Ex p Hedley Lomas [1996] All ER (EC) 493, [1996] ECR I-2553 (paras 33
39)).
90.
It follows that export restrictions can be justified only if the acts or practices in question offend against
public morality or public policy in the state of exportation.
91.
At this stage of development of the European Community, it would not be acceptable for a member
state to be allowed to use that provision to oppose the export of goods on the ground that there might be
an infringement, according to its own criteria, to public policy or public morality of the member state of
importation.
92.
In the present case, it is common ground that the rearing of animals under the system criticised by
CIWF, although practised outside the United Kingdom, produces effects on British territory in which public
opinion, like specialised veterinary circles, opposes its maintenance in certain member states.
93.
The situation is not comparable as far as the aim of protecting animals is concerned. In this case, the
adverse effect on the health and life of animals resulting from the rearing system in question is produced
outside British borders and outside the sphere of responsibility of the United Kingdom.
94.
I will examine in turn each of the aims of art 36 of the Treaty to which the preliminary question makes
reference.
315
Public morality
95.
Whilst the court has held that it has competence to assess concepts such as public policy 18 or public
security19, the strictly national character of which is comparable to that of public morality, it considers
nevertheless that: In principle, it is for each member state to determine in accordance with its own scale
of values and in the form selected by it the requirements of public morality in its territory (see the
judgment in R v Henn Case 34/79 [1980] 2 All ER 166, [1979] ECR 3795 (para 15)) 20.
18
See esp the judgments in Cullet v Centre Leclerc Toulouse Case 231/83 [1985] ECR 305 (paras 3233) and Procureur
de la Republique v Leclerc Case 34/84 [1985] ECR 2915 (para 9)).
19
See esp the judgment in Campus Oil [1984] ECR 2727 (para 33), in which the court held: it must be decided whether
the concept of public security covers reasons such as those referred to in the question raised by the national court.
20
See also the judgment in Conegate [1986] 2 All ER 688, [1986] ECR 1007 (para 14).
96.
However, on the rare occasions when the court has had to rule on the protection of public morality,
within the meaning of art 36 of the Treaty, the cases concerned involved national rules in areas about
which it may be said that, generally, they are by tradition at the heart of the debate held on this subject in
most European societies21.
21
The judgments in Henn [1980] 2 All ER 166, [1979] ECR 3795 and Conegate [1986] 2 All ER 688, [1987] QB
254, [1986] ECR 1007, involved pornography and the judgment in Customs and Excise Comrs v Schindler Case C-
275/92 [1994] 2 All ER 193, [1994] ECR I-1039, relating, however, to legislation governing a services activity,
involved lotteries.
97.
Even in these cases, the court did not, however, fail to point out that the competence of the member
states was recognised in principle, which leaves the court with the power to derogate from the rule, if the
facts of the case justify this.
98.
The formulations used, which contain substantive assessments by the court of the rules in question,
seem to evince the courts intention to ensure that the meaning of the concept does not shift. In Henn, the
court stated that it could not be disputed that the statutory provisions in question came within the powers
reserved to the member states by art 36 (see Henn [1980] 2 All ER 166, [1979] ECR 3795 (para 15)). In
Conegate Ltd v Customs and Excise Comrs Case 121/85 [1986] 2 All ER 688, [1986] ECR 1007, in
holding that domestic rules banning the importation of certain indecent or obscene goods could not be
based on grounds of public morality, the court held that the fact that goods caused offence could not be
regarded as sufficiently serious when the legislation of the member state concerned did not lay down any
prohibition on the manufacture or marketing of those goods on its territory (see Henn [1980] 2 All ER 166,
[1979] ECR 3795 (para 15)).
99.
In the words of the courts settled case law
Article 36 is not designed to reserve certain matters to the exclusive jurisdiction of member
states but permits national laws to derogate from the principle of the freedom of goods to the extent
to which such derogation is and continues to be justified for the attainment of the objectives
referred to in that article. (See the judgment in Spain v EU Council Case C-350/92 [1995] ECR I-
1985 (para 21).)22
22
See also the judgment in Simmenthal [1976] ECR I-1871 (para 24), Tedeschi [1977] ECR 1555 (para 34), EC
Commission v Germany Case 153/78 [1979] ECR 2555 (para 5), Denkavit [1979] ECR 3369 (para 14) and Campus Oil
[1984] ECR 2727 (para 32).
As a derogation from that principle, art 36 must be interpreted strictly (see the judgment in Criminal
proceedings against Richardt Case C-307/89 [1991] ECR I-4621 (para 20)).
316
100.
Despite its specific character, public morality cannot totally escape the rule. Reasons based on this
concept may not be invoked at every turn, or else there would be a risk of multiplying obstacles to intra-
Community trade.
101.
In this regard, I consider it necessary for the court to assume the right to carry out a minimal review of
the content of the concept of public morality, particularly in areas less generally condemned than those
with which it has had to deal in the past. The advantage of this approach will be to prevent the concept
from being given a broad meaning for the sole purpose of justifying unreasonably restrictive measures 23.
23
See, to this effect, the opinion of Advocate General Van Gerven in Torfaen BC v B & Q plc Case C-145/88 [1990] 1 All
ER 129, [1989] ECR 3851 (para 29). A broad interpretation is, incidentally, facilitated by the actual meaning of the
expression. Since morality is defined as Attitude, moral conduct, principles, reference must he made to the term
morals, which means: All the rules of conduct and values which operate as standards in a society, Le Petit Larousse.
102.
However, the fact remains that public morality varies from one member state to another, in time and
according to the member states socio-cultural particularities. Moreover, it is no part of the courts task to
judge values characterising the public morality of a member state and which are therefore quite specific to
it. Consequently, it would appear to be necessary to allow national authorities sufficient discretion to
determine the requirements which ensue from public morality, within the bounds imposed by the Treaty 24.
24
See the comparable reasoning followed by the court in the services field in Schindler [1994] 2 All ER 193, [1994]
ECR I-1039 (paras 6063).
103.
The complementary task for the court is to give an interpretation of art 36 which removes form its
scope domestic practices or domestic rules pursuing aims which clearly cannot be a matter of public
morality.
104.
As far as the present case is concerned, the fact that a member state should consider that harm
unjustifiably caused to the life or health of domestic animals, even for economic purposes, through the
use of a particular rearing method is a matter of public morality in that state does not appear to be
manifestly contrary to art 36.
105.
According to the national court
the export of calves to face rearing contrary to the Convention is considered to be cruel and
immoral by animal welfare organisations and a considerable body of public opinion, supported by
authoritative scientific veterinary opinion, in the member state from which exports occur.
106.
It must be added, however, that it must be proved by objective scientific evidence that the rearing
system in question causes unreasonable harm to the health or life of animals and that the measures
adopted must be proportionate to the aim in view25, which is for the national court to judge.
25
See eg the judgments in Campus Oil [1984] ECR 2727 (para 37) and Criminal proceedings against Debus Joined cases
C-13/91 and C-113/91 [1992] ECR I-3617 (para 16).
107.
The national court refers, secondly, to public policy.
Public policy
108.
In its judgment in R v Bouchereau Case 30/77 [1981] 2 All ER 924, [1977] ECR 1999 (para 35),
employing reasoning which can be transposed to the field of free movement of goods, the court held that
In so far as it may justify certain restrictions to the free movement of persons subject to
Community law, recourse by a national authority to the 317 concept of public policy presupposes, in
any event, the existence of a genuine and sufficiently serious threat to the requirements of public
policy affecting one of the fundamental interests of society.
109.
In the present case, the applicant in the main proceedings does not claim that public policy has been
contravened. The most that is asserted, in the applicants observations and, to a lesser extent, in the
order for reference, is: The inhumanity of the veal crate system has produced a strong public response in
the United Kingdom.
110.
The description thus given of the protest movement which has arisen in the United Kingdom against
the use of the rearing system in question does not reveal anything to establish a real threat to public
policy. In such a context, this ground provided for by art 36 cannot be relied on in support of an export
restriction.
111.
Moreover, it would seem to me to be dangerous for a Community principlein this case, freedom of
movement for goodsto be called into question on the ground that its application provokes a social
reaction, if there are no other reasons for limiting its application (see, on this point, the opinion of
Advocate General VerLoren van Themaat in Cullet v Centre Leclerc Toulouse Case 231/83 [1985] ECR
305 (para 5.3)).
112.
Consequently, I conclude that measures restricting exports of animals based on the risk that they may
provoke a reaction in national public opinion against the maintenance of a methods of rearing animals
which is considered to be cruel towards them cannot constitute measures for meeting a public policy
objective within the meaning of art 36.
Protection of the health and life of animals
113.
Article 36 does not allow a member state to restrict its exports on account of extra-territorial
circumstances which, even though they produce effects within its population, do not affect on its own
national territory the interest protected by this provision.
114.
The principle must, in my view, apply to the aim of protecting the health and life of animals.
115.
To allow a member state to prohibit or restrict the export of animals located on its territory in order to
protect them against practises affecting their health or life beyond its own borders would in practice mean
giving member states the right to monitor, and even to influence, the practices or rules applied by the
other member states.
116.
The Community legislature certainly did not intend art 36 to be interpreted so broadly. The function
conferred on the provision, which is meant to be an instrument at the service of the member states
against unreasonable effects which the free movement of goods has on their fundamental national
interests, precludes such an interpretation.
117.
In its judgment in Richardt [1991] ECR I-4621 (para 20), the court reaffirmed this principle of strict
interpretation of art 36 thus:
The Court has stated on several occasions (see the judgment in Campus Oil, cited above,
paragraph 37, concerning restriction on imports) that Article 36, as an exception to a fundamental
principle of the Treaty, must be interpreted in such a way that its scope is not extended any further
than is necessary for the protection of the interests which it is intended to secure. Measures
adopted on the basis of Article 36 can therefore be justified only if they are 318 such as to serve the
interest which that article protects and if they do not restrict intra-Community trade more than is
absolutely necessary. (My emphasis.)
118.
I am not arguing that the protection of the life and health of animals must give way to the economic
requirements of the free movement of goods but, more simply, that, given its function in the Treaty, which
largely determines its territorial scope of application, art 36 is not the appropriate instrument for resolving
a case such as that before the national court.
119.
Title XVI of the Treaty, on the environment, sets aims and lays down procedures enabling the
Community to adopt measures exceeding the strict territorial boundaries of the member states.
120.
The territorial limitation of the scope of art 36 does not in any way call in question its usefulness in the
field of the protection of the health and life of animals. It allows a member state to combine provisions
taken to preserve an animal species threatened on its national territory with measures restricting or
prohibiting export by individuals of the species concerned.
121.
If, as I propose, the court holds that recourse cannot be had to art 36 of the Treaty for reasons other
than the incompleteness of the harmonisation carried out by the directive, the second preliminary
question, on the validity of Directive 91/629, will not require any reply.
122.
If, on the contrary, the court holds that the directive, being exhaustive, precludes application of art 36, I
must, in the alternative, examine its validity.
127.
The Community is therefore bound by the convention, which since its entry into force has formed an
integral part of the Community legal order.
319
128.
According to the courts established case law, since they are directly linked to the agreement which
they implement, measures emanating from a body established by the agreement and entrusted with
responsibility for its implementation form part of the Community legal order 27. In the present case, the
recommendation and Appendix C thereto were adopted by the standing committee formed under art 8 of
the convention. This body is to be responsible for the elaboration and adoption of recommendations to
the Contracting Parties containing detailed provisions for the implementation of the principles set out in
Chapter I of this Convention (see Ch II, art 9(1) Detailed implementation).
27
See the judgments in Greece v EC Commission Case 30/88 [1989] ECR 3711 (para 13), Sevince v Staatssecretaris van
Justitie Case C-192/89 [1990] ECR I-3461 (para 9) and Deutsche Shell AG v Hauptzollamt Case C-188/91 [1993] ECR
I-363 (para 17).
B. The effect of the standards laid down by the convention and the recommendation
129.
Although the imperative form used in the provisions of the convention, with the word shall being
systematically used to lay down the principles contained in Ch I, those provisions are for the most part
characterised by imprecision (only Ch I lays down substantive rules applicable to the field dealt with by
the convention).
130.
Thus, the housing of animals, their feeding, and the care given to them must, in particular, according to
the convention, be appropriate to their physiological and ethological needs in accordance with
established practice and scientific knowledge (arts 3a, 4(2), 5). Similarly, the appropriateness of the
housing, feeding, watering and care is to be determined having regard to their species and to their
degree of development, adaptation and domestication (arts 3a, 4(1) and 5). The freedom of movement
for the animals and the food and liquid given to them must not cause the animals unnecessary suffering
or injury (arts 4(1) and 6, first paragraph). The same aim is given for the Community obligation to
thoroughly inspect the state of health of animals at intervals which are sufficient for this purpose. When
an animal is killed on the farm, this must be done competently and without causing unnecessary pain
or distress to the 320 animals (new art 7(2)). Finally, natural or artificial breeding or breeding procedures
which cause, or are likely to cause, suffering or injury are prohibited (new art 3 of the convention,
amended by the protocol of amendment).
131.
The only really precise provisions concern the minimum frequency of inspections of the condition and
state of health of animals and of technical equipment which must be inspected at least once a day in the
case of animals kept in intensive stock-farming systems (new art 7(1) and (3)).
132.
No precise rule can be found in the convention which could call in question the veal-crate system as
regards its main characteristics, namely the minimal width of the crates and the composition of the calves
food. Consequently, the concern expressed in the convention to make the contracting parties aware about
maintaining rearing conditions which respect the well-being of animals in vital areas is not reflected in the
definition of standards whose non-observance by the directive could affect its validity.
133.
According to art 20 of the recommendation, this text shall have no direct application within Parties and
shall be implemented according to the method that each party considers adequate, that is through
legislation or through administrative practice.
134.
Appendix C which, according to art 1(3) of the recommendation, constitutes an integral part of the
recommendation, is subject to the same conditions regarding its entry into force.
135.
The provisions of the recommendation cannot therefore enter into force without implementing
measures being taken by the signatories, each one for itself. Any binding force of the recommendation is
suspended upon adoption of such measures, so that the directive is not subordinate to it. The procedure
applicable in the event of failure to implement a recommendation is set out in art 9(3) and (4) of the
convention. Significantly, this provision allows the Community to bring the effects of the recommendation
to an end simply by giving notice.
136.
Irrespective of the conditions for its implementation, the actual content of the recommendation
precludes the calling in question of the validity of the directive, which, here again, was not bound to
observe its provisions. The rules laid down by the recommendation, being more precise than those laid
down by the convention, are, however, characterised by the use of the conditional tense, at least in
relation to the fields concerning the rearing system in question.
137.
For example, as regards the space available for animals and their feed the elements which
characterise the rearing system in question the first and third paragraphs of art 6(3) of the
recommendation provide that
The construction of accommodation for cattle whether tethered or in pens, should at all times
allow them sufficient freedom of movement to be able to groom themselves without difficulty and
sufficient room to lie down, to rest, to adopt sleeping postures and freely to stretch their limbs and
rise. The animals should be able to see and touch other cattle. (My emphasis.)
138.
Article 8 provides:
The space allowance for cattle housed in groups should be calculated in relation to the whole
environment, the age, sex, live weight and behavioural needs of the stock, taking account of the
presence or absence of horns and the size of the group. Lack of space or overstocking leading to
trampling, behavioural or other disorders shall he avoided. (My emphasis.)
321
139.
The point is that the conditional nature of those rules precludes them from being recognised as having
the slightest binding force and that where, on the other hand, a standard is laid down in mandatory terms,
its imprecision renders it unenforceable.
140.
Article 10, dealing with feeding, partly falls into this last category. It provides:
All animals shall have appropriate access to adequate, nutritious, hygienic and balanced feed
or wholesome liquid each day and to adequate supplies of water of suitable quality, so as to
maintain their full health and vigour and to meet their behavioural and physiological needs.
Sufficient roughage should be provided daily in accordance with the age and the physiological
needs of the animal. (My emphasis.)
141.
Finally, a reading of Appendix C leads to the same conclusion.
142.
As regards the space allowance for calves, point 4, for example, states The dimensions of the
individual pen or stall shall be appropriate to the size of the animal and The width of the pen should be
not less than the height of the calf at the withers (my emphasis).
143.
Similarly, point 5 states: Where possible, the keeping of calves in groups should be advised.
144.
The second paragraph of point 8 states: Calves older than two weeks shall have access to a
palatable, digestible and nutritious diet containing a sufficient quantity of iron and roughage appropriate to
their age, weight and biological needs (my emphasis).
145.
Point 14 states:
Since some systems at present in use are not designed, constructed or operated in such a way
as to fulfil all the biological needs of calves, efforts must be made to develop and apply husbandry
systems which minimise the risk of injuries and disease and allow for all their biological needs to be
met, in particular by providing appropriate feeding regimes and by avoiding barren environments,
too restricted areas, and lack of social contact.
146.
It follows that neither the convention nor the recommendation create obligations which compel
adoption by the directive.
147.
However, the court does not go by the spirit, scheme or terms of the international agreement of which
the Community measure is alleged to be in breach. In its case law on GATT it has held that it must also
review the legality of the measure in question in the event that the Community intended to implement a
particular obligation entered into within the framework of GATT, or if the Community act expressly refers
to specific provisions of GATT.
148.
The first recital in the preamble to the directive explains that all the member states have ratified the
convention and that the Community has also approved it.
149.
Although that reference to the convention marks the Communitys intention to promote improvements
in rearing conditions for veal calves, which is already evinced by the title and content of the directive, the
wording of the recital, which merely mentions the stage which the member states and the Community
have reached in the procedure for the adoption of the convention, and the general nature of the
reference, do not support the conclusion that the Community wished to confer binding force on any
particular provision of the convention or of the 322 recommendation, or that it was its intention to make
the directive serve the purpose of implementing them.
150.
Consequently, I do not consider the validity of the directive to be affected by the provisions of the
convention or of the recommendation.
VII CONCLUSION
151.
I therefore propose that the court should rule as follows in reply to the questions submitted to it.
(1) Article 36 of the EC Treaty must be interpreted as not allowing a member state, even where
no directive provides for full harmonisation of the measures necessary to achieve the specific
objective which recourse to art 36 is meant to protect, to invoke grounds of public policy and/or the
protection of the health and life of animals in order to justify measures restricting the export of live
calves with a view to preventing those calves from being reared in the veal crate system used in
another member state. Article 36 of the Treaty must be interpreted as allowing a member state, in
the same circumstances, to justify such measures on the grounds of public morality where
protection of the health and life of animals is regarded in that member state as falling within that
field, the harm to the health or life of animals resulting from the rearing method in question is
established by objective scientific evidence and the measures adopted are proportionate to the
objective pursued.
(2) Consideration of Council Directive (EEC) 91/629 laying down minimum standards for the
protection of calves has disclosed no factor of such a kind as to affect its validity.
19 March 1998.
INTERNATIONAL LAW
Regulation 805/68
13.
Under art 1 of Council Regulation (EEC) 805/68 on the common organisation of the market in beef and
veal (OJ S Edn 1968 (I) p 187), that common market organisation is to comprise a price and trading
system and cover, inter alia, live animals of the domestic bovine species.
14.
The second indent of art 22(1) of the regulation prohibits any quantitative restriction or measure having
equivalent effect in the internal trade of the Community.
The directive
15.
The second indent of art 3(1) and art 3(4) of the directive provide as follows:
(1) Member States shall ensure that from 1 January 1994 and for a transitional period of four
years, all holdings newly built or rebuilt and/or brought into use for the first time after that date shall
comply with at least the following requirements where calves are housed in individual boxes or
by tethering in stalls, the boxes or stalls shall have perforated walls and their width must be no less
than 90cm plus or minus 10%, or 080 times the height at the withers (4) The duration of use of
installations built:before 1 January 1994 which do not meet the requirements of paragraph 1
shall under no circumstances extend beyond 31 December 2003;during the transitional period, in
accordance with paragraph 1, shall under no circumstances extend beyond 31 December 2007,
unless on that date they comply with the requirements of this Directive.
16.
Article 4(1) of the directive provides that the member states are to ensure that the conditions for
rearing calves comply with the general provisions laid down in the annex to the directive.
17.
Under art 11(2), from the date set in art 11(1), namely 1 January 1994, the member states may, in
compliance with the general rules of the Treaty, maintain or apply within their territories stricter provisions
for the protection of calves than those laid down in the directive.
18.
Paragraph 7 of the annex to the directive provides that accommodation for calves must be constructed
in such a way as to allow each calf to lie down, rest, stand up and groom itself without difficulty and to see
other calves.
19.
Under para 11 of the annex, all calves must be provided with an appropriate diet adapted to their age,
weight and behavioural and physiological needs, to promote a positive state of health and well-being. In
particular, in order to ensure a positive state of health and well-being as well as a healthy growth rate and
to meet their behavioural needs, their food must include sufficient iron and, as a rule, a minimum of dried
feed containing a digestible fibre.
NATIONAL LAW
20.
The veal crate system has been prohibited in the United Kingdom since 1 January 1990 under the
Welfare of Calves Regulations 1987, SI 1987/2021.
21.
The prohibition now in force is laid down in the Welfare of Livestock Regulations 1994, SI 1994/2126
and the Welfare of Livestock Regulations (Northern Ireland) 1995, SR 1995/172.
325
Costs
70.
The costs incurred by the French and UK governments, by the EU Council and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the action pending before the national
court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Queens Bench
Division of the High Court, by order of 12 December 1995, hereby rules: (1) Consideration of Council
Directive (EEC) 91/629 laying down minimum standards for the protection of calves has disclosed no
factor of such a kind as to affect its validity. (2) A member state which has implemented the 1988
Recommendation concerning cattle, drawn up to apply the principles of the European Convention on the
Protection of Animals kept for Farming Purposes, cannot rely on art 36 of the EC Treaty and, in particular,
on the grounds of public morality, public policy or the protection of the health or life of animals laid down in
that article, in order to justify restrictions on the export of live calves with a view to preventing those calves
from being reared in the veal crate systems used in other member states which have implemented
Directive 91/629 but which do not apply that recommendation.
331
[1998] All ER (EC) 332
The plaintiff bank granted Ds building firm an overdraft facility. At a meeting with a bank representative at
Ds home, the defendant, Ds son, gave a written guarantee for up to DM 100,000 of his parents
obligations to the bank; the defendant was not subsequently informed of any right of cancellation. In May
1993 the bank called in all of Ds debts and sued the defendant under the guarantee for DM 50,000. The
defendant sought to renounce the guarantee, on the ground that he had not been informed of his right of
cancellation in accordance with the requirements of the German law implementing Council Directive
(EEC) 85/577 to protect consumers in respect of contracts negotiated away from business premises. The
Oberlandesgericht found in favour of the defendant and the bank appealed to the Bundesgerichtshof,
which stayed the proceedings and referred to the Court of Justice of the European Communities for a
preliminary ruling the question whether a contract of guarantee concluded by a natural person who was
not acting in the course of a trade or profession was covered by the directive.
Held Directive 85/577 was designed to protect consumers by enabling them to withdraw from a contract
concluded on the initiative of the trader rather than the customer, where the customer might have been
unable to see all the implications of his act. Accordingly, a contract which benefited a third party standing
outside the contractual relationship, such as a guarantee securing the performance of a credit agreement,
could not be excluded from the scope of the directive on the sole ground that the goods or services
purchased were intended for the use of that third party. However, since the directive was designed to
protect only consumers, a contract of guarantee only came within the scope of the directive where, in
accordance with art 21, the guarantor had entered into a commitment for a purpose which could be
regarded as outside his trade or profession. It followed that a contract of guarantee concluded by a
natural person who was not acting in the course of his trade or profession did not come under the
protection of the directive where it guaranteed repayment of a debt contracted by another person who, for
his part, was acting within the course of his trade or profession (see p 344 f and p 345 a b e, post).
1
Article 2, so far as material, is set out at p 342 g, post
332
Cases cited
Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325, ECJ.
Von Colson v Land Nordrhein-Westfalen Case 14/83 [1984] ECR 1891.
Reference
By order of 11 January 1996, the Bundesgerichtshof (the Federal Court of Justice) referred to the Court of
Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty a question
(set out at p 433 d, post) concerning the interpretation of Council Directive (EEC) 85/577 to protect the
consumer in respect of contracts negotiated away from business premises. That question arose in
proceedings between Bayerische Hypotheken- und Wechselbank AG and Edgar Dietzinger concerning
the performance of a contract of guarantee concluded by Mr Dietzinger with the bank. Written
observations were submitted on behalf of: Mr Dietzinger, by E Bubb, Rechtsanwalt, Landshut; the
German government, by A Dittrich, Regierungsdirektor in the Federal Ministry of Justice, and B Kloke,
Oberregierungsrat in the Federal Ministry of Economic Affairs, acting as agents; the Belgian government,
by J Devadder, General Adviser in the Ministry of Foreign Affairs, Trade and Cooperation with Developing
Countries, acting as agent; the French government, by C de Salins, Head of Sub-directorate in the Legal
Affairs Directorate of the Ministry of Foreign Affairs, and R Loosli-Surrans, Charge de Mission in the
same directorate, acting as agents; the Finnish government, by T Pynn, Legal Adviser in the Ministry of
Foreign Affairs, acting as agent; and the European Commission, by C OReilly and U Wlker, of its Legal
Service, acting as agents. Oral observations were submitted by: Mr Dietzinger, the German government,
the French government, the Finnish government and the Commission. The language of the case was
German. The facts are set out in the opinion of the Advocate General.
20 March 1997.
The facts
2.
The defendants father ran a building firm in respect of which the plaintiff bank granted a current
account overdraft facility. The defendants parents were visited by an employee of the bank; in the course
of that visit, the defendant gave a written guarantee of up to DM 100,000 of his parents obligations to the
bank. The defendant was not informed of any right to cancel the guarantee. The bank subsequently called
in loans granted to the defendants parents, totalling more than DM 16m, and claimed DM 50,000 from
the defendant under the guarantee.
3.
The defendant sought to renounce the guarantee in accordance with the German Gesetz ber den
Widerruf von Haustrgeschaften und hnlichen Geschften of 16 January 1986 (the Law on the
cancellation of doorstep transactions and analogous transactions). The issue was litigated and reached
the 333 Bundesgerichtshof, which referred the following question to the Court of Justice for a preliminary
ruling:
Where a contract of suretyship is concluded under German law between a financial institution
and a natural person who is not acting in that connection in the course of his trade or profession, in
order to secure a claim by the financial institution against a third party in respect of a loan, is it
covered by the words contracts under which a trader supplies goods or services to a consumer
(Article 1(1) of Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in
respect of contracts negotiated away from business premises)?
4.
The domestic law issue appears to be whether a guarantee constitutes a contract for the supply of
goods or services concluded for valuable consideration within the meaning of the 1986 Law; the order for
reference sets out arguments either way, which appear to turn on the concept of consideration in national
law. Moreover there appears to be a divergence of view between the Ninth and the Eleventh Chambers of
the Bundesgerichtshof as to whether consideration is in fact necessary in order to bring a contract within
the scope of the 1986 Law. It appears in any event that, if the guarantee falls within the Law, the
defendant is entitled to renounce it.
5.
The 1986 Law appears to have been intended to implement the directive. If guarantees such as that at
issue in the main proceedings fall within the concept contracts under which a trader supplies goods or
services to a consumer within the meaning of art 1(1) of the directive, the 1986 Law should be construed
so that the guarantee falls within it (see the judgment in Von Colson v Land Nordrhein-Westfalen Case
14/83 [1984] ECR 1891).
6.
Written observations were submitted by the defendant, the Belgian, Finnish, French and German
governments and the European Commission, all of whom with the exception of the Belgian government
were also represented at the hearing.
The directive
7.
The thrust of the directive is to ensure that, in respect of transactions to which it applies, the consumer
has, and is notified of, a cooling-off period of at least seven days during which he can withdraw from the
contract (arts 45).
8.
The directive was adopted under art 100 of the EC Treaty. The preamble states as follows (first, third,
fourth and seventh recitals):
Whereas it is a common form of commercial practice in the Member States for the conclusion of
a contract or a unilateral engagement between a trader and consumer to be made away from the
business premises of the trader, and whereas such contracts and engagements are the subject of
legislation which differs from one member state to another Whereas the preliminary programme
of the European Economic Community for a consumer protection and information policy provides
inter alia, under paragraphs 24 and 25, that appropriate measures be taken to protect consumers
against unfair commercial practices in respect of doorstep selling; whereas the second programme
of the European Economic Community for a consumer protection and information policy confirmed
that the action and priorities defined in the preliminary programme would be pursued; Whereas 334
the special feature of contracts concluded away from the business premises of the trader is that as
a rule it is the trader who initiates the contract negotiations, for which the consumer is unprepared
or which he does not expect; whereas the consumer is often unable to compare the quality and
price of the offer with other offers; whereas this surprise element generally exists not only in
contracts made at the doorstep but also in other forms of contract concluded by the trader away
from his business premises Whereas the freedom of Member States to maintain or introduce a
total or partial prohibition on the conclusion of contracts away from business premises, inasmuch
as they consider this to be in the interest of consumers, must not be affected
9.
Article 1 provides as follows:
(1) This Directive shall apply to contracts under which a trader supplies goods or services to a
consumer and which are concluded: during an excursion organized by the trader away from his
business premises, or during a visit by a trader (i) to the consumers home or to that of another
consumer; (ii) to the consumers place of work; where the visit does not take place at the express
request of the consumer. (2) This Directive shall also apply to contracts for the supply of goods or
services other than those concerning which the consumer requested the visit of the trader, provided
that when he requested the visit the consumer did not know, or could not reasonably have known,
that the supply of those other goods or services formed part of the traders commercial or
professional activities. (3) This Directive shall also apply to contracts in respect of which an offer
was made by the consumer under conditions similar to those described in paragraph 1 or
paragraph 2 although the consumer was not bound by that offer before its acceptance by the
trader. (4) This Directive shall also apply to offers made contractually by the consumer under
conditions similar to those described in paragraph 1 or paragraph 2 where the consumer is hound
by his offer.
10.
Consumer is defined as a natural person who, in transactions covered by this Directive, is acting for
purposes which can be regarded as outside his trade or profession. Trader is defined as a natural or
legal person who, for the transaction in question, acts in his commercial or professional capacity, and
anyone acting in the name or on behalf of a trader (art 2).
11.
Contract is nowhere defined.
12.
It may be noted at the outset that, on the assumption that the guarantee was not concluded at the
home of the defendant and on the basis that the defendants parents were not consumers in the context
of the transaction at issue, the guarantee would in any event not fall within art 1(1) of the directive, since it
was not concluded during a visit by a trader to a consumers home or the consumers place of work or
during an excursion organised by the trader away from his business premises (see the first, fourth and
seventh recitals in the preamble)2. The wording of art 1(1) appears surprisingly restrictive in the light of
the preamble to the directive, which suggests that the essential element 335 determining application of
the directive is that the contract in question was concluded away from the traders business premises. In
its earlier ruling on the directive in Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994]
ECR I-3325 (para 3) the court was not called upon to address that issue, although it was not obvious from
the order for reference in that case that the facts fell within art 1(1) 3; the court restricted itself to pointing
out to the national court the need to verify whether the contract was concluded in the circumstances
described by the directive4. In this case, the national court has phrased its question in such a way that it is
in any event both possible and appropriate for the court to provide an answer.
2
Article 1(1) of the Commissions original proposal for a Council Directive to protect the consumer in respect of contracts
which have been negotiated away from business premises (OJ 1977 C22 p 6) provided that the directive applied to
contracts negotiations for which have been initiated away from business premises.
3
See also Advocate General Lenzs opinion: [1995] All ER (EC) 1, [1994] ECR I-3325 (para 3).
4
See the judgment in Faccini Dori [1995] All ER (EC) 1, [1994] ECR I-3325 (para 14) and Advocate General Lenzs
opinion: [1995] All ER (EC) 1, [1994] ECR I-3325 (para 26).
13.
The transaction at issue in this case is a guarantee (or contract of suretyship; the terms are
interchangeable) under which the defendant, acting for purposes outside his trade or profession,
undertook to the plaintiff bank, acting in its commercial capacity, to stand surety for the loan provided by
that bank to the defendants parents, also acting in their commercial capacity. The referring court has
asked whether a guarantee such as that described above is a contract within the scope of the directive.
14.
The Belgian, Finnish, French and German governments all argue that the guarantee is not within the
directive. There are three distinct, albeit overlapping, lines of argument to that effect. First, it is argued
generally that the guarantee is not a contract for the purposes of the directive because the consumer
receives no consideration, or, in other words to the same effect, because the guarantee is not a
synallagmatic contractnamely a bilateral agreement involving mutual and reciprocal obligations or
dutiesbut a unilateral undertaking from the point of view of the guarantor. Secondly, it is argued in more
specific terms that the guarantee is not a contract as defined by art 1(1) because no goods or services
are supplied by the trader party to the consumer party. Thirdly, it is argued that the guarantor cannot be
correctly described as a consumer.
15.
The defendant and the Commission argue on the contrary that the guarantee is a contract, both on the
general basis that all contracts between a trader and a consumer (including unilateral undertakings given
by a consumer to is a trader) are covered and in more specific terms because contracts made between a
trader who supplies goods or services and a consumer are covered.
16.
In keeping with the courts approach to the interpretation of Community legislation, I will consider in
turn the terms, the scheme and the objectives of the directive with a view to determining whether a
guarantee of the type at issue falls within its scope.
24.
I accordingly cannot accept the Commissions contention that the proposal was intended to cover a
wider category of transactions than synallagmatic contracts for the supply of goods or services.
25.
At the hearing, the Commission put forward a further argument based on the wording of the directive:
it referred to art 3(2)(a), which provides that the directive does not apply to, inter alia, contracts for the
construction, sale and rental of immovable property or contracts concerning other rights relating to
immovable property. The Commission states that the last phrase refers to, for example, guarantees, and
concludes that guarantees must therefore be generally covered by the directive since otherwise there
would be no need for this specific exclusion. However, it is not obvious to me that other rights
necessarily encompasses guarantees: the examples given by the Commission in the explanatory
memorandum (COM(76) 544 final) to the original proposal of such other rights are applications for or
transfers of a mortgage, the granting of easements of right of way (see the commentary on art 2(d)).
29.
As the German government points out, unilateral engagement in this context was probably intended
to refer to the making of an offer by the consumer in circumstances where the offer becomes binding
either on being made or on acceptance by the trader. That interpretation accords with the explanatory
memorandum to the original proposal6, in which the Commission stated:
6
Commentary on art 1.
The Directive also applies where the consumer engages himself unilaterally without any
corresponding obligations of the trader, for instance when ordering a[n] electrical appliance or when
binding himself unilaterally to acquire goods or to accept services. Even though a contract has not
yet been concluded in these cases, protection of the consumer is necessary, as the unilateral
engagement may already affect his interests.
30.
Without express provision, a consumer who made an offer away from the traders business premises
would not benefit from the directive even though he would in effect have done what the directive seeks to
prevent, namely bound himself to a transaction away from the traders business premises with no
cooling-off period. The extension of the directive to such circumstances was originally achieved by the
express reference in art 1(1) to unilateral engagements. In the final text, the same result is achieved by
art 1(3) and 1(4), and it is presumably for that reason that the reference to unilateral engagements in art
1(1) was dropped. That interpretation is consistent with the retention of the reference to unilateral
engagements in the preamble.
31.
It may be concluded therefore that the directive is intended to apply to unilateral engagements of the
type mentioned, but not necessarily to all unilateral engagements.
32.
Finally, the Belgian, Finnish and German governments argue that the defendant was not a consumer
for the purposes of the directive, submitting that the notion of consumer encompasses the concept of
recipient of the goods or services supplied under the transaction in question. To my mind, there is some
force in that argument. The guarantee is clearly severable from the principal transaction (namely the
extension of credit), and in the context of the guarantee it is the guarantor who is the supplier of services
and the bank which is the recipient. The German government concludes that the directive is accordingly
inapplicable, since the consumer is the supplier. I prefer to turn the analysis 339 round and emphasise the
difficulty of identifying the guarantor as a consumer in any real sense.
35.
The Commission refers to the third and fourth recitals in the preamble, set out at para 8, above, and to
the explanatory memorandum to the original proposal for the directive in which it is indicated that the
proposed directive was intended to have as wide a scope as possible (commentary on art 1).
36.
The German government argues that the aim of the directive is not to give general protection to
individuals against any type of transaction which they undertake without forethought but rather to protect
them as consumers against particular and specified types of contract. In the case of a guarantee there is
no question of the satisfaction of the guarantors personal needs as envisaged by the directive: a
guarantor knows that he is not signing a consumer contract. That argument applies a fortiori where, as
here, the credit transaction in respect of which the guarantee is given is for both parties a commercial
transaction and the guarantee is as to the economic situation of one of the trading parties. In those
circumstances, the guarantor is not entitled to the rights granted to consumers acting in a purely private
capacity.
37.
The Belgian government submits that the directives objective of protection, achieved by conferring on
the consumer a right of withdrawal, is targeted at the dangers arising out of the particular form of selling
consisting in .direct marketing (restricting the consumers freedom of choice, lack of initiation by the
consumer, no possibility of comparing price or quality). The dangers threatening a guarantor, on the other
hand, arise not from the trader but rather from the principal debtor.
38.
In my view, the legislative history and context of the directive support the governments view that it was
not intended to extend to guarantees of the type at issue in the main proceedings.
39.
It is of course incontrovertible that the directive seeks to protect consumers. It does not however follow
from that proposition that all consumers are protected in all circumstances by the directive: like other
directives with consumer protection as their aim, the directive applies to certain transactions only 8.
8
See eg Council Directive (EEC) 84/450 relating to the approximation of the laws, regulations and administrative
provisions of the member states concerning misleading advertising (OJ 1984 L250 p 17), Council Directive (EEC)
87/102 for the approximation of the laws, regulations and administrative provisions of the member states concerning
consumer credit (OJ 1987 L42 p 48), Council Directive (EEC) 93/13 on unfair terms in consumer contracts (OJ 1993
L95 p 29) and most recently the proposed directive of the European Parliament and of the Council on the protection of
consumers in respect of contracts negotiated at a distance.
40.
The third recital in the preamble, set out above and invoked by the Commission in support of its
argument for a wide construction, refers to the 340 Communitys preliminary and secondary programmes
for a consumer protection and information policy. Those two programmes indicate that the intention was
(in the words of the preliminary programme) to protect purchasers of goods or services against the abuse
of power by the seller, in particular against high-pressure selling methods 9, and (in the words of the
second programme) to protect purchasers of goods or services against unfair sales practices and high-
pressure selling methods10.
9
See Council Resolution of 14 April 1975 on a preliminary programme of the European Economic Community for a
consumer protection and information policy (OJ 1975 C92 p 1, para 19(i) of the annex).
10
See Council Resolution of 19 May 1981 on a second programme of the European Economic Community for a consumer
protection and information policy (OJ 1981 C133 p 1, para 28(1) of the annex).
41.
Admittedly, it is stated in the explanatory memorandum to the original proposal for the directive that the
need for protecting the consumer is not limited to any specific type of contract for instance contracts for
the supply of goods, but extends to all contracts which are initiated by a trader away from business
premises (para 1.3). That statement however must be seen in its context: the explanatory memorandum
opens with the proposition Where contracts for goods or services are initiated away from business
premises of a trader the consumer generally needs special protection. Examples are given of certain
types of contracts [where] a particular consumer protection might be required: especially insurance
contracts, consumer credit contracts, contracts relating to the sale of shares, investment funds, etc. or
contracts on distance education (para 1.3). All those contracts are bipartite, synallagmatic contracts for
the provision of goods or trader to a consumer. The same may be said of all the other examples given in
the explanatory memorandum of transactions to which the proposed directive applies or would in the
absence of specific exemption apply, namely an order for an electrical appliance, a unilateral undertaking
to acquire goods or to accept services, contracts relating to the installation of a heating system, the
maintenance of a heating oil tank, the repair of a roof, and small doorstep sales such as milk and bread.
42.
I am accordingly not persuaded that the directive, which in my view aims to protect the consumer party
to contracts for the supply of goods or services negotiated away from business premises, extends to the
protection of a guarantor in the circumstances of the main proceedings.
43.
I would however emphasise that it does not follow from that conclusion that member states may not
protect a guarantor in such circumstances as a matter of national law. Article 8 of the directive permits
member states to adopt or maintain more favourable provisions to protect consumers in the field which it
covers It would not therefore be contrary to the directive for the national court in this case to find that as a
matter of German law the guarantee is within the 1986 Law. Moreover, if it is correctas is suggested in
certain of the observations made to the courtthat the defendant was wholly uninformed of the nature of
the commitment into which he was entering, and which he was even pressurised into signing, it may well
be that other national law remedies are available in the spheres of misrepresentation or undue influence.
341
Conclusion
44.
Accordingly the question referred by the Bundesgerichtshof should in my opinion be answered as
follows:
A guarantee given to a financial institution by an individual who is not acting in the course of his
trade or profession, in order to secure a loan by that institution to a third party, is not within the
scope of Council Directive (EEC) 85/577 to protect the consumer in respect of contracts negotiated
away from business premises.
17 March 1998.
Costs
24.
The costs incurred by the German, Belgian, French and Finnish governments and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the action pending before the national
court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the question referred to it by the
Bundesgerichtshof by order of 11 January 1996, hereby rules: on a proper construction of the first indent
of art 2 of Council Directive (EEC) 85/577 to protect the consumer in respect of contracts negotiated away
from business premises, a contract of guarantee concluded by a natural person who is not acting in the
course of his trade or profession does not come within the scope of the directive where it guarantees
repayment of a debt contracted by another person who, for his part, is acting within the course of his trade
or profession.
345
D was employed by a Belgian undertaking, Sovam. In 1991, Sovam fell into financial difficulties and, at
the request of the shareholders, the local commercial court put the company into liquidation. The court
appointed a liquidator who dismissed D and shortly thereafter transferred Sovams assets to another
company, Dethier. D brought an action before a local labour court seeking that both Sovam and Dethier
be held jointly and severally liable for sums due to him by way of compensation in lieu of notice, paid
holiday leave and bonuses. He contended that the transfer of Sovams assets constituted a contractual
transfer within the meaning of the Belgian legislation implementing Council Directive (EEC) 77/187 on the
approximation of the laws of the member states relating to the safeguarding of employees rights in the
event of transfers of undertakings, businesses or parts of businesses, and that Dethier was therefore
jointly and severally liable for those payments. The labour court ruled in Ds favour and Dethier appealed,
contending that the liquidation of Sovam was comparable to an insolvency, in which case the transfer fell
outside the scope of Directive 77/187, and further that any joint and several liability on the part of the
transferee could benefit only those employees taken on by the transferee and not those dismissed before
the transfer. After finding that there had been a transfer of an undertaking within the meaning of the
directive, the national court stayed the proceedings and referred to the Court of Justice of the European
Communities for a preliminary ruling the questions: (i) whether, on a proper construction of art 1(1) 1 of the
directive, the directive applied in the event of the transfer of an undertaking which was being wound up
voluntarily or by the court; and (ii) whether the right set out in art 4(1) 2 of the directive to dismiss
employees for economic, technical or organisational reasons in the context of a transfer was available
only to the transferee.
1
Article 1(1), so far as material, is set out at p 349 f, post
2
Article 4(1), so far as material, is set out at p 349 h, post
Held (1) When considering whether Directive 77/187 applied to the transfer of an undertaking subject to
an administrative or judicial procedure, the court should 346 take into account, primarily, the purpose of
the procedure in question and whether it entailed the continuation of the business with a view to its
retrieval: it should also take account of the form of the procedure, in particular in so far as it meant that
the undertaking continued or ceased trading. The criterion relating to the purpose of the procedure for
winding up by the court, in the instant case, was not conclusive, since liquidation proceedings could be
used to bring a companys activities to an end whatever the reason for that course. However it was
apparent from the form of the procedure, in which liquidator, although appointed by the court, was an
organ of the company who sold the assets under the supervision of the general meeting that the
undertaking continued to trade while it was being wound up by the court, and that the continuity of the
business was thus assured when the undertaking was transferred. There was accordingly no justification
for depriving the employees of the rights guaranteed to them under the directive. It followed that, on a
proper construction of art 1(1), the directive applied in the event of a transfer of an undertaking which was
being wound up by the court if the undertaking continued to trade (see p 363 j, p 364 b to g and p 365 h,
post); dUrso v Ercole Marelli Elettromeccanica Generale SpA Case C-362/89 [1991] ECR I-4105 and
Spano v Fiat Geotech SpA Case C-472/93 [1995] ECR I-4321 applied.
(2) On its proper construction, art 4(1) allowed both the transferor and the transferee to dismiss
employees for economic, technical or organisational reasons. Moreover, the contract of employment of a
person unlawfully dismissed before the transfer of an undertaking had to be regarded as still extant
against the transferee even if the dismissed employee was not taken on by him after the undertaking was
transferred. In those circumstances, the employee could claim, as against the transferee, that his
dismissal was unlawful (see p 365 b e f j, post); Bork (P) International A/S (in liq) v Foreningen af
Arbejasledere i Danmark Case 101/87 [1988] ECR 3057 and Foreningen af Arbejdsledere i Danmark v
Daddys Dance Hall A/S Case 324/86 [1988] ECR 739 applied.
Notes
For employees rights on transfer of undertakings, see 52 Halsburys Laws (4th edn) para 2120.
Cases cited
Abels v Administrative Board of the Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische
Industrie Case 135/83 [1985] ECR 469.
Bork (P) International A/S (in liq) v Foreningen af Arbejasledere i Danmark Case 101/87 [1988] ECR
3057.
Centro Servizi Spediporto Srl v Spedizioni Marittima del Golfo Srl Case C-96/94 [1995] ECR I-2883.
Corsica Ferries Italia Srl v Corpo dei Piloti del Porto di Genova Case C-18/93 [1994] ECR I-1783.
dUrso v Ercole Marelli Elettromeccanica Generale SpA Case C-362/89 [1991] ECR I-4105.
Foreningen af Arbejdsledere i Danmark v A/S Danmols Inventar (in liq) Case 105/84 [1985] ECR 2639.
Foreningen af Arbejdsledere i Danmark v Daddys Dance Hall A/S Case 324/86 [1988] ECR 739.
Landsorganisationen i Danmark for Tjenerforbundet i Danmark v Ny Mlle Kro Case 287/86 [1987] ECR
5465.
Loureno Dias v Director da Alfndega do Porto Case C-343/90 [1992] ECR I-4673.
347
Redmond (Dr Sophie) Stichting v Bartol Case C-29/91 [1992] I-ECR 3189.
Salonia v Poidomani Case 126/80 [1981] ECR 1563.
Spano v Fiat Geotech SpA Case C-472/93 [1995] ECR I-4321.
Spijkers v Gebr Benedik Abattoir CV Case 24/85 [1986] ECR 1119.
Reference
By judgment of 1 December 1994, the Cour du Travail (the Higher Labour Court), Lige, referred to the
Court of Justice of the Eureopan Communities for a preliminary ruling under art 177 of the EC Treaty a
number of questions (set out at p 362 d f, post) on the interpretation of Council Directive (EEC) 77/187 on
the approximation of the laws of the member states relating to the safeguarding of employees rights in
the event of transfers of undertakings, businesses or parts of businesses. Those questions arose in
proceedings between Jules Dethier quipement SA, on the one hand, and Jules Dassy and Sovam
SPRL, on the other, concerning payment of compensation in lieu of notice and of other sums of
compensation. Written observations were submitted on behalf of: the Belgian government, by J Devadder,
General Adviser in the Ministry of Foreign Affairs, External Trade and Cooperation with Developing
Countries, acting as agent and the European Commission, by M Wolfcarius, of its Legal Service, and H
Kreppel, a national civil servant on secondment to that service, acting as agents. The language of the
case was French. The facts are set out in the opinion of the Advocate General.
11 July 1996.
A INTRODUCTION
1.
In this case, the Cour du Travail (the Higher Labour Court), Lige, has referred to the Court of Justice
of the European Communities questions on the application and interpretation of Council Directive (EEC)
77/187 on the approximation of the laws of the member states relating to the safeguarding of employees
rights in the event of transfers of undertakings, businesses or parts of businesses (OJ 1977 L61 p 26), in
particular the question whether the directive applies to the transfer of an undertaking which is undergoing
liquidation.
2.
The action before the national court is between Mr Dassy and Sovam SPRL, his former employer, on
the one hand, and Jules Dethier quipement SA, on the other.
3.
Mr Dassy had been employed by Sovam SPRL since the beginning of 1974 as head of its after-sales
service department. At the beginning of the 1990s, the company got into financial difficulties and suffered
a substantial reduction in turnover. In March 1991, an auditors report revealed that the value of the
companys net assets had fallen below the amount of its share capital. Since the shareholders could not
agree on the course to be followed, the company in the end applied to be wound up by the court. The
Tribunal de Commerce (the Commercial Court), Huy, accordingly made an order on 15 May 1991 putting
the company into liquidation under supervision of the court and appointed a liquidator.
4.
According to the national court and the Commission, liquidation of a company under Belgian law must
be taken to mean all the steps which, following dissolution of a commercial company, are aimed at paying
creditors out of the corporate assets and distributing any balance to the members. That procedure 348
applies to all commercial companies with legal personality. The reason for the companys dissolution does
not matter. During the liquidation, the company acts through the liquidator. He is an organ of the company
and represents it vis--vis third parties. Under the law, liquidators are appointed either in the articles of
association or by general meeting. If the general meeting does not agree on a candidate by the requisite
majority, a liquidator is appointed by the court. In the latter event, the liquidation is one conducted under
court supervision, as in this case. The only difference from voluntary liquidation is that the procedure for
appointing a liquidator is different.
5.
On 5 June 1991, the liquidator appointed by the court in this case terminated Mr Dassys contract of
employment.
6.
By an agreement of 27 June 1991, the company in liquidation was transferred by the liquidator to
Dethier. On 10 July 1991, the Tribunal de Commerce confirmed that transfer of assets. The referring court
and the Commission both agree that this endorsement by the court was not necessary. In any event, it is
not required under the liquidation procedure.
7.
On 22 May 1992, Mr Dassy brought an action against Dethier, which on the basis of a contractual
transfer of the undertaking he considered to be jointly and severally liable for payment of the sums due
from Sovam SPRL (in liq). The Tribunal de Commerce fixed the sum payable by the company in
liquidation at BF 1,643,726 and held that Dethier was jointly and severally liable for payment of that sum.
8.
With the Cour du Travail, Lige, which has made this reference, Dethier has now lodged appeal. The
Belgian court takes the view that, in this case, an undertaking has been transferred for the purposes of
the directive. However, it is not sure whether the directive can apply because it is open to doubt whether
the transfer of a company in liquidation is a contractual transfer (cession conventionelle) of an
undertaking for the purposes of art 1(1) of the directive.
9.
Article 1(1) of the directive states: This Directive shall apply to the transfer of an undertaking, business
or part of a business to another employer as the result of a legal transfer 3 or merger.
3
Translators note: cession conventionelle in the French text.
10.
The safeguarding of employees rights in the event of transfer of an undertaking is dealt with in art
3(1): The transferors rights and obligations arising from a contract of employment or from an
employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by
reason of such transfer, be transferred to the transferee.
11.
In order to prevent circumvention of that provision, art 4 prohibits dismissals effected solely on the
grounds of transfer of an undertaking. Article 4(1) states:
The transfer of an undertaking, business or part of a business shall not in itself constitute
grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of
dismissals that may take place for economic, technical or organizational reasons entailing changes
in the workforce.
12.
Finally, art 7 allows member states to apply or introduce laws, regulations or administrative provisions
which are more favourable to employees.
13.
According to the national court, the directive was transposed into Belgian law by Collective Agreement
No 32 bis, as amended by Collective Agreement No 34932 quater. That agreement safeguards
employees rights whenever there is a change of employer resulting from the contractual transfer of an
undertaking. It also guarantees certain rights for employees who are taken on in the case of a takeover of
assets following insolvency or of a court-approved arrangement with creditors. Collective Agreement No
32 did not apply to insolvency or similar proceedings. The progenitors of Collective Agreement No 32
considered, however, that employees of an undertaking adjudged insolvent or the subject of a court-
approved arrangement were in a similar position to employees of an undertaking that has been
transferred and that they, therefore, also deserved a minimum degree of protection.
14.
The collective agreement also provides that the transferor and transferee are to be jointly and
severally liable for the payment of debts existing at the date of the transfer and resulting from contracts of
employment existing at that date.
15.
Should the directive be applicable to this case, the national court raises the further question of how
termination of a contract of employment occurring immediately before the company is transferred is to be
viewed under the directive.
16.
It has therefore referred the following questions to the court for a preliminary ruling:
(1) Does Council Directive 77/187 apply where the transfer is effected by a company in
voluntary liquidation, a procedure whose aim, in the absence of continued trading, is liquidation by
realisation of the assets? Is the answer the same where the transferor is being wound up by the
court?
(2) Where the contracts of employment of all the employees have been terminated by the
liquidator and only some of those employees have been re-engaged for the purposes of the
liquidation, may the dismissals of the employees not subsequently taken on by the transferee be
regarded as having taken place for economic, technical or organizational reasons within the
meaning of Article 4(1) of the directive? Must the power to dismiss such employees for such
reasons be left, on the contrary, to the transferee alone?
May staff not taken on by the transferee claim, as against him, merely because an economic
entity was transferred shortly after their dismissal for economic, technical or organisational reasons,
that the measure taken in their regard by the transferor was unlawful if the transfer agreement does
not provide for their re-engagement?
B OPINION
C CONCLUSION
67.
In the light of the foregoing, I propose that the answer to the questions submitted by the national court
should be:
(1) Council Directive (EEC) 77/187 on the approximation of the laws of the member states
relating to the safeguarding of employees rights in the event of transfers of undertakings,
businesses or parts of businesses applies to a transfer effected by a company in voluntary
liquidation, but only on condition that the undertaking continues to trade in that context. This applies
irrespective of whether the liquidator is appointed by the court or by the general meeting.
(2) The liquidator, too, has the right to dismiss employees for economic, technical or
organisational reasons. Staff not taken on by the transferee may not claim, as against him, that
their dismissal was unlawful merely because shortly after their dismissal the business was
transferred as an economic entity. When assessing the legality of dismissals on the basis of the
criteria laid down by the Court of Justice, the national court must, however, take into consideration
all the objective circumstances relating to the dismissals, in this case above all the fact that the
company was in liquidation.
12 March 1998.
Costs
43.
The costs incurred by the Belgian government and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the action pending before the national court, the decision on
costs is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the questions referred to it by
the Cour du Travail, Lige, by judgment of 1 December 1994, hereby rules: (1) On a proper construction
of art 1(1) of Council Directive (EEC) 77/187 on the approximation of the laws of the member states
relating to the safeguarding of employees rights in the event of transfers of undertakings, businesses or
parts of businesses, that directive applies in the event of the transfer of an undertaking which is being
wound up by the court if the undertaking continues to trade. (2) On a proper construction of art 4(1) of
Directive 77/187, both the transferor and the transferee may dismiss employees for economic, technical
or organisational reasons. Employees unlawfully dismissed by the transferor shortly before the
undertaking is transferred and not taken on by the transferee may claim, as against the transferee, that
their dismissal was unlawful.
365
The applicant, an Italian national, worked and paid social security contributions in Germany from 1959 to
1984. In 1984 he began receiving unemployment benefit and in 1989 he began to receive sickness
benefit. Finally, suffering from an infirmity which reduced his working capacity by more than two-thirds, he
applied for an invalidity allowance in Italy. His application was rejected on the ground that he did not
qualify under Italian legislation since, during the five-year period preceding his application for benefit, he
had drawn unemployment benefits but had not paid any social security contributions. The applicant
brought an action before the Pretura Circondariale di Roma in its capacity as an employment tribunal for a
declaration that the necessary condition for recognition of his entitlement to invalidity allowance had been
fulfilled. He contended, inter alia, that by virtue of art 9a 1 of Council Regulation (EEC) 1408/71 on the
application of social security schemes to employed persons, to self-employed persons and to members of
their families moving within the Community and art 15(1)(f) 2 of Council Regulation (EEC) 574/72 laying
down the procedure for implementing Regulation 1408/71, the tribunal was obliged to take into account
his earlier contributions, since the relevant German legislation, which also stipulated a five-year reference
period in which a minimum contribution was to be made, allowed for the extension of that period by any
amount of time spent within that period, receiving unemployment benefit. The Pretore di Roma stayed the
proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling the
question whether, in the light of arts 48 to 51 (free movement of workers) of the EC Treaty, art 9a of
Regulation 1408/71 and art 15(1)(f) of Regulation 574/72 required a member state whose legislation did
not allow for the prolongation of the reference period for the recognition of entitlement to invalidity
pension, to prolong that period where a worker had received unemployment benefit in another member
state in which such extension was provided for.
1
Article 9a, so far as material, is set out at p 380 j to p 381 a, post
2
Article 15(1)(f), so far as material, is set out at p 380 f g, post
366
Held Article 9a of Regulation 1408/71 was concerned solely with a situation where the legislation of a
member state which made entitlement to a benefit conditional upon completion of a minimum period of
insurance during a reference period itself allowed for the extension of that period by periods during which
certain benefits, and in particular unemployment benefits, were granted under the legislation of another
member state. Moreover, art 15(1)(f)(ii) of Regulation 574/72 only required a time limit to be extended for
the duration of insurance periods completed within that period under the legislation of another member
state where those periods gave rise, under the legislation of that state, only to the suspension of the time
limit. In the instant case, the Italian legislation did not provide for the extension of the reference period
and, under the German legislation, periods of unemployment did not give rise solely to the suspension of
the time limit but were taken into account for the purposes of calculating the amount of the invalidity
benefit. Accordingly, since art 51 of the Treaty and Regulation 1408/71 did not regulate the national
conditions under which insurance periods were constituted and the Italian legislation employed objective
criteria and applied without distinction to national workers and those of other member states, it followed
that arts 48 to 51 of the Treaty, art 9a of Regulation 1408/71 and art 15(1)(f)(ii) of Regulation 574/72 did
not require a member state to extend the reference period laid down by its legislation for determining the
minimum insurance requirement for the grant of an invalidity benefit, by a period equivalent to periods of
unemployment spent by the person concerned under the legislation of another member state which,
unlike that of the first member state, allowed such an extension where the periods of unemployment were
spent on national territory (see p 381 h, p 382 c to p 383 j and p 384 f g h, post).
Bestuur van de Nieuwe Algemene Bedrijfsvereniging v Drake Case C-12/93 [1994] ECR I-4337
applied.
Notes
For social security measures necessary for free movement in general and unemployment benefits in
particular, see 52 Halsburys Laws (4th edn) paras 2131, 2186-2189.
For the EC treaty, arts 4851, see 50 Halsburys Statutes (4th edn) 283, 284.
Cases cited
Baccini v Office National de lEmploi (ONEM) Case 232/82 [1983] ECR 583.
Bestuur van de Nieuwe Algemene Bedrijfsvereniging v V A Drake Case C-12/93 [1994] ECR I-4337.
Caisse auxiliaire dassurance maladie-invalidit (CAAMI) v Faux Case C-302/90 [1991] ECR I-4875.
Caisse de Compensation pour Allocations Familiales des Rgions de Charleroi et Namur v Laterza Case
733/79 [1980] ECR 1915.
de Jaeck v Staatssecretaris van Financin Case C-340/94 [1997] ECR I-461.
Gravina v Landesversicherungsanstalt Schwaben Case 807/79 [1980] ECR 2205.
Istituto Nazionale della Previdenza Sociale (INPS) v Baglieri Case C-297/92 [1993] ECR I-5211.
Labots (ne Hagenbeek) v Raad van Arbeid, Arnhem Case 100/63 [1966] ECR 425.
Lepore v Office National des Pensions (ONP) Joined cases C-4546/92 [1993] ECR I-6497.
Martnez Losada v Instituto Nacional de Empleo (INEM) Joined cases C-88/95, C-102103/95 [1997] All
ER (EC) 240, [1997] ECR I-869, ECJ.
367
Paraschi v Landesversicherungsanstalt Wrttemberg Case C-349/87 [1991] ECR I-4501.
Rijksdienst voor Werknemerspensioenen v Celestre, Nationaal Pensioenenfonds voor Mijnwerkers Joined
cases 116117/80 and 119121/80 [1981] ECR 1737.
Rossi v Caisse de Compensation pour Allocations Familiales des Rgions de Charleroi et Namur Case
100/78 [1979] ECR 831.
Vella v Alliance nationale des mutualits chrtiennes Case C-324/88 [1990] ECR I-257.
Reference
By order of 3 October 1995, the Pretura Circondariale di Roma (the Rome District Magistrates Court)
referred to the court for a preliminary ruling under art 177 of the EC Treaty a question (set out at p 381 c,
post) on the interpretation of art 9a of Council Regulation (EEC) 1408/71 on the application of social
security schemes to employed persons, to self-employed persons and to members of their families
moving within the Community, as amended and updated by Council Regulation (EEC) 2001/83 and
subsequently amended by Council Regulation (EEC) 2332/89 and of art 15 of Council Regulation (EEC)
574/72 laying down the procedure for implementing Regulation 1408/71, as amended and updated. The
question arose in proceedings between Mr Iurlaro, an Italian national, and the Istituto Nazionale della
Previdenza Sociale (the INPS) concerning the latters refusal to take into account, for the purpose of the
acquisition of entitlement to an invalidity allowance under Italian law, periods of unemployment spent by
Mr Iurlaro in Germany. Written observations were submitted on behalf of: Mr Iurlaro, by R Maffei and P
Boer, both of the Rome Bar; the INPS, by M Pittelli, of the Rome Bar, and P Ciacci, of the Milan Bar, the
Italian government, by U Leanza, Head of Department of Contentious Diplomatic Affairs at the Ministry of
Foreign Affairs, acting as agent, assisted by D Del Gaizo, Avvocato dello Stato; and the European
Commission, by A Aresu and M Patakia, both of its Legal Service, acting as agents. Oral observations
were made by: Mr Iurlaro, represented by P Boer, the INPS, represented by M Pittelli and P Ciacci; and
the Commission, represented by M Patakia and P Stancanelli, of its Legal Service. The language of the
case was Italian. The facts are set out in the opinion of the Advocate General.
13 March 1997.
368
2.
I will suggest that the court should rule against such periods being taken into account in the case
submitted to it but, before doing so, I will first define the legal and factual context of the case.
4.
As regards the taking into account of periods of unemployment, art 4 of Law No 218, provides that
periods in respect of which the ordinary allowance in respect of compulsory unemployment
insurance is paid shall be regarded as contribution periods for the purposes of entitlement to
pension and of the amount of pension.
German legislation
5.
Under German legislation5 the person insured is entitled to an invalidity pension if he is unable to carry
on his occupation and: he has paid three years compulsory contributions during the five years last
preceding the onset of the invalidity, and he completed the general contribution period before the onset of
the invalidity.
5
Sozialgesetzbuch (SGB), Book VI [BGBl III 860, as amended by the Gesetz zur Reform der gesetzlichen
Rentenversicherung (the Law on the Reform of Statutory Old Age Insurance) of 28 December 1989 (BGBl IS 2261)].
6.
The reference period of five years prior to the onset of the invalidity is extended by notional
contribution periods6, although the period during which the worker was registered on unemployment lists
in Germany and drew benefit from bodies governed by public law, whilst giving rise to a notional
contribution for calculating the pension7, merely allows extension of the reference period for the purposes
of the minimum contribution required for recognition of entitlement.
6
Paragraph 43, SGB.
7
Paragraph 58, SGB.
11.
On 18 October 1989, suffering from an infirmity which reduced his working capacity by more than two-
thirds, Mr lurlaro applied to the Istituto Nazionale della Previdenza Sociale (the INPS) for the Italian
invalidity pension9.
9
The INPS states that Mr lurlaro unsuccessfully made a similar claim before the competent institution in Germany, and
that the proceedings before the German courts in respect of that refusal are still pending (p 2, para 1 of the French
translation of its observations).
12.
That application was refused for failure to comply with one of the conditions laid down by the Italian
legislation concerning contributions. The INPS took the view that no contribution had been paid during the
five years preceding the application, that reference period extending from 18 October 1984 to 18 October
1989.
13.
The plaintiff disputes that assessment. He relies on the German provisions in support of his claim that
the period of unemployment in Germany in respect of which benefit was paid should have been taken into
account, thereby neutralising that period and causing the reference period used to determine the
existence of the minimum insurance condition to commence at an earlier date.
14.
Relying on arts 15(1)(f) of Regulation 574/72 and 9a of Regulation 1408/71, cited above, Mr lurlaro
brought an action before the Pretore di Roma for a declaration that the necessary condition for
recognition of his entitlement to invalidity allowance had been fulfilled.
15.
The national court considers that the scope of each of the Community provisions cited needs to be
clarified, since art 9a of Regulation 1408/71 seems to imply a condition that the legislation of both
countries must provide for the neutralisation of specified periods, excluding a situation such as that in the
present case, where that possibility is provided for in only one of the two member states.
16.
It therefore requests the Court of Justice to interpret
Article 15(1)(f) of Regulation 574/72 and Article 9a of Regulation 2332/89, in the light of Article
48 of the Treaty establishing the EEC, in order to ascertain whether Article 4 of Law No 222/1984
should be so applied as to extend the reference period for the recognition of entitlement to invalidity
pension where a worker has been in receipt of unemployment benefit in another member state (in
this case Germany) in which such extension is provided for and, if so, whether such extension
should be subject to conditions.
17.
Before considering that question, which I will approach from two angles, I think it will be useful to give
a brief account of the Community provisions on social security for workers moving within the Community,
laid down by 370 Regulation 1408/71, and Regulation 574/72 which lays down the detailed rules for its
application.
20.
Nevertheless, divergences arising from the diversity of the schemes in force can constitute an obstacle
to the principle of freedom of movement for workers. Workers might hesitate to exercise that fundamental
right if they were not assured that it would not entail harmful consequences for them as regards their
social security cover. That is why art 51 of the EC Treaty provides for the adoption of such measures in
the field of social security as are necessary to provide freedom of movement for [migrant] workers (see
de Jaeck v Staatssecretaris van Financin Case C-340/94 [1997] ECR I-461 (para 18); my emphasis) 11.
11
See also the consistent case law of the court, for example in Istituto Nazionale della Previdenza Sociale (INPS) v
Baglieri Case C-297/92 [1993] ECR I-5211 (para 17) and Lepore v Office National des Pensions (ONP) Joined cases C-
4546/92 [1993] ECR I-6497 (para 34)).
21.
It was thus out of a concern to eliminate the obstacles and to encourage free movement that
Regulation 1408/71, and then the further legislation laying down the detailed rules for its application, were
adopted in accordance with the objectives set out in art 51 However, in view of the competence, referred
to above, retained by the member states, those provisions merely aim to provide for the coordination, not
the harmonization, of the legislations of the Member States.
22.
The Court of Justice has therefore incessantly pointed out that
the regulations did not set up a common scheme of social security, but allowed different
schemes to exist, creating different claims on different institutions against which the claimant
possesses direct rights by virtue either of national law alone or of national law supplemented,
where necessary, by Community law. (See Rossi v Caisse de Compensation pour Allocations
Familiales des Rgions de Charleroi et Namur Case 100/78 [1979] ECR 831 (para 13).)12
12
Confirmed eg by Caisse de Compensation pour Allocations Familiales des Rgions de Charleroi et Namur v Laterza
Case 733/79 [1980] ECR 1915 (para 8), Gravina v Landesversicherungsanstalt Schwaben Case 807/79 [1980] ECR
2205 (para 7) and Baccini v Office National de lEmploi (ONEM) Case 232/82 [1983] ECR 583 (para 17).
23.
That coordination, which is thus aimed at eliminating the negative effects which national legislation
might produce when a worker crosses a frontier, is centred on four basic principles. Those principles, as
expressed in general terms below, are also reaffirmed for nearly all the risks governed by Regulation
1408/71: the principle that the legislation of only one member state shall be applicable 13; the 371 principle
of equality of treatment between nationals and non-nationals 14; the principle of the conservation of
acquired rights15; the principle of the retention of rights in the course of acquisition, also referred to as the
principle of the aggregation of insurance periods16.
13
Article 13(1) of the regulation provides: persons to whom this Regulation applies shall be subject to the legislation of
a single member state only.
14
Article 3(1) of the regulation provides: persons resident in the territory of one of the Member States to whom this
Regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any
Member State as the nationals of that state.
15
Article 51(b) of the Treaty provides: The Council shall adopt such measures in the field of social security as are
necessary to secure for migrant workers payment of benefits to persons resident in the territories of the Member
States.
16
I shall return to this principle in the course of my further argument.
24.
Those rules, and the principles underlying them, are applicable in this case.
25.
In the first place, the benefit applied for falls within the scope ratione materiae of Regulation 1408/71,
since, in the words of art 4(1) of that regulation, This Regulation shall apply to all legislation concerning
the following branches of social security (b) invalidity benefits
In that respect, amongst the provisions specific to that category of benefits, Ch 2 of Title III of
Regulation 1408/71 envisages two groups of cases for which different rules are laid down. The regulation
takes account of the fact that, where invalidity is concerned, two types of legislation exist in the member
states: those under which the amount of benefits is independent of the duration of periods of insurance
(arts 3739), and those under which the amount of the invalidity benefit depends on the duration of
insurance periods (art 40). Considering the nature of the Italian legislation on the matter, it can be seen at
the outset that only the provisions of art 40 are applicable to the situation of the applicant in the main
proceedings.
26.
His case also falls within the scope ratione personae of Regulation 1408/71, art 2(1) of which refers to
employed or self-employed persons who are or have been subject to the legislation of one or more
Member States and who are nationals of one of the Member States. Since employed person for the
purposes of the regulation is to be understood solely by reference to the social security scheme that is
applicable to him (art 1(a)), it follows that, in order to come within the scope of Regulation 1408/71 ratione
personae, it is sufficient for a national of a member state to be, or to have been, subject to a social
security scheme of one or more member states, which is the case here.
27.
After those introductory remarks, I turn now to the question referred by the national court. I shall begin
by considering whether the INPSs refusal of invalidity benefit to Mr lurlaro, on the ground that one of the
requirements of the Italian legislation was not met, was a proper one having regard to the need to comply
with the principle that insurance periods are to be aggregated. Only then will I examine the question as
formulated, concerning the exportation, for the purposes of determining the reference period in Italy, of
the neutralisation under German law of periods of unemployment for which benefit is paid.
372
ARGUMENT
The question whether the INPS properly refused to grant the applicant an invalidity
allowance
28.
I think it is necessary to dwell for a moment on the question whether in this case the principle that
insurance periods are to be aggregated was properly applied, since mere reading of the documents
produced during the written procedure could give rise to doubts on the matter.
29.
That principle, which, as I have already said, underlies the Community rules on this matter, appears in
art 51(a) of the Treaty, which provides for the adoption by the EU Council, in the field of social security, of
such measures as are necessary to provide freedom of movement for workers, particularly by making
arrangements to secure for migrant workers aggregation, for the purpose of acquiring and retaining the
right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of
the several countries.
30.
That principle is taken up by art 9(2) of Regulation 1408/71, which equates insurance periods
completed under the legislation of any member state with those completed under the legislation of the
state in which benefit is sought.
In the words of this court (Istituto Nazionale della Previdenza Sociale (INPS) v Baglieri Case C-297/92
[1993] ECR I-5211 (para 11)):
the object of that provision is to guarantee that periods of insurance completed in different
member states are treated as equivalent so that the persons concerned can satisfy the condition of
a minimum length of insurance periods where national legislation makes admission to a voluntary
or optional continued insurance scheme subject to such a condition.
31.
That principle is reaffirmed in respect of nearly all the risks governed by Regulation 1408/71 and,
specifically on the matter of invalidity, which is at issue here, in art 40(1) 17.
17
By reference to the application by analogy of art 45(1) of the regulation.
32.
The principle thus excludes the possibility that, whenever a worker begins a new insurance period in a
member state, he is regarded there as a newly insured person. The institution of the member state in
which an invalidity benefit is applied for is required to take into account, in so far as may be necessary,
periods completed by the migrant worker in any other member state as if they were periods completed
under the legislation which it administers, without discrimination as against other workers by reason of
the exercise of his right to freedom of movement (see Labots (ne Hagenbeek) v Raad van Arbeid,
Arnhem Case 100/63 [1966] ECR 425 at 430).
33.
In this case, Mr lurlaros application for recognition of his entitlement to an invalidity pension was
rejected on the ground that he did not fulfil the condition, laid down by Italian legislation, that the required
number of contributions (three years of pensionable service) have been paid on his account during the
reference period (five years preceding the application).
34.
During those five years Mr lurlaro benefited, during at least three of them, from the payment of
unemployment benefit by the competent German institution.
35.
For the purposes of calculating periods conferring entitlement to the benefit in question, Italian
legislation, as has been seen, equates periods of unemployment with contribution periods.
373
36.
In principle, therefore, under Italian legislation, Mr lurlaro may claim to have complied with the
condition the non-fulfilment of which had been raised in objection to his application. That objection
appears, in the final analysis, to be motivated solely by the consideration that the condition in question
was fulfilled under the legislation of a member state other than Italy.
37.
On the basis of those considerations alone, as for the reference, the refusal by the INPS would appear
above-mentioned principle that insurance periods are to set out in the order to be contrary to be
aggregated.
38.
The courts reasoning in its judgment in Lepore v Office National des Pensions (ONP) Joined cases C-
4546/92 [1993] ECR I-6497, concerning old-age pension, is in that respect entirely transposable to the
present case18.
18
For an illuminating commentary on that judgment, see Van Raepenbusch La scurit sociale des personnes qui se
dplacent lintrieur de la Communaut (mai 1992avril 1994) Journal des tribunaux. Droit europen n10 (1994) p
105.
In that judgment, the court held that the requirements of freedom of movement meant that, when
calculating old-age pension, periods of invalidity had to be treated as periods of active employment, even
where the applicable national legislation provided for such assimilation only where the incapacity for work
arose at a time when the worker was employed in the member state in question, and if, at the time the
incapacity for work arose, he was in reality employed in another member state.
It held that
it would be contrary to Articles 48 to 51 of the Treaty if, as a consequence of the exercise of
their right to freedom of movement, migrant workers were to lose the advantages in the field of
social security guaranteed to them by the laws of a single Member State; such a consequence
might discourage Community workers from exercising their right to freedom of movement and
would therefore constitute an obstacle to that freedom. (See Lepore [1993] ECR I-6497 (para 21).)
The court went on to observe (para 22):
the prospect of a workers losing, in one Member State, the right to have periods of invalidity
treated as periods of insurance, which would occur if he went to work in another Member State, is
likely, in certain circumstances, to discourage him from exercising his right to freedom of
movement.
39.
If regard is had solely to procedural documents lodged before the hearing, therefore, the question
referred might not appear to be directly relevant. A proper application of arts 48(2) and 51 of the Treaty
would suffice; the Italian legislation would encroach upon the freedom of movement for migrant workers if
it provided that only periods of insurance against unemployment completed on national territory could be
regarded as relevant contribution periods for the purposes of social advantages, to the exclusion of
similar periods completed on the territory of other member states.
40.
It would have to be concluded that Community law precluded the application of national legislation,
such as that administered by the INPS, which did not assimilate periods of unemployment insurance
completed in another member state to those completed on its territory, for the purposes of calculating the
minimum insurance requirement attached to the grant of the invalidity allowance.
374
41.
However, the representatives of the INPS put forward at the hearing a consideration which is
conclusive in this case. They explained that Italian legislation provides for the coverage of periods of
unemployment for only a limited period, which may not exceed six months.
42.
In that case, the line of reasoning set out above cannot apply.
43.
Mr lurlaro could benefit from the rule, laid down by the Italian legislation, assimilating periods of
unemployment to contribution periods only in respect of a period not exceeding six months. The
requirement for entitlement to a pensionevidence of three years contributions during the reference
periodwould thus clearly not be fulfilled. The refusal of his claim by the INPS would therefore be
justified.
44.
Although, as Community law stands, member states are free to enact rules favouring certain migrant
workers19, Mr lurlaro cannot, in the absence of such national provisions, be granted advantages additional
to those which he would have been able to claim had he not exercised his right to freedom of movement,
merely because he exercised that right.
19
Thus the court held thatthere is no rule prohibiting a Member State from granting nationals who have worked in a
non-member country and then returned to their country of origin, where they no longer work, more favourable treatment
than nationals who have worked in another Member State and subsequently find themselves in the same situation (see
Baglieri [1993] ECR I-5211 (para 18)).
45.
As I have already mentioned, Community rules on social security envisage only the coordination of
existing national systems. They do not in any way introduce an independent system for migrant workers.
In that respect it would not be permissible for a migrant worker like Mr lurlaro to derive advantage from a
system that proved to be discriminatory to the detriment of non-migrant workers. The objective is not to
allow the accumulation of the most favourable conditions for acquisition of entitlement to benefit laid down
by the various national laws to which a migrant worker is successively subject, for the purpose of
acquiring entitlement to pension.
46.
That would, however, be the result if one were to disapply the rule on the maximum duration of
coverage of periods of unemployment which is laid down in the Italian legislation.
47.
It is in any case for the national court to satisfy itself of the existence and applicability of that rule from
the point of view of national law and, if appropriate, to draw the conclusion set out above.
48.
I shall now, as invited by the Pretore di Roma, examine the question whether Mr lurlaro might,
nevertheless, lay claim to an invalidity pension by requiring the INPS to apply the rule, known only to
German legislation, that the period of insurance against unemployment completed by the person
concerned in that other state is to be suspended for the purpose of extending the reference period.
The question of the exportation of the neutralisation which is provided for solely by the
German legislation
49.
On that point, the national court asks whether it is relevant to apply two provisions of Community
legislation, and requests an interpretation for that purpose. As will be seen, neither of those provisions
may be invoked in this case.
375
50.
The first of those provisions is art 9a of Regulation 1408/71, which provides, under Title I (General
Provisions) in relation to the prolongation of the reference period, that:
Where under the legislation of a Member State recognition of entitlement to a benefit is
conditional upon completion of a minimum period of insurance during a specific period preceding
the contingency insured against (reference period) and where the aforementioned legislation
provides that the period during which the benefits have been granted under the legislation of that
Member State or periods devoted to the upbringing of children in the territory of that Member State
shall give rise to prolongation of the reference period, periods during which invalidity pensions or
old-age pensions or sickness benefits, unemployment benefits or benefits for accidents at work
(except for pensions) have been awarded under the legislation of another Member State and
periods devoted to the upbringing of children in the territory of another Member State shall likewise
give rise to a prolongation of the aforesaid reference period. (My emphasis.)
51.
That provision thus imposes an obligation, on the member state in which prolongation of the reference
period is allowed, also to take account, within that period, of periods during which certain benefits were
awarded under the legislation of another member state, without, it seems, requiring that those benefits
should also have given rise to prolongation in that latter state.
That interpretation is confirmed by a reading of the third recital in the preamble to Regulation 2332/89,
cited above, which gives this reason for the insertion of art 9a in the basic regulation:
Whereas a provision should be introduced permitting a Member State whose legislation
provides for the prolongation, by certain facts or circumstances, of a reference period preceding the
occurrence of the risks insured against, during which a minimum period of insurance must be
fulfilled, for the recognition of the right to a benefit, to take account of similar facts or circumstances
occurring in another Member State for the aforementioned prolongation. (My emphasis.)
52.
A mere reading of that provision is, it seems to me, sufficient to show that it does not apply to the case
with which we are concerned.
53.
What art 9a ultimately constitutes is the application to the particular case of states whose legislation
provides for the prolongation of the reference period of the principle, laid down in para 2 of the preceding
article, that insurance periods are to be aggregated 20. Since Italian legislation lays down no such rule in
respect of the benefits in question21, reliance on that provision serves no purpose in this case 22. The most
that can be said is that it would be different if the application for benefit had been made in Germany, since
that state lays down the principle of 376 prolongation of the reference period for the period in which the
person concerned was covered against unemployment23.
20
In his opinion in Paraschi v Landesversicherungsanstalt Wrttemberg Case C-349/87 [1991] ECR I-4501 (para 15),
Advocate General Tesauro saw it as a declaratory provision expounding the obligation of non-discrimination laid down
by the Treaty.
21
The INPS has referred to certain periods, which alone are capable of being regarded as neutral, and thus capable of
being taken into account for the prolongation of the reference period, provided for in art 37 of Presidential Decree No
818 of 26 April 1957.
22
Nor does Mr lurlaro dispute that assessment: in so far as Italian legislation does not enact rules neutralising periods of
unemployment in respect of which benefit is paid, it does not appear that that provision can help to resolve the question
at issue in this case (see point IX, para 3 of his observations).
23
Thus the Court of Justice held, concerning the conditions for entitlement to an invalidity pension, that it was incompatible
with Community law for facts and circumstances allowing prolongation of the reference period not to be taken into
account by a member state which provides for that prolongation if they occur in another member state (see Paraschi
[1991] ECR I-4501 (paras 2425)).
54.
Turning now to art 15 of Regulation 574/72, that provision appears under Title IV, concerning
Implementation of the special provisions of the regulation [1408/71] relating to the various categories of
benefits and constitutes Ch 1, concerning General rules for the aggregation of periods. It provides:
1. In the cases referred to in Articles 18(1)24, 3825, 45(1) to (3)26, 6427 and 67(1) and (2)28 of the
Regulation, aggregation of periods shall be effected in accordance with the following rules (f)
Where under the legislation of one Member State certain periods of insurance or residence are
taken into account only if they have been completed within a specified time limit, the institution
which administers such legislation shall (ii) extend such time limit for the duration of periods of
insurance or residence completed wholly or partly within the said time limit under the legislation of
another Member State, where the periods of insurance or residence involved under the legislation
of the second Member State give rise only to the suspension of the time limit within which the
periods of insurance or residence must be completed.
24
The provision concerning Aggregation of periods of insurance, employment or residence in relation to sickness and
maternity benefits.
25
This provision concerns the Consideration of periods of insurance or of residence completed under the legislation to
which an employed person or a self-employed person was subject for the acquisition, retention or recovery of the right
to benefits for the purposes of granting invalidity benefits to workers subject to legislations under which the amount of
benefits is independent of the duration of periods of insurance.
26
Concerning the Consideration of periods of insurance or of residence completed under the legislation to which an
employed or self-employed person was subject, for the acquisition, retention or recovery of the right to benefits in
relation to old age and death (pensions).
27
Concerning the Aggregation of periods of insurance or residence in relation to death grants.
28
Concerning the Aggregation of periods of insurance or employment in relation to unemployment.
55.
Although that provision requires the competent institution of a member state to which application is
made for a pension to extend the reference period for the grant of that pension if the person concerned
has benefited from periods of insurance or residence in another member state where that prolongation is
provided for29, its scope is limited to those cases which it refers to expressly. Those cases do not include
that of Mr lurlaro, which concerns invalidity allowance for workers subject exclusively to legislation under
which the amount of the invalidity benefit depends on the duration of the insurance periods. That
provision makes no reference to arts 40ff of Regulation 1408/71, which, by contrast, applies inter alia to
the case of workers subject exclusively to legislation under which the amount of the benefits does not
depend on the duration of the insurance periods.
29
The court held in Rijksdienst voor Werknemerspensioenen v Celestre, Nationaal Pensioenenfonds voor Mijnwerkers
Joined cases 116117/80 and 119121/80 [1981] ECR 1737 (para 13), that: Regulation No 574/72 contains in
Articles 15 and 46 provisions governing the overlapping of periods of insurance completed under the legislation of two
or more Member States. Consequently, it is not permissible for the institution of a Member State to apply national rules
for the aggregation and apportionment of periods of insurance which are less favourable to the worker than those
contained in the regulation.
377
56.
Since neither of the two provisions referred to by the Pretore di Roma is applicable to this case, it is
not possible to deduce from either of them an obligation on the part of the INPS to prolong the reference
period, laid down by Italian legislation for calculating the minimum insurance requirement for acquisition of
entitlement to an invalidity benefit, by means of the export of the rule laid down by German legislation for
the suspension of the period during which Mr lurlaro drew unemployment benefit in that latter state, where
no such rule exists in Italian law.
57.
On a more general note, I would mention once again the freedom enjoyed by the various member
states in laying down conditions for the acquisition of entitlements in social security matters. In the
absence of Community harmonisation, those states are in particular free not to provide for grounds for the
prolongation or neutralisation of the relevant periods, provided there is no discrimination under art 48(2) of
the Treaty.
58.
I must again stress the fact that Mr lurlaro cannot rely on an independent system for migrant workers
which would allow such persons to accumulate, for the purpose of acquiring entitlement, all the most
favourable conditions of the various member states to whose legislation they were successively subject.
59.
Nor, moreover, have Mr lurlaros legal rights been curtailed in any way by the exercise of his right to
free movement. He has not, it is true, acquired any new right to the grant of an invalidity benefit (although
the aim of the rules is not per se to benefit migrant workers). Nor, however, has he been deprived of a
right which would have been his if he had stayed in his country of origin. And that is the essential
objective of the Community rules on the matter.
CONCLUSION
60.
On the basis of the considerations set out above, I suggest that the reply to the question referred by
the Pretura Circondariale di Roma should be as follows:
Neither art 15(1)(f) of Council Regulation (EEC) 574/72 laying down the procedure for
implementing Council Regulation (EEC) 1408/71 on the application of social security schemes to
employed persons, to self-employed persons and to members of their families moving within the
Community, nor art 9a of Council Regulation (EEC) 1408/71, as introduced with retrospective effect
by Council Regulation (EEC) 2332/89, nor arts 48(2) and 51 of the EC Treaty preclude the refusal
by a member state (in this case the Italian Republic) to take into account the period during which a
worker who applies for the grant of an invalidity pension drew unemployment benefit in another
member state (in this case Germany) as a ground for prolonging the reference period for the grant
of the pension applied for, where that ground for prolongation exists under the legislation of the
second member state but not under its own legislation.
17 September 1997.
Costs
34.
The costs incurred by the Italian government and the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the proceedings pending before the national court, the decision on costs
is a matter for that court.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the question referred to it by the
Pretura Circondariale di Roma by order of 3 October 1995, hereby rules: arts 48 to 51 of the EC Treaty,
art 9a of Council Regulation (EEC) 1408/71 on the application of social security schemes to employed
persons, to self-employed persons and to members of their families moving within the Community, as
amended and updated by Council Regulation (EEC) 2001/83 and subsequently amended by Council
Regulation (EEC) 2332/89, and art 15(1)(f)(ii) of Council Regulation (EEC) 574/72 laying down the
procedure for implementing Regulation 1408/71, as amended and updated by Regulation 2001/83 must
be interpreted as not requiring a member state to extend the reference period laid down by its legislation
for determining the minimum insurance requirement for the grant of an invalidity benefit by a period
equivalent to the periods of unemployment spent by the person concerned under the legislation of
another member state which, unlike that of the first member state, allows such an extension where the
periods of unemployment are spent on national territory. Moreover, arts 48 to 51 of the Treaty do not
preclude the legislation of a member state from refusing to take into account, for the purposes of
calculating whether the minimum insurance requirement attaching to the grant of an invalidity benefit is
satisfied, periods of insurance against unemployment completed during a given period preceding the
contingency insured against under the legislation of another member state, over and above those which
are taken into account by the legislation of the first member state during that same period.
384
T had been employed by the national old age insurance fund for employees since 1973. In 1983 Ts
combined sickness and maternity leave meant that she was only at work for a period of about five
months. Relying on the standard service regulations, Ts employer refused to draw up a performance
assessment for her, since she did not meet the conditions laid down in the regulations, namely six
months presence at work. Since such assessments were a precondition to receiving a 2% discretionary
increase in pay, T brought the matter before the Labour Tribunal in Paris, claiming that the failure to
assess her performance, because of her absence on maternity leave, constituted discrimination on
grounds of sex and that she had lost an opportunity for promotion. Ts claim was upheld and her employer
was ordered to compensate her for the loss suffered. The employer appealed. Following a series of
appeals in which the courts considered the compatibility of the service regulations with the provisions of
the French Code du Travail implementing Council Directive (EEC) 76/207 on equal treatment for men and
women as regards access to employment, vocational training and promotion and working conditions, the
Cour de Cassation stayed the proceedings and referred to the Court of Justice of the European
Communities for a preliminary ruling the question whether, inter alia, art 5(1) 1 of that directive precluded
rules which deprived a woman of the right to an assessment of her performance because of absence
through maternity leave.
1
Article 5(1), so far as material, is set out at p 397 j, post
Held The right of any employee to have their performance assessed each year and, consequently, to
qualify for promotion, formed an integral part of the conditions of their contract of employment within the
meaning of art 5(1) of the directive. Moreover, art 2(3) 2 of the directive recognised the legitimacy, in terms
of the principle of equal treatment, of protecting women during pregnancy and after childbirth. Accordingly,
national rules concerning employment and working conditions had to be examined in the light of arts 5(1)
and 2(3) to determine whether they guaranteed men and women the same conditions 385 without
discrimination on grounds of sex. It was clear that a woman who was accorded unfavourable treatment
regarding her working conditions, in that she was deprived of the right to an annual assessment of her
performance and, therefore, of the opportunity to qualify for promotion as a result of absence through
maternity leave, was discriminated against on grounds of her pregnancy and her maternity leave. Such
conduct constituted discrimination based directly on grounds of sex within the meaning of the directive. It
followed that arts 2(3) and 5(1) precluded national rules which deprived a woman of the right to an
assessment of her performance because of absence through maternity leave (see p 400 f to j and p 401
e f j, post).
2
Article 2(3), so far as material, is set out at p 389 h, post
Notes
For equal treatment relating to promotion and working conditions, see 52 Halsburys Laws (4th edn) para
2113.
Cases cited
EEC Commission v France Case 167/73 [1974] ECR 359.
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990]
ECR I-3941.
Gillespie v Northern Health and Social Services Board Case C-342/93 [1996] All ER (EC) 284, [1996]
ECR I-475, ECJ.
Habermann-Beltermann v Arbeiterwohlfahrt, Bezirksverband Ndb./Opf-eV Case C-421/92 [1994] ECR I-
1657.
Handels- og Kontorfunktionaerernes Foribund i Danmark v Dansk Arbejdsgiverforening Case C-179/88
[1990] ECR I-3979.
Hofmann v Barmer Ersatzkasse Case 184/83 [1984] ECR 3047.
Kempf v Staatssecretaris van Justitie Case 139/85 [1986] ECR 1741.
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Sinatra v Fonds national de retraite des ouvriers mineurs (FNROM) Case 296/84 [1986] ECR 1047.
Von Colson v Land Nordrhein-Westfalen Case 14/83 [1984] ECR 1891.
Wagner Miret v Fondo de Garanta Salarial Case C-334/92 [1993] ECR I-6911.
Webb v EMO Air Cargo (UK) Ltd Case C-32/93 [1994] 4 All ER 115, [1994] QB 718, [1994] 1 WLR 941,
[1994] ECR I-3567, ECJ.
Reference
By order of 28 March 1995, the French Cour de Cassation referred to the Court of Justice of the
European Communities for a preliminary ruling under art 177 of the EC Treaty a question (set out at p 399
h, post) on the interpretation of Council Directive (EEC) 76/207 on the implementation of the principle of
equal treatment for men and women as regards access to employment, vocational training and
promotion, and working conditions. That question was raised in proceedings between the Caisse
Nationale dAssurance Vieillesse des Travailleurs Salaris (CNAVTS) and Mrs Thibault concerning the
refusal by the 386 CNAVTS to undertake an assessment of Mrs Thibaults work performance for 1983.
Written observations were submitted on behalf of: the French government, by C de Salins, Deputy
Director in the Legal Affairs Department of the Ministry of Foreign Affairs, and A de Bourgoing, Charg de
Mission in that department, acting as agents; the UK government, by J E Collins, Assistant Treasury
Solicitor, acting as agent; and the European Commission, by M Wolfcarius, of its Legal Service, acting as
agent. Oral observations were made by: the French government, represented by A de Bourgoing; the UK
government, represented by J E Collins and D Pannick QC; and the Commission, represented by M
Wolfcarius. The language of the case was French. The facts are set out in the opinion of the Advocate
General.
9 January 1997.
The Advocate General (Ruiz-Jarabo Colomer)
delivered the following opinion (translated from the Spanish).
1.
In this case, the court is called upon to answer a question submitted by the French Cour de Cassation
(the Court of Cassation) concerning the interpretation of certain provisions of Council Directive (EEC)
76/207 on the implementation of the principle of equal treatment for men and women as regards access
to employment, vocational training and promotion, and working conditions (OJ 1976 L39 p 40).
That question arose in relation to an application by the Caisse Nationale dAssurance Vieillesse des
Travailleurs Salaries (the National Old-Age Insurance Fund for Employees) (the CNAVTS), a social
security institution, for review of a judgment given in 1990 by the Conseil de Prudhommes (the Labour
Tribunal), Melun, in favour of Evelyne Thibault.
2.
As is evident from the order for reference, Mrs Thibault was engaged by the CNAVTS as an agent
technique in 1973 and promoted to the position of rdacteur juridique in 1983.
Throughout 1983, Mrs Thibaults attendance at work suffered from a certain lack of continuity: she was
absent on sick leave for a total of 52 days (4 to 13 February, 3 to 16 March and 16 May to 12 June); then
she took a 16-week period of maternity leave (13 June to 1 October), followed by a six-week period of
child-care leave (3 October to 16 November) under art 46 of the Convention Collective Nationale du
Travail du Personnel des Organismes de Scurit Sociale (the national collective labour agreement for
the staff of social security institutions). Her attendance at work for the whole year was recorded as
totalling 155 days.
3.
Relying on Ch XIII of the standard service regulations for the application of the collective agreement,
which provides that employees who are present at work for at least six months in any year must be the
subject of an assessment of performance by their immediate superiors, the CNAVTS refused to draw up
an assessment for Mrs Thibault in relation to 1983.
The fact that no assessment of performance was drawn up by her superiors meant that Mrs Thibault
could not be included on the list of staff, classified according to their assessment marks, which is used
annually for the purpose of awarding advancements on merit equivalent to 2% of salary.
4.
Mrs Thibault applied to the Conseil de Prudhommes, Paris, for an order that the CNAVTS draw up an
assessment for her in relation to 1983 and award her the appropriate advancement, claiming that the lack
of such an assessment, which was not drawn up for her because she had been absent on maternity
leave, 387constituted discrimination and that she had thereby lost an opportunity of obtaining the
advancement for the year in question.
By judgment of 17 December 1985, the defendant was ordered to pay the applicant arrears for the
period from 1 January to 31 December 1984 on the ground that she had been unfairly deprived of the
advancement, since maternity leave cannot be counted as absence for the purpose of calculating the
period of six months attendance at work which entitles employees to an assessment of performance.
5.
The CNAVTS applied for review of that judgment. The Cour de Cassation set it aside on 9 February
1989 and referred the case back to the Conseil de Prudhommes, Melun, for a new judgment.
In its judgment of 24 January 1990, the Conseil de Prudhommes allowed Mrs Thibaults application,
on the grounds that art L 123-1 of the Labour Code contains a clearly anti-discriminatory provision; that
her absence on maternity leave should have been counted as actual attendance for the purpose of
calculating the period necessary to create entitlement to an assessment of performance; and that,
accordingly, the applicant had been at work for more than six months, for which reason her immediate
superiors should have given her an assessment of performance. It therefore ordered the CNAVTS to pay
her arrears of F 3,334 for 1984.
6.
In the course of the proceedings brought by the CNAVTS for review of that judgment, the Cour de
Cassation, noting that the rule contained in art L 123-1(c) of the Labour Code was the result of the
transposition into national law of Directive 76/207, stayed the proceedings and referred the following
question to the Court of Justice for a preliminary ruling:
Must Articles 1(1), 2(1), 5(1) and, if relevant, 2(4) of Council Directive 76/207/EEC of 9
February 1976 be interpreted as meaning that a woman may not be deprived of the right to an
assessment of performance, and consequently to the possibility of an advancement in career, on
the ground that she was absent from work by reason of maternity leave?
7.
Under art 45 of the collective agreement, pregnant employees who prove a certain period of service
are entitled to sixteen weeks maternity leave on full pay, which may be extended to 28 weeks in some
cases. That time is not counted in the computation of sick leave and cannot give rise to any reduction in
annual leave. Moreover, under art 46, or completing her maternity leave, a woman is entitled to take
either three months leave on half-pay or one-and-a-half months leave on full pay, and to keep her job.
8.
Article L 122-26-2 of the Labour Code provides that the period of maternity leave is to be treated as a
period of actual work when determining a workers rights by virtue of length of service. Under art L 123-
1(c) of that code, subject to the special provisions laid down therein, unless belonging to a particular sex
is a decisive condition for holding a post or exercising a professional activity, no-one may adopt any
measure on the basis of sex, in particular in relation to pay, training, post, assessment, grading,
promotion or transfer.
9.
Articles 29 to 31 of the collective agreement provide for a system of advancements which, over a
period of time, can amount to a maximum of 40% of salary. First, on expiry of the second year after taking
up appointment, employees are entitled to receive, annually, 2% of salary by way of advancement linked
exclusively to length of service.
388
Secondly, once the third year after taking up appointment has elapsed and subject to a maximum
increase of 24%, the 2% may be supplemented, on a discretionary basis, by a further 2% which is
awarded on the basis of the employees being included on the list compiled annually by reference to the
mark which the quality of the employees work and performance have been assessed as meriting by his
or her immediate superiors. The proportion of recipients of this advancement on merit may not exceed
40% of the staff in each grade.
Once 24% of salary has been reached, and subject to a maximum of 40%, increases are granted only
on the basis of length of service, at a rate of 2%pa.
10.
Chapter XIII of the service regulations implements arts 29 to 31 of the collective agreement. In
particular, with regard to the discretionary award of the 2% increase, it provides that any employee who
has been present at work for at least six months must have an assessment of performance drawn up by
his or her immediate superiors.
11.
Moreover, the supplement of 13 November 1975, appended to the collective agreement, defines the
concept of professional experience as time actually spent at work. Article 3 thereof provides that, with
effect from 1 July 1973, in addition to actual attendance, the following absences must be counted as
periods of professional experience for the purpose of classifying posts: annual leave, special short-term
leave, time spent as an elected trade-union official, and absences on certain other specified grounds,
subject to a maximum of five working days per six-month period.
Article 3bis which was added by an annex of 15 December 1983 and entered into force on 16 January
1984, provides that maternity leave must be counted as a period of professional experience in the same
way as the absences listed in art 3.
12.
Article 1 of Directive 76/207 provides as follows:
(1) The purpose of this Directive is to put into effect in the Member States the principle of equal
treatment for men and women as regards access to employment, including promotion, and to
vocational training and as regards working conditions and, on the conditions referred to in
paragraph 2, social security. This principle is hereinafter referred to as the principle of equal
treatment.
13.
Article 2 provides:
(1) For the purposes of the following provisions, the principle of equal treatment shall mean that
there shall be no discrimination whatsoever on grounds of sex either directly or indirectly by
reference in particular to marital or family status (3) This Directive shall be without prejudice to
provisions concerning the protection of women, particularly as regards pregnancy and maternity.
(4) This Directive shall be without prejudice to measures to promote equal opportunity for men and
women, in particular by removing existing inequalities which affect womens opportunities in the
areas referred to in Article 1 (1).
14.
Finally, by virtue of art 5:
(1) Application of the principle of equal treatment with regard to working conditions, including
the conditions governing dismissal, means that men and women shall be guaranteed the same
conditions without discrimination on grounds of sex. (2) To this end, Member States shall take the
measures 389 necessary to ensure that: (a) any laws, regulations and administrative provisions
contrary to the principle of equal treatment shall be abolished; (b) any provisions contrary to the
principle of equal treatment which are included in collective agreements, individual contracts of
employment, internal rules of undertakings or in rules governing the independent occupations and
professions shall be, or may be declared, null and void or may be amended
15.
Written observations were submitted, within the time limit laid down for that purpose by art 20 of the
Protocol on the EC Statute of the Court of Justice, and oral observations were put forward at the hearing,
by the French government, the United Kingdom and the European Commission.
16.
The French government states that Directive 76/207 has been transposed into national law, and
specifically into art L 123-1 of the Labour Code, that infringement of its provisions entails criminal
sanctions, and that the prohibition of discrimination contained in the directive must be observed not only
in the legislation of the member states but also in the context of collective agreements concluded by
employers and workers.
In its opinion, the courts case law, according to which both refusal to enter into a contract of
employment with, and dismissal of, a pregnant woman constitute discrimination, must also apply to the
right to be given an assessment of performance and the right to advancement in career, since those
factors form part of working conditions for the purposes of art 5 of Directive 76/207 (see the judgments in
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990]
ECR I-3941 and Webb v EMO Air Cargo (UK) Ltd Case C-32/93 [1994] 4 All ER 115, [1994] ECR I-3567).
In Mrs Thibaults case, the employer should have separated the period of maternity leave from the
period of sick leave; the latter is the only period which can be counted as absence from work for the
purpose of applying Ch XIII of the service regulations without infringing the principle of equal treatment,
since equating maternity leave with absence from work for any other reason is contrary to the courts case
law on equal treatment in so far as, in this case, it meant that an assessment of performance, the
existence of which is a necessary precondition for inclusion on the list of employees eligible to receive the
advancement on merit amounting to 2% of salary. was not drawn up for her in relation to 1983.
It adds that such discriminatory treatment arises not from the applicable provisions of laws and the
collective agreement but from the interpretation thereof by the CNAVTS, since under no circumstances is
an employer obliged to regard maternity leave as time absent from work, and those provisions must be
interpreted by the national court in such a way that they conform to the requirements of Community law.
The French government proposes that the court should reply in the affirmative to the question referred
to it by the Cour de Cassation for a preliminary ruling.
17.
The United Kingdom is of the opinion that Mrs Thibault was not the victim of discrimination on grounds
of sex, for four reasons: first, because the reason for which an assessment of performance was not drawn
up for her relates to her absence from work; second, because the situation of a woman who is absent
from work as a result of taking maternity leave cannot be compared to that of a man or woman who is
working; third, because the determination of all rights extended to women during maternity leave is a
matter for the member 390 states, without prejudice to the provisions of Council Directive (EEC) 92/85 on
the introduction of measures to encourage improvements in the safety and health at work of pregnant
workers and workers who have recently given birth or are breastfeeding (OJ 1992 L348, p 1); and, finally,
because Directive 76/207 does not confer any right to have periods of absence by reason of maternity
counted as periods of work which could give rise to entitlement to an assessment of performance.
It proposes that the court should reply to the national court that, where a workers right to have an
assessment of performance drawn up for him or her in relation to a particular period is subject to proof of
his or her attendance at work for a minimum length of time, Directive 76/207 does not require the
employer to make such an assessment in the case of a female worker who, having taken maternity leave,
was not at work for that minimum period.
18.
The Commission points out that pregnancy is a condition which can affect only women and that,
consequently, simply to treat maternity leave in the same way as sick leave even though they are two
distinct situations constitutes direct discrimination despite the fact that the criterion governing the
application of the rule, namely, absence from work for more than six months in the year in question, is
neutral. It adds that refusal to draw up an assessment of performance for a pregnant woman in the
circumstances described constitutes direct discrimination on grounds of sex, since that refusal is based
on a method of calculating periods of absence from work which adversely affects only pregnant women.
It takes the view that the question submitted for a preliminary ruling must be answered in the
affirmative.
19.
In view of the conflicting positions adopted, I will say at the outset that I disagree totally with the
opinions put forward by the United Kingdom and with the solution proposed in its written observations,
and that, conversely, I agree with most of the arguments put forward both by the French government and
by the Commission.
20.
Starting from the assumption that equality, as defined by the constitutional court of one of the member
states, is not a reality or an abstract mathematical concept, but rather unequal treatment of that which is
unequal or equal treatment of that which is similar or alike3 and taking into account the Court of Justices
consistent case law according to which discrimination can only arise through the application of different
rules to comparable situations or the application of the same rule to different situations 4, I shall now
consider whether, by simply treating maternity leave in the same way as sick leave, the contested rule in
the collective agreement, which applies to men and women alike, guarantees equal treatment because
both situations are similar, or whether, on the contrary, it introduces direct discrimination on grounds of
sex by applying the same rule to different situations since, for the purpose of calculating attendance at
work, it takes into consideration a category of leave which only women can take.
3
See Judgment No 29/1987 of the Spanish Tribunal Constitutional (Constitutional Court) of 6 March 1987; para 5 (b)
(BOE of 24 March 1987).
4
See the judgment in Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-
225 (para 30).
21.
With regard to the protection of working women who are pregnant or have recently given birth, art 2(3)
of Directive 76/207 allows member states to 391 adopt provisions which introduce different treatment. In
its judgment in Hofmann v Barmer Ersatzkasse Case 184/83 [1984] ECR 3047 (para 25) the court held
that
by reserving to Member States the right to retain, or introduce provisions which are intended to
protect women in connection with pregnancy and maternity, the directive recognizes the
legitimacy, in terms of the principle of equal treatment, of protecting a womans needs in two
respects. First, it is legitimate to ensure the protection of a womans biological condition during
pregnancy and thereafter until such time as her physiological and mental functions have returned to
normal after childbirth; secondly, it is legitimate to protect the special relationship between a woman
and her child over the period which follows pregnancy and childbirth
Maternity leave, the rules for which are set out in arts 45 and 46 of the collective agreement governing
Mrs Thibaults employment relationship, which is normally split between the weeks immediately before
and after childbirth and is restricted to women, undoubtedly falls within the scope of that derogation.
22.
On this point, I agree with Advocate General Tesauro when he states in his opinion in Habermann-
Beltermann v Arbeiterwohlfahrt, Bezirksverband Ndb./Opf-eV Case C-421/92 [1994] ECR I-1657 (para
11):
On closer inspection the provisions adopted in implementation of Article 2 (3) of the directive
cannot properly be called derogations from the principle of equality, in that they seek rather to
ensure that that principle operates in substance, by permitting such inequalities as are necessary
in order to achieve equality. In short, different treatment is allowed or imposed, in favour of and to
protect female workers, in order to arrive at material and not formal equality, since that would
constitute a denial of equality.
23.
However, this case is concerned not with national provisions for the protection of women, adopted on
the basis of art 2(3) of Directive 76/207, but with the application of the principle of equal treatment as
regards access to employment and working conditions, laid down in art 5(1) of the directive.
24.
In interpreting Directive 76/207, the court has established clear and consistent case law setting out its
views on unfavourable treatment received by a woman in the labour market because of the fact that she
is pregnant.
Thus, in Dekker [1990] ECR I-3941 (para 14), it held that an employer is in direct contravention of the
principle of equal treatment embodied in arts 2(1) and 3(1) of Directive 76/207 if he refuses to enter into a
contract of employment with a female candidate whom he considers to be suitable for the job where such
refusal is based on the possible adverse consequences for him of employing a pregnant woman, owing to
rules on unfitness for work adopted by the public authorities which assimilate inability to work on account
of pregnancy and confinement to inability to work on account of illness.
In its judgment of the same date in Handels- og Kontorfunktionaerernes Foribund i Danmark v Dansk
Arbejdsgiverforening Case C-179/88 [1990] ECR I-3979 (para 13) the court stated:
It follows from the provisions of the Directive [arts 2(1)(3) and 5(1)] that the dismissal of a
female worker on account of pregnancy constitutes 392 direct discrimination on grounds of sex, as
is a refusal to appoint a pregnant woman.
25.
A few years later, in Habermann-Beltermann [1994] ECR I-1657 (para 26) the court confirmed that
case law and held that
Article 2 (1), read in conjunction with Articles 3(1) and 5(1) of Directive 76/207/EEC, precludes
an employment contract for an indefinite period for the performance of night-time work concluded
between an employer and a pregnant employee, both of whom were unaware of the pregnancy,
from being held to be void on account of the statutory prohibition on night-time work which applies,
by virtue of national law, during pregnancy and breastfeeding, or from being avoided by the
employer on account of a mistake on his part as to the essential personal characteristics of the
woman at the time when the contract was concluded.
26.
In its judgment in Webb [1994] 4 All ER 115, [1994] ECR I-3567 (paras 2426), the court refused to
comply with the national courts request that it consider whether the situation of a woman who finds
herself incapable, by reason of pregnancy discovered very shortly after the conclusion of an employment
contract, of performing the task for which she was recruited can be compared with that of a man similarly
incapable for medical or other reasons, since pregnancy is not in any way comparable with a pathological
condition, and even less so with unavailability for work on non-medical grounds. Further on, it added that
(26) dismissal of a pregnant woman recruited for an indefinite period cannot be justified on
grounds relating to her inability to fulfil a fundamental condition of her employment contract. The
availability of an employee is necessarily, for the employer, a precondition for the proper
performance of the employment contract. However, the protection afforded by Community law to a
woman during pregnancy and after childbirth cannot be dependent on whether her presence at
work during maternity is essential to the proper functioning of the undertaking in which she is
employed. Any contrary interpretation would render ineffective the provisions of Directive 76/207.
27.
It is clear from that case law that any decision by the employer which is directly related to the sex of a
female candidate, which affects the possibilities of access to a job or modifies the working conditions
offered to her as compared with those offered to a man, constitutes direct discrimination contrary to
Directive 76/207.
28.
I have no doubt whatsoever that the rule contained in Ch XIII of the service regulations annexed to the
collective agreement, under which any employee who has recorded a minimum of six months attendance
during the year must have an assessment of performance drawn up by his or her immediate superiors, as
a necessary, though not sufficient, precondition for receiving the advancement on merit of 2% of salary,
must be regarded as a working condition for the purposes of art 5(1) of the directive.
29.
Like the Commission, I note that that rule, which requires a minimum of six months attendance at
work in order for a right to an assessment of performance to arise, lays down a neutral criterion which
applies equally to men and women and is not bound, in principle, to affect either group adversely since
393 all are likely, for example, to be absent on account of illness. However, in reality, it is obvious that that
rule is liable to operate consistently to the disadvantage of women since it allows the employer to refuse
to assess a female employee whose absence during the year under consideration was due, in large
measure, to the fact that she took maternity leave.
30.
In fact, the way in which the CNAVTS applies that rule of the collective agreement means that any
female employee who takes the full period of maternity leave within the same year will find that, however
little she has been absent on account of illness, she will not have accumulated the six months attendance
necessary in order to establish the right to an assessment of performance, and it must also be borne in
mind that art 45 of the collective agreement now provides that, in certain circumstances, maternity leave,
which normally lasts sixteen weeks, may extend to 26 or 28 weeks. It goes without saying that, in the
latter event, merely because she had had a multiple birth, the woman would have no right to have the
quality of her work and her performance in the service of her employers during the rest of the year
assessed by her immediate superiors.
31.
I take the view that the right of all employees to have their work assessed annually is an integral part
of the conditions of their contracts of employment particularly since the existence or absence of such an
assessment has very practical consequences, such as, in the former case, the possibility of inclusion on
the list of recipients of an advancement on merit of 2% of salary if the marks awarded were sufficiently
high, or, in the latter case, denial of that possibility.
In those circumstances, it seems obvious to me that treating the period of maternity leave as a period
of sick leave has a direct adverse effect on the woman who has given birth, since the risk which she runs
on that account of receiving no annual assessment of performance is much greater than that run by a
man for whom only sick leave can be counted in relation to the same period.
32.
I conclude that, by being applied equally to different situations, the rule in the collective agreement
produces discriminatory effects. Consequently, in order to achieve the equal treatment sought, it will be
necessary to treat unequally that which is, in fact, different.
33.
For that reason, since the substantive equality between men and women as regards employment
precludes any consideration, either when they take up employment or during the employment
relationship, of a factor which by definition affects only women 5, it will not be possible, when calculating
the attendance at work of a female employee in order to establish a right to an assessment of
performance, to add the period of maternity leave either to periods of sick leave or to absences justified
for any other reason.
5
See the opinions of Advocate General Darmon in Dekker [1990] ECR I-3941 (para 26) and Advocate General Tesauro in
Webb [1994] 4 All ER 115, [1994] ECR I-3567 (para 8).
34.
I must admit that, where immediate superiors are required to comment on certain aspects of an
employees performance over a particular period of time, the requirement of a minimum time of
attendance at work is logical enough and cannot be regarded as disproportionate to the result pursued,
namely, that they should have a reasonable period of time in order to be able to assess the employees
performance. However, there is nothing to suggest that that period must necessarily be six months,
without exception, and I am not convinced that it is impossible to comment if the period is shorter.
394
In any event, given that this case involves direct discrimination on grounds of sex, it is not appropriate
even to consider the existence of any justification.
35.
At the hearing, the United Kingdom argued in favour of the applicability to this case of the precedent
established by the court in its judgment in Gillespie v Northern Health and Social Services Board Case C-
342/93 [1996] All ER (EC) 284, [1996] ECR I-475 (para 17) according to which
women taking maternity leave provided for by national legislation are in a special position
which requires them to be afforded special protection, but which is not comparable either with that
of a man or with that of a woman actually at work.
It infers from that statement that Mrs Thibault, not having been at work for at least six months, is not
entitled to have an assessment of performance drawn up for her in relation to 1983 since otherwise she
would receive the same treatment as a man or woman who had been working.
36.
I disagree with that argument for two reasons. First, because the Gillespie case concerned application
of the principle that men and woman should receive equal pay for equal work, laid down by art 119 of the
EC Treaty and developed in Council Directive (EEC) 75/117 on the approximation of the laws of the
member states relating to the application of the principle of equal pay for men and women (OJ 1975 L45 p
19), and the court held that that principle does not require that women should continue to receive full pay
during maternity leave, a conclusion which appears logical in view of the fact that women on maternity
leave are not working.
However, the issue in this case is the application of the principle of equal treatment for men and
women as regards working conditions, and the court has stated, in the judgment in Gillespie [1996] All ER
(EC) 284, [1996] ECR I-475 (para 24), that Directive 76/207, as is clear from the second recital in its
preamble, does not apply to the principle of equal pay.
37.
Secondly, even if I took the view that the precedent set by Gillespie was applicable to this case, I
would still not agree with the conclusions which the United Kingdom draws from it. In fact, the court also
stated in that judgment that, since the benefit paid during maternity leave is calculated on the basis of the
average pay received by the woman while she was actually at work, the principle of non-discrimination
requires that she benefit from any pay rise, even if backdated, which is awarded between the period
covered by the reference pay and the end of maternity leave, adding that to deny such an increase to a
woman on maternity leave would discriminate against her purely in her capacity as a worker since, had
she not been pregnant, she would have received the pay rise.
In my opinion, if it were assumed that the courts judgment in Gillespie were applicable to this case, it
would serve to confirm that the act of equating maternity leave with sick leave, when calculating
attendance at work for the purpose of determining whether a woman is entitled to an assessment of
performance, is discriminatory. In fact, one could take up the courts wording and, adapting it to this case,
state that to deny a woman the right to an assessment of performance because she has been absent
from work on maternity leave would discriminate against her purely in her capacity as a worker since, had
she not been pregnant and given birth, she could not have been denied that right.
38.
For all the reasons which I have just set out, I propose that the court state in answer to the question
referred to it that art 5(1) of Directive 76/207 must be interpreted as precluding a neutrally worded national
provision contained in a 395 collective agreement, under which an employee who proves at least six
months attendance at work must be the subject of an assessment of performance by his or her
immediate superiors, but which, when applied in practice, produces direct discrimination on grounds of
sex in so far as it allows maternity leave to be counted as sick leave for the purpose of calculating the
time spent at work by a female employee.
39.
Before concluding, let me make one final point. The French government, in its observations, maintains
that the discrimination which Mrs Thibault has suffered arises neither from the relevant legislation (namely
art L 123-1 of the Labour Code which incorporates Directive 76/207 into national law) nor from the
applicable rules of the collective agreement and internal rules, but from the interpretation which the
CNAVTS has placed on those provisions.
40.
I am only partly in agreement with that view. Although those rules do not oblige the employer to count
maternity leave as absence from work for purposes of establishing the right to an assessment of
performance, they likewise do not prohibit him from so doing, thereby in fact allowing the interpretation
which the CNAVTS adopted in Mrs Thibaults case.
41.
Article 5(2)(b) of Directive 76/207 requires member states to ensure that any provisions contrary to the
principle of equal treatment which are included in, inter alia, collective agreements and internal rules of
undertakings shall be, or may be declared, null and void or may be amended. In my opinion, despite the
fact that art L 123-1 of the Labour Code has correctly transposed Directive 76/207 into national law, the
retention in the service regulations annexed to the collective agreement of the rule at issue creates for
individuals an ambiguous state of affairs by maintaining a state of uncertainty as to the possibilities
available to them of relying on Community law (see the judgment in EEC Commission v France Case
167/73 [1974] ECR 359 (para 41)).
That is clearly borne out by the fact that both Mrs Thibault, in the proceedings before the national
courts, and the French government and the Commission, both in their written observations and in the oral
observations submitted in these preliminary ruling proceedings, have had to rely, in order to show that
national law did not allow the interpretation adopted by the CNAVTS, on the one hand, on art L 122-26-2
of the Labour Code, which applies only for purposes of calculating length of service and, on the other, on
art 3bis of the agreement of 13 November 1975 appended to the collective agreement, which applies only
for the purpose of classifying posts. In any event, the latter provision did not enter into force until January
1984, that is, later than the year under consideration.
42.
In those circumstances, it is appropriate to refer to the courts case law according to which when it
interprets and applies national law, every national court must assume that the State had the intention of
fulfilling entirely the obligations arising from the directive concerned (see the judgment in Wagner Miret v
Fondo de Garanta Salarial Case C-334/92 [1993] ECR I-6911 (para 20)). Moreover, the court has also
stated that
in applying national law, whether the provisions in question were adopted before or after the
directive, the national court called upon to interpret it is required to do so, as far as possible, in the
light of the wording and the purpose of the directive in order to achieve the result pursued by the
latter and thereby comply with the third paragraph of Article 189 of the Treaty. (See the judgment in
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135
(para 8).)
396
Conclusion
43.
In the light of the foregoing considerations, I propose that the question referred for a preliminary ruling
should be answered as follows:
Article 5(1) of Council Directive (EEC) 76/207 on the application of the principle of equal
treatment for men and women as regards access to employment, vocational training and
promotion, and working conditions must be interpreted as meaning that it precludes a neutrally
worded national provision contained in a collective agreement, under which an employee who
proves at least six months attendance at work must be the subject of an assessment of
performance by his or her immediate superiors, but which, when applied in practice, produces
direct discrimination on grounds of sex in so far as it allows maternity leave to be counted as sick
leave for the purpose of calculating the time spent at work by a female employee.
30 April 1998.
Costs
34.
The costs incurred by the French and UK governments and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the proceedings pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the question referred to it by the
French Cour de Cassation by judgment of 28 March 1995, hereby rules: arts 2(3) and 5(1) of Council
Directive (EEC) 76/207 on the implementation of the principle of equal treatment for men and women as
regards access to employment, vocational training and promotion, and working conditions, preclude
national rules which deprive a woman of the right to an assessment of her performance and,
consequently, to the possibility of qualifying for promotion because she was absent from the undertaking
on account of maternity leave.
401
R v Customs and Excise Comrs, ex parte EMU Tabac SARL and others
(Imperial Tobacco intervening)
(Case C-296/95)
An English company, MBL, solicited and obtained orders for cigarettes and tobacco from private
individuals resident in the United Kingdom. MBL purchased the products from EMU, a company
established in Luxembourg, where excise rates on tobacco were generally lower, and arranged for their
importation into the United Kingdom by a private carrier in the name and on behalf of those individuals, in
return for a fee. During 1995 the Commissioners of Customs and Excise detained certain quantities of
those products when they were imported into Dover, as they were authorised to do under United Kingdom
legislation when excise duty was payable. MBL, EMU and one of MBLs directors applied for judicial
review of that detention; their application was refused and they subsequently appealed. The Court of
Appeal stayed the proceedings and referred to the Court of Justice of the European Communities for a
preliminary ruling questions concerning the interpretation of Council Directive (EEC) 92/12 on the general
arrangements for products subject to excise duty and on the holding, movement and monitoring of such
products and, in particular, art 81. Article 8 provided that where goods were held for personal use, excise
duty was payable in the member state in which they were purchased and no document was required
when they were transported to another member state, provided that the goods had been acquired by
private individuals for their own use and transported by them. The applicants contended: (i) that art 8
applied in a situation where purchase of goods chargeable to excise duty was effected through an agent
who also arranged for their transportation; and (ii) that if not, art 6 2 would have to be applied with the
result that excise duty would be payable in the country in which the goods were released for consumption,
ie Luxembourg in the instant case.
1
Article 8, so far as material, is set ou at p 419 j, post
2
Article 6, so far as material, is set ou at p 418 j to p 419 a, post
Held (1) On its true construction art 8 made no provision for the involvement of a third party and
therefore it was not applicable where the purchase and/or 402 transportation of goods subject to duty was
effected through an agent (see p 423 e f j to p 424 a, post).
(2) Although art 6 provided that duty would be chargeable at the time when goods were released for
consumption in a member state, that did not preclude excise duty from being subsequently levied in
another member state pursuant to arts 73, 94 or 105, whereupon duty paid in the first member state could
be reimbursed. The situation under consideration fell within the scope of arts 7 and 10, which provided
respectively that products already released for consumption in one member state became chargeable to
excise duty in another member state to which they were exported where they were held, in the member
state of destination, for the purposes of a trader carrying out an economic activity (art 7(2)) and where
they were dispatched by or on behalf of the vendor (art 10(2)). It followed that where goods from one
member state were carried to another member state on the instructions of a trader acting in return for
payment who had previously solicited customers in the latter state and had arranged for importation of the
goods, excise duty was chargeable in that latter state (see p 424 e to g and p 425 d to f, post).
3
Article 7, so far as material, is set ou at p 419 d to h, post
4
Article 9, so far as material, is set ou at p 420 a to e, post
5
Article 10, so far as material, is set ou at p 420 g to p 421 a, post
Cases cited
EC Commission v France Case C-30/89 [1990] ECR I-691.
Hydrotherm Gertebau GmbH v Compact del Dott Ing Mario Andreoli & C sas Case 170/93 [1984] ECR
2999.
Merck (Firma E) v Hauptzollamt Hamburg-Jonas Case 292/82 [1983] ECR 3781.
Nicolaus Corman & Fils SA v Hauptzollamt Gronau Case 64/81 [1982] ECR 13.
Wrsdorfer, ne Koschniske v Raad van Arbeid Case 9/79 [1979] ECR 2717.
Reference
By order of 31 July 1995, the Court of Appeal referred to the Court of Justice of the European
Communities for a preliminary ruling pursuant to art 177 of the EC Treaty two questions (set out at p 422
b to d, post) concerning the interpretation of Council Directive (EEC) 92/12 on the general arrangements
for products subject to excise duty and on the holding, movement and monitoring of such products, as
amended. The questions arose in proceedings between EMU Tobacco SARL, The Man in Black Ltd and
John Cunningham, a director of that company, and the Commissioners of Customs and Excise
concerning the charging of excise duty on cigarettes. Written observations were submitted on behalf of:
EMU Tabac SARL, The Man in Black Ltd and Mr Cunningham, by R Venables QC, T Lyons and A Hardy,
Barristers; Imperial Tobacco Ltd, by D Vaughan QC, and M Brealey, Barrister; the UK government, by L
Nicoll, of the Treasury Solicitors Department, acting as agent, and by S Richards and R Jay, Barristers;
the German government, by E Rder, Ministerialrat in the Federal Ministry of Economic Affairs, and B
Kloke, Oberregierungsrat in that ministry, acting as agents; the Greek government, by F Georgakopoulos,
Assistant Legal Adviser in the State Legal Service, and G Alexaki, Adviser in the Special Community
Legal Service of the Ministry of Foreign Affairs, acting as agents; the French government, by C de Salins,
Head of Sub-directorate in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and F Pascal,
Charg de Mission in 403 the same Ministry acting as agents; the Irish government, by M A Buckley,
Chief State Solicitor, acting as agent, M Collins, SC, and J Payne, Barrister-at-Law; the Italian
government, by Professor U Leanza, Head of the Contentious Diplomatic Affairs Department of the
Ministry of Foreign Affairs, acting as agent, assisted by I Braguglia, Avvocato dello Stato, acting as agent;
the Netherlands government, by A Bos, Legal Adviser at the Ministry of Foreign Affairs, acting as agent;
the Austrian government, by F Cede, Ambassador, acting as agent; the Swedish government, by E
Brattgrd, Departementsrd in the Foreign Trade Department of the Ministry of Foreign Affairs, acting as
agent; and the European Commission, by E Traversa and P Oliver, of its Legal Service, acting as agents.
Oral observations were made by: EMU Tabac SARL, The Man in Black Limited and Mr Cunningham,
represented by R Venables, T Lyons and A Hardy; Imperial Tobacco Ltd, represented by D Vaughan and
M Brealey; the UK government, represented by L Nicoll, S Richards and R Jay; the Danish government,
represented by P Biering, Legal Adviser, Head of Department at the Ministry of Foreign Affairs, acting as
agent; the Greek government, represented by F Georgakopoulos; the French government, represented
by F Pascal; the Irish government, represented by A OCaoimh, SC, and N Hyland, Barrister-at-Law; the
Italian government, represented by I Braguglia; the Netherlands government, represented by M Fierstra,
Assistant Legal Adviser at the Ministry of Foreign Affairs, acting as agent; the Finnish government,
represented by T Pynn, Legal Adviser at the Ministry of Foreign Affairs, acting as agent; the Swedish
government, represented by E Brattgrd; and the Commission, represented by E Traversa and P Oliver.
The language of the case was English. The facts are set out in the opinion of the Advocate General.
17 April 1997.
THE FACTS
4.
The appellants in the main proceedings are two companies and a natural person. The first company,
EMU Tabac Srl (the retailer) is a retailer of tobacco products in Luxembourg. The second, The Man in
Black Ltd (the agent), acts as agent for any buyers living in the United Kingdom. Mr Cunningham is a
director of the latter company.
404
5.
Both those companies are in turn subsidiaries of another company (The Enlightened Tobacco
Company). The relationship between the two subsidiaries is of a commercial nature and each has
different directors. Almost all EMU Tabac Srls sales are made in response to requests for specific
quantities of cigarettes or tobacco from private individuals living in the United Kingdom, although it also
sells to individuals living in Luxembourg.
6.
The system devised and implemented by the two companies is as follows: (a) The seller buys
cigarettes of a specified brand, under licence. (b) The seller and the agent have a commercial agreement
under which the first company has opened and maintains a credit account in the name of the second
covering all the purchases made by customers through the agent. The latter undertakes to transfer the
amount of the payments from customers directly into bank accounts in London or Luxembourg, having
furnished a guarantee to that effect. (c) The sale of the products to the customers follows a procedure
which both parties describe in the following terms:
(1) The offer to purchase products from the retailer is made by the customer. (2) The agent
shall receive and communicate that offer to the retailer in Luxembourg acting as agent for the
customer. (3) At its discretion, the retailer will accept that offer to purchase and will communicate its
acceptance to the agent (as agent of the customer) by delivering the products together with a
receipted copy of the agents offer summary document. (4) The contract for the sale and purchase
of the products will be made in Luxembourg and title in those products will pass in Luxembourg.
The contract will be subject to the law of England.
(d) The agent deals with transport of the goods for the customer, under contracts with a transport
undertaking: the contract of carriage is signed by the agent as agent for the customer. (e) Since the sales
are to individuals, no customer may buy more than 800 cigarettes per order. If more cigarettes are
requested in an order or a large number is ordered in a single month, the agent sends the customer a
printed form refusing to supply the goods, as they must be solely for personal use.
7.
According to the order for reference, what happens in practice is as follows: (a) The individual
customer obtains an order form for cigarettes, fills it in and sends it to the agent, with a cheque for the
requisite amount. (b) Once the cheque has been paid into the agents customer account in London, that
fact is notified to the agents office in Luxembourg, together with details of the customers name and
address. (c) An employee of the agent goes to the retailers office (which is in the same building) and the
latter, having accepted the offer, hands over the goods. (d) The agent then packages the goods, which
are collected by the carrier and sent to the United Kingdom where they are delivered to the customer. (e)
Finally, the agent pays the retailer and the carrier out of a current account to which has previously been
transferred from the agents account in London a sum equivalent to the price of the goods and the cost of
transport. The remainder of what has been paid by the purchaser to the agent represents the agents
commission.
14.
The directive lays down general conditions applicable to products subject to excise duty and makes
specific provision for the holding and movement of them and for the controls needed to ensure that tax
debts are discharged.
15.
Article 6 of the directive provides that, as a general rule, the duty becomes chargeable when the
goods are released for consumption7, the rates of duty in 406 force at the material time being applied in
the member state of release for consumption.
7
According to art 6, the duty also becomes chargeable when it is found that there are losses or differences which ought
to be subject to excise duty in accordance with art 14(3). In any event, release for consumption of goods subject to
excise duty is deemed to mean: (a) any departure, including irregular departure, from a suspension arrangement; (h)
any manufacture, including irregular manufacture, of the products concerned outside a suspension arrangement; (c) any
importation of those products, including irregular importation, where they have not been placed under a suspension
arrangement.
16.
Article 7 of the directive provides that, where products subject to excise duty already released for
consumption in a member state are held for commercial purposes in another member state, the excise
duty is to be levied in that other member state and the tax will be repayable by the member state from
which they came. The wording of the provision8 is as follows:
8
As amended by Council Directive (EEC) 92/108 amending Council Directive (EEC) 92/12 on the general arrangements
for products subject to excise duty and on the holding, movement and monitoring of products subject to excise duty (OJ
1992 L390 p 124).
(1) In the event of products subject to excise duty and already released for consumption in one
Member State being held for commercial purposes in another Member State, the excise duty shall
be levied in the Member State in which those products are held. (2) To that end, without prejudice
to Article 6, where products already released for consumption as defined in Article 6 in one Member
State are delivered, or intended for delivery in another Member State or used in another Member
State for the purposes of a trader carrying out an economic activity independently or for the
purposes of a body governed by public law, excise duty shall become chargeable in that other
Member State. (3) Depending on all the circumstances, the duty shall be due from the person
making the delivery or holding the products intended for delivery or from the person receiving the
products for use in a Member State other than the one where the products have already been
released for consumption, or from the relevant trader or body governed by public law. (4) The
products referred to in paragraph 1 shall move between the territories of the various Member
States under cover of an accompanying document listing the main data from the document referred
to in Article 18(1). The form and content of this document shall be established in accordance with
the procedure laid down in Article 24 of this Directive. (5) The person, trader or body referred to in
paragraph 3 must comply with the following requirements: (a) before the goods are dispatched,
make a declaration to the tax authorities of the Member State of destination and guarantee the
payment of the excise duty; (b) pay the excise duty of the Member State of destination in
accordance with the procedure paid down by that Member State; (c) consent to any check enabling
the administration of the Member State of destination to satisfy itself that the goods have actually
been received and that the excise duty to which they are liable has been paid. (6) The excise duty
paid in the first Member State referred to in paragraph 1 shall be reimbursed in accordance with
Article 22(3).
17.
Article 8 of the directive provides:
As regards products acquired by private individuals for their own use and transported by them,
the principle governing the internal market lays down 407 that excise duty shall be charged in the
Member State in which they are acquired.
18.
Article 9 of the directive lays down rules for products subject to excise duty where they are intended to
be used for commercial purposes:
(1) Without prejudice to Articles 6, 7 and 8, excise duty shall become chargeable where
products for consumption in a Member State are held for commercial purpose in another Member
State. In this case, the duty shall be due in the Member State in whose territory the products are
and shall become chargeable to the holder of the products. (2) To establish that the products
referred to in Article 8 are intended for commercial purposes Member States must take account,
inter alia, of the following: the commercial status of the holder of the products and his reasons for
holding them, the place where the products are located or, if appropriate, the mode of transport
used, any document relating to the products, the nature of the products, the quantity of the
products. For the purposes of applying the content of the fifth indent of the first subparagraph,
Member States may lay down guide levels, solely as a form of evidence. These guide levels may
not be lower than
19.
Article 10 of the directive contains specific provisions for particular kinds of transactions involving the
dispatch or transport of goods subject to excise duty:
(1) Products subject to excise duty purchased by persons who are not authorized
warehousekeepers or registered or non-registered traders and dispatched or transported directly or
indirectly by the vendor or on his behalf shall be liable to excise duty in the Member State of
destination. For the purposes of this Article, Member State of destination shall mean the Member
State of arrival of the dispatch or transport. (2) To that end, the delivery of products subject to
excise duty already released for consumption in a Member State and giving rise to the dispatch or
transport of those products to a person as referred to in paragraph 1, established in another
Member State, and which are dispatched or transported directly or indirectly by the vendor or on his
behalf shall cause excise duty to be chargeable on those products in the Member State of
destination. (3) The duty of the Member State of destination shall be chargeable to the vendor at
the time of delivery. However, Member States may adopt provisions stipulating that the excise duty
shall be payable by a tax representative, other than the consignee of the products. Such tax
representative must be established in the Member State of destination and approved by the tax
authorities of that Member State. The Member State in which the vendor is established must
ensure that he complies with the following requirements: guarantee payment of excise duty under
the conditions set by the Member State of destination prior to dispatch of the products and ensure
that the excise duty is paid following arrival of the products, keep accounts of deliveries of products.
(4) In the case referred to in paragraph 2, the excise duty paid in the first Member State shall be
reimbursed in accordance with Article 22(4).
In my opinion, a literal interpretation of the provision implies that the person who does the transporting
must be, specifically, the private individual purchaser, and not any other person. Even in the absence of
the more radical language versions, the intrinsic meaning of the term transported by them or
transported by themselves used in the remainder of the language versions refers to transport carried out
and not merely arrangedby the person concerned.
35.
It is true that one person may entrust the transport of goods to another or avail himself of the services
of an agent to do so. But such operations go beyond the limits of art 8 of the directive since the private
individual is not then transporting, as required by that article, but is arranging or contracting for the
transport or entrusting it to another person.
410
36.
Article 8 does not say products transported on the directions, or on behalf, of private individuals. Nor
does it refer to the action of dispatching, which implies using the services of a third party. However, both
forms of words are found in other provisions of the directive. (a) Thus, art 10(1) of the directive refers to
products dispatched or transported directly or indirectly by the vendor or on his behalf (my emphasis).
The same terms are used in art 10(2). They thus use legal formulae that are wider and more flexible than
that used in art 8. (b) For its part, art 9(3) provides for the hypothesis of atypical modes of transport by
private individuals or on their behalf (my emphasis). By contrast, art 8 contains no reference to the latter
possibility.
37.
It is particularly significant that art 8, unlike art 10, dispensed with the possibilityprovided for and
regulated by the latterof having the goods in question sent, that is to say forwarded or dispatched by
private individuals to their own countries: on the contrary, it lays down the imperative requirement that
they be transported by the person who acquired them.
38.
The literal wording of the provision thus refers to transport operations carried out by the private
individual and no-one else. This implies, in my view, that the private individual who buys the products
subject to duty has travelled to another country and carries them with him.
39.
The status of traveller which the private individual must possess, if not apparent from art 8, must be
inferred as a matter of logic. When art 26 of the directive laid down exceptional rules for Denmark (later
extended to Sweden and Finland in their respective Acts of Accession) it created a direct link between art
8 and specified quantitative limits enforceable against travellers who go to that country or, if they live
there, leave it.
40.
Article 26 of the directive16, as a temporary exception to the conditions laid down by art 8, allows the
member states to which the directive is addressed to apply restrictive measures to travellers who bring
into their territories products subject to excise duty acquired by them in another member state 17. All this,
as a matter of sound logic, postulates the same interpretation of art 8 as the one which I advocate,
namely that the cross-frontier traveller must have personally acquired and transported those products with
him.
16
The original wording of art 26 was as follows: (1) Without prejudice to Article 8, until 31 December 1996 and subject to a
review mechanism similar to that laid down in Article 28 (2) of Directive 77/388/EEC (OJ 1977 L 145, p.6), Denmark
shall be authorised to apply the specific arrangements laid down in paragraphs 2 and 3 for spirit drinks and
manufactured tobaccos within the general framework of the approximation of excise duty rates. (2) Denmark shall be
authorised to apply the following quantitative restrictions: private travellers entering Denmark shall benefit from the
allowance in force on 31 December 1992 for cigarettes, cigarillos or smoking tobacco and for spirit drinks, travellers
resident in Denmark and having been outside Denmark for less than the period in force on 31 December 1992 shall
benefit from the allowances in force in Denmark on 31 December 1992 for cigarettes and spirit drinks. (3) Denmark may
collect excise duties and carry out the necessary checks with respect to spirit drinks, cigarettes, cigarillos and smoking
tobacco. This article has recently been replaced, as from 1 January 1977, by the corresponding text of Council Directive
(EC) 96/99 amending Directive (EEC) 92/12 on the general arrangements for products subject to excise duty and on the
holding, movement and monitoring of such products (OJ 1997 L 8, p 12).
17
According to the new text of art 26 of the directive, in force as from 1 January 1997, Denmark and Finland are
authorised to restrict the grant of admission without payment of other duty to persons who have been absent from their
territory for more than 24 hours.
41.
It is true that art 8 likewise contains no express references to the travellers personal luggage, of
which the products purchased should form part. However, that omission does not in my view provide a
basis for arguing that transport may 411 be undertaken on behalf of the private individual. That
expression appears in art 28 of the directive only in relation to travellers who take a flight or a sea voyage
within the Community, who may be granted an exemption from duty 18. That fact has nothing to do with art
8, under which purchasers necessarily have to pay the duty applicable in the country of acquisition of the
products.
18
The member states may grant to such travellers, until 30 June 1999, exemption from excise duty on products which they
have bought at particular sales outlets in ports or airports or on board the aircraft or vessel carrying them. The
exemption applies only to products in quantities not exceeding, per person and journey, the limits laid down in the
Community provisions in force for travel between non-member countries and the Community.
42.
In any event, it must not be forgotten that art 8 of the directive, in referring to all products subject to
excise duty, allows the buyer to transport some of them for himself without necessarily including them in
his personal luggage: thus, for example, petrol which he has purchased in the country of destination and
is in his vehicles tank does not form part of his personal luggage in the strict sense, but the rule in art 8
nevertheless continues to apply. This explains why, therefore, that article did not include the requirement
that all the products referred to have to be included in travellers personal luggage.
43.
Accordingly, I agree with the position taken by all the member states which intervened in this case,
except France, and I differ from that taken by the appellants in the main proceedings, which on this point
coincides only partly with the view taken by the European Commission and the French government 19.
19
The Commission considers that art 8 may be applied even if the goods, acquired personally by the purchaser, are not
carried by him personally but by a carrier designated by him. The French government for its part considers that art 8
applies both if transport of the dutiable goods is effected by the buyer and if it is effected on his behalf (provided that the
seller does not assume responsibility for the transport operation).
(iii) The concept of products transported in art 8, in the legislative context of the directive
44.
Support for the same interpretation of the term transported by them can be drawn from other
considerations concerning the internal sense of art 8 within the legislative context of the directive.
45.
As is acknowledged in its preamble, the directive has to fulfil at the same time two imperative
requirements: on the one hand, movement from the territory of one member state to that of another may
not give rise to checks liable to impede free movement within the Community; on the other, each state
must be assured that it will collect the excise duty at the rates approved by it and in accordance with the
common rules on chargeability: accordingly the latter make it necessary to know of the movements of
products subject to excise duty.
46.
The system of excise duty in force at Community level since 1993 necessitates, in addition to
minimum rates of charge, harmonised taxation structures and common rules on the holding and
movement within the Community of the products affected. The latter may take three specific forms: (a)
Commercial movement of products under the suspension arrangement; following the abolition of frontier
controls, the principle of taxation at destination was maintained by providing for a system of detailed
information and checks in which traders, registered or otherwise, and accompanying documents play a
key role. (b) Commercial transactions involving products that have already been taxed, accounting for a
small proportion of intra-Community trade in this kind of product 20, in which the information mechanisms,
for which the economic agents 412 concerned are responsible, and control by the member states, are
also regulated in detail. (c) Cross-frontier purchases by private individuals, of the kind referred to in art 8
of the directive. By contrast with the other two systems, this one entails no obligation to provide
information since the intervention of economic agents as intermediaries is excluded.
20
This is stated in the Commissions report to the EU Council and the European Parliament of 13 September 1995
submitted in accordance with art 4 of Council Directive (EEC) 92/79 on the approximation of rates for other products
subject to excise duty (COM(95) 285 Final).
47.
Within that legislative context, the inclusion of art 8 must be interpreted in the light of the other
provisions of the directive so as not to negate the effectiveness of the remaining articles.
48.
First, art 9 of the directive, concerning products held for commercial purposes, would be rendered
largely ineffective if a system of purchase and transport of the kind at issue in the main proceedings
became general practice. Within such a system, after abolition of internal frontiers, the member states
would in practice find it hard to evaluate the combined effect of the factors mentioned in that provision to
determine whether the products were being transported on a commercial or a merely private basis. For
example, they would encounter difficulties in verifying whether or not a given private individual, using
several agents simultaneously or successively, had exceeded the levels which in principle imply that his
purchases are of a private nature.
49.
The fact that, under the system at issue in the main proceedings, the appellant undertakings refuse to
accept orders from private individuals which exceed those levels indicates their intention not to engage in
fraud, but that is not a sufficient argument to render acceptable the incitement to fraud which, objectively,
would result from generalisation of the system.
50.
Secondly, the rules on distance sales contained in art 10, observing the principle of taxation in the
country of destination and not that of purchase, would in all probability be systematically evaded in sales
between countries with widely differing tax rates, where logically there is an incentive to buy products in
the country which levies the least tax.
51.
In fact, the art 10 rules expressly mention only distance sales of products dispatched or transported
directly or indirectly by the vendor or on his behalf. For the appellants, the scope of that rule does not
extend to a mechanism such as that at issue in the main proceedings since there it is the buyers and not
the retailers who contract, through an agent, for the transport service.
52.
If that interpretation were allowed, there would be a lacuna in the directive regarding distance
purchases since, although the system used by EMU Tabac may not conform with art 10, interpreted
literally, it does not thereby cease to be, economically and legally, a distance purchase. The most
appropriate legal way of supplying that lacuna is recourse to analogy: application to the circumstances of
this case of the legal provision applicable to the most similar situation.
53.
As I see it, the legal concept closest to the distance purchasing carried out, in the comfort of their
armchairs, by UK residents is, precisely, the distance selling governed by art 10 of the directive, from
both the economic and the legal points of view.
54.
Therefore, if it is the case that the Community legislature wished to adhere to the principle of taxation
at destination for the distance sales provided for in art 10, the same principle must be deemed to apply to
the distance purchases at 413 issue in the main proceedings, with the result that distant purchasers must
pay the excise duty of the Sate in which they receive their tobacco products and not that of the state from
which they were dispatched.
55.
The principle of taxation at the point of origin (more properly, in the country of acquisition) in art 8 of
the directive does not therefore apply in such cases. Its scope is cut down to purchases made by private
individuals followed by personal transport of the products acquired, in all cases for the personal use of the
purchaser.
56.
The analogy is not invalidated by the fact that art 10 requires the transport to be carried out, directly or
indirectly, by the retailer or on his behalf. It would be sufficient, in order to side-step all the complex
obligations21 imposed by art 10 on sellers, for the latter to agree with their customers (or with their agents,
as occurs in this case) certain conditions concerning transport, perhaps even with guarantees or
assurances from the retailer.
21
The seller must guarantee payment of the excise duty under the conditions laid down by the member state of
destination before despatch of the products; it must satisfy itself that the duty is paid after the products arrive and keep
records of deliveries.
57.
Finally, I have already referred to the rules in the directive on the involvement of persons other than
the buyer in the case of dispatches from a distance of products subject to excise duty (authorised
warehousekeepers, registered or non-registered traders and tax representatives other than the
consignees of the products). The involvement of the latterwhose characteristic function coincides with
that of the agentdoes not exclude the rule of taxation at destination in the ease of distance sales. For
the reasons given earlier, that same conclusion must apply to the distance purchases at issue in the main
proceedings.
(iv) The arguments against the proposed interpretation of the term products transported
58.
The appellants have put forward a number of arguments in support of a different view from the one I
have just set out. First, they rely on the general rule that can be inferred from art 6 of the directive and on
the allusion to the principle governing the internal market mentioned in art 8 of the directive. Secondly,
they state that to interpret that article in the manner that I have just advocated would give rise to double
taxation and would render art 10 of the directive superfluous.
59.
It is true that art 6 of the directive provides that the duty becomes chargeable at the time of release for
consumption of the products. But its legal force is neither greater nor lesser than that of the remaining
articles of the directive. Specifically, it does not support any inference that the rule of taxation in the
country of acquisition is to take precedence over the rule of taxation in the country of destination in the
case of intra-Community movements of such products. Rather, an analysis of the directive points to
precisely the opposite conclusion.
60.
Of the three systems of intra-Community movement of products subject to excise duty to which I
referred earlier (namely, commercial movement of products under the suspension arrangement,
commercial transactions involving products that have already been taxed and purchases by private
individuals for their own use) the first two are subject to the rule of taxation at destination.
61.
Both when products are being moved under the suspension arrangement and when they are moved
outside that arrangement, in the context of intra-Community 414 commercial transactionssuch as, for
example, distance salesthey are subject to duty at their destination.
62.
The rule of taxation at the point of origin is therefore of much more limited scope than the appellants
claim. It applies to the purchase of goods which are not subsequently going to move between the various
member states and, under art 8 of the directive, also to products acquired by private individuals and
transported by them, not by way of trade.
63.
The directive thus sought to strike a balance between the two rules (one requiring taxation at origin
and the other taxation at destination) which cannot simply be frustrated by declaring that the first rule is to
be of general application, extending to cases outside the sphere within which the Community legislature
sought to confine it.
64.
As regards the principle governing the internal market referred to in art 8 as the reason for making the
excise duty chargeable in the country of acquisition, its importance as a means of interpretation is much
less than the appellants suggest.
65.
The internal market is characterised by the abolition between the member states of harriers to the free
movement of goods, persons, services and capital. It involves an area without internal frontiers, in which
that free movement is guaranteed in accordance with the Treaty (art 7a of the EC Treaty).
66.
However, I consider that principle to be compatible with a taxation system which in specific eases
requires excise dutyor even other taxes such as VATto be paid at the destination of the goods, not at
the point of origin, where the transactions take place within the Community. Needless to say, the opposite
approach (taxation at origin) is also perfectly compatible with the internal market and also displays the
advantages of simplicity and certainty.
67.
In reality, the obstacle to the free movement of goods, and thus to attainment of the internal market,
would arise either from the existence of other discriminatory internal taxes and charges having an effect
equivalent to import customs duties (both of which, in this case are ruled out), or from double taxation of
the products subject to excise duty. Specifically in order to obviate the latter, the directive contains
detailed provisions as to the chargeability of the duty, providing in some cases for reimbursement of duty
already paid (art 22).
68.
In the case of art 8, double taxation is avoided and the principle governing the internal market is
complied with, facilitating intra-Community movement of goods without frontier controls simply by applying
the rule of taxation at origin, albeit subject to certain requirements which I have already mentioned. I do
not consider that the essence of that principle, as a criterion for interpretation of the rule, calls for the
limits of art 8 to be extended in the way contended for by the appellants.
69.
The appellants assert, however, that the interpretation of art 8 which I advocate would, in certain
circumstances, give rise to a clear case of double taxation, since they have to pay the excise duty on the
same products first in Luxembourg, when buying them, and then in the United Kingdom when receiving
them.
70.
I cannot accept that argument. The scheme of the directive is based on the principle of a single
payment of duty, to such an extent that a whole section (Title IV) is devoted specifically to reimbursement
of sums already paid, in cases of intra-Community trade, in order to avoid double payment of tax on the
same products.
71.
Article 22(1) of the directive provides:
415
In appropriate cases, products subject to excise duty which have been released for
consumption may, at the request of a trader in the course of his business, be eligible for
reimbursement of excise duty by the tax authorities of the Member State where they were released
for consumption when they are not intended for consumption in that Member State.
And paras 3 and 4 of that article deal more particularly with the conditions for reimbursement in the cases
referred to in arts 7 and 10.
72.
In my opinion, those legislative provisions are sufficient to avoid double taxation of the same products,
since the reimbursement procedure would apply to the appellants case, with the result that they would be
required to pay only the duty chargeable in the United Kingdom.
73.
Even if it is conceded that the directive contains a legal lacuna concerning distance purchases of the
kind at issue in the main proceedings, regarding which, in theory, the retailer takes neither direct nor
indirect responsibility for transport, recourse to analogy, as a means of fleshing out the legal order, would
enable the principle of reimbursement of duty already paid at origin to be applied to such circumstances,
since only the duty chargeable in the country of destination would be reimbursed.
74.
Finally, the parties argument that art 10 of the directive would become pointless if art 8 were
interpreted in the manner that I advocate, also seems to me to be unfounded.
75.
In my opinion, art 10 is useful not only in order to confirm the rule that distance sales should be
taxable at destination but also to determine the obligations of the retailer and thereby facilitate monitoring
of the exaction of duty in the relevant member state.
76.
The appellants are in part right to state that, if art 8 is interpreted as I propose, art 10 adds nothing of
substance to determination of the country which is to levy the duty. Indeed, whilst the rule in art 8
(taxation at origin) is limited to goods bought by private individuals and transported by them, distance
sales, a sensu contrario, do not follow the same rule. And that is precisely what art 10 provides.
77.
That conclusion does not mean, however, that art 10 is superfluous or redundant. The express
provision for distance sales, as an economic phenomenon particularly suited to some products subject to
excise duty, and the need to add detail to the applicable legal rules, are sufficient reasons for the
Community legislature to have chosen to include that article in the directive.
78.
In short, I consider that the answer to the first preliminary question must uphold the chargeability of
excise duty in the member state of destination in the circumstances outlined by the national court.
CONCLUSION
90.
In view of the foregoing, I propose that the Court of Justice reply as follows to the questions referred to
it by the Court of Appeal:
(1) Council Directive (EEC) 92/12 on the general arrangements for products subject to excise
duty and on the holding, movement and monitoring of such products, and in particular art 5 thereof,
does not preclude the charging of such duty on goods in a member state A in circumstances where:
(a) a private individual resident in state A acquires those goods for his own use; (b) the purchase is
made in state B, from which the goods are transported to state A; both operations involve an agent
who acts in the name or on behalf of the private individual and arranges for transport of the
products; (d) the individual does not himself travel with the goods from member state B to member
state A.
(2) The same conclusion applies where purchases displaying the same characteristics take
place under a scheme commercially devised and adopted for commercial purposes by one or more
economic agents.
2 April 1998.
Costs
54.
The costs incurred by the United Kingdom, Austrian, Danish, Finnish, French, German, Greek, Irish,
Italian, Netherlands and Swedish governments and by the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the proceedings pending before the national court, the decision on costs
is a matter for that court.
On those grounds, The Court of Justice in answer to the questions referred to it by the Court of Appeal
by order of 31 July 1995, hereby rules: Council Directive (EEC) 92/12 on the general arrangements for
products subject to excise duty and on the holding, movement and monitoring of such products, as
amended by Council Directive (EEC) 92/108, must be interpreted as not precluding the levying of excise
duty in member state A on goods released for consumption in member state B, where the goods were
acquired from a company, X, for the use of private individuals in member state A, through a company, Y,
acting in return for payment as agent for those by a professional carrier charging for his services.
425
The justification for a preliminary reference is not that it enables advisory opinions on general or
hypothetical questions to be delivered but rather that it is necessary for the effective resolution of a
dispute (see p 432 h, post).
Foglia v Novello Case 244/80 [1981] ECR 3045 and Zabala Erasun v Instituto Nacional de Empleo
Joined cases C-422424/93 [1995] All ER (EC) 758 applied.
Notes
For the scope of the reference procedure, see 51 Halsburys Laws (4th edn) paras 21812184
For the EC Treaty, art 177 (as amended by art G.56 of the Treaty on European Union), see 50
Halsburys Statutes (4th edn) Current Service 98.
Cases cited
Amministrazione delle Finanze dello Stato v Simmenthal SpA Case 106/77 [1978] ECR 629.
Chanel SA v Cepeha Handelsmaatschappij NV Case 31/68 [1970] ECR 403.
Dzodzi v Belgium Joined cases C-297/88 and C-197/89 [1990] ECR I-3763.
Foglia v Novello Case 244/80 [1981] ECR 3045.
Gmurzynska-Bscher v Oberfinanzdirektion Kln Case C-231/89 [1990] ECR I-4003.
Krid v Caisse Nationale dAssurance Viellesse des Travailleurs Salaris CNAVTS Case C-103/94 [1995]
ECR I-719.
Office national de lemploi (Onem) v Kziber Case C-18/90 [1991] ECR I-199.
Pardini (Fratelli) SpA v Ministero del commercio con lestero Case 338/85 [1988] ECR 2041.
Politi SAS v Italian Ministry of Finance Case 43/71 [1971] ECR 1039.
Yousfi v Belgium Case C-58/93 [1994] ECR I-1353.
Zabala Erasun v Instituto Nacional de Empleo Joined cases C-422424/93 [1995] All ER (EC) 758, [1995]
ECR I-1567, ECJ.
Reference
By judgment of 28 May 1996, the Tribunal des Affaires de Scurit Sociale, Evry (France), referred to the
Court of Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty a
question (set out at p 432 h, post) on the interpretation of art 39(1) of the Cooperation Agreement
between the EEC and the Peoples Democratic Republic of Algeria, signed in Algiers on 26 426April 1976
and approved on behalf of the Community by Council Regulation (EEC) 2210/78. That question was
raised in proceedings between Mrs Djabali, an Algerian national, and the Caisse dAllocations Familiales
de lEssonne concerning the award of a disabled adults allowance. Written observations were submitted:
by Mrs Djabali; on behalf of the French government, by C de Salins, Deputy Director of the Legal Affairs
Directorate of the Ministry of Foreign Affairs, and C Chavance, Secretary of Foreign Affairs in the same
directorate, acting as agents; and on behalf of the European Commission, by J Forman, Legal Adviser,
and M Patakia, of its Legal Service, acting as agents. Oral observations were made by the French
government and the Commission. The language of the case was French. The facts are set out in the
opinion of the Advocate General.
15 May 1997.
427
20.
Community law does not of course preclude the national court from withdrawing the reference (see the
judgment in Zabala Erasun v Instituto Nacional de Empleo Joined cases C-422424/93 [1995] All ER
(EC) 758, [1995] ECR I-1567). The question which arises is whether, if the national court does not do so
(for example, as is apparently the case here, because it is unable as a matter of national procedure to do
so), the court should none the less strike the case off its register on the ground that a decision can no
longer be necessary.
429
21.
It may, it is true, be dangerous for the court to strike out the case without further contact with the
national court. The Court of Justice will not necessarily be in a position to determine conclusively, on the
basis of the information provided by the parties, that there is no need for the national court to continue
with the case: that court may conceivably need to continue for some reason which is not apparent from
this courts file. Similarly, it would clearly not be appropriate for the Court of Justice to accept the assertion
of one party alone that a settlement has been reached. If, however, the national court and the parties
were to be given the opportunity specifically to address the point, the Court of Justice could then properly
strike the case off its register in the absence of any reply.
22.
Serious problems could arise for the Court of Justice if it continued with the reference. For example, if
the litigation giving rise to the reference were settled at an early stage, some or all parties might not
submit observations; it might accordingly be difficult for the Court of Justice to give a ruling. Furthermore,
if there were several questions, or if the issues raised were complex, it would surely be disproportionate
for the Court of Justice to be required to answer questions which were no longer material to the resolution
of the dispute which had given rise to them.
23.
A solution which might be applied in cases where this problem arises is for the registry not merely to
ask the national court whether it intends to maintain its request, but to ask the national court and the
parties whether there are any grounds for considering that a decision on a question is still necessary to
enable it to give judgment. If no such reasons were provided, then the case could be struck off on this
courts motion.
24.
That solution would be consistent with the principle developed by the court that the justification for a
preliminary reference, and hence for the jurisdiction of the court, is not that it enables advisory opinions
on general or hypothetical questions to be delivered, but rather that it is necessary for the effective
resolution of a dispute (see the judgments in Foglia v Novello Case 244/80 [1981] ECR 3045 (para 19)
and Zabala Erasun [1995] All ER (EC) 758, [1995] ECR I-1567 (para 29)).
Conclusion
29.
If, following further contact with the national court and the parties and in the light of the responses
given to the court, it transpires that the dispute which gave rise to the reference has indeed been settled
and that there are no grounds for considering that a decision on the question referred is still necessary to
enable the national court to give judgment, I consider that the court should either rule that it has no
jurisdiction to give a preliminary ruling on the question referred or strike the case off the register of its own
motion.
30.
If a ruling proves still to be required, I consider that the question referred by the Tribunal des Affaires
de Scurit Sociale dEvry should be answered as follows:
Article 39(1) of the Cooperation Agreement between the EEC and the Peoples Democratic
Republic of Algeria, signed in Algiers on 26 April 1976 and approved on behalf of the Community by
Council Regulation (EEC) 2210/78, precludes a member state from refusing to grant a benefit such
as the disabled adults allowance, which is provided for under its legislation for its own nationals, to
the wife of an Algerian who is or has been employed in the member state concerned and with
whom she resides in that member state, on the ground that she is of Algerian nationality.
12 March 1998.
Costs
24.
The costs incurred by the French government and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the action pending before the national court, the decision on
costs is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the question referred to it by the
Tribunal des Affaires de Scurit Sociale dEvry by judgment of 28 May 1996, hereby rules: there is no
need to reply to the question referred.
433
The plaintiff company applied to the Vienna City Council to register as a motor vehicle service station
under the relevant domestic provisions. The city council found that the statutory prerequisites for the
exercise of that trade, which, inter alia, stipulated that the manager should be resident in Austria, had not
been fulfilled and refused the registration. Thereafter, the plaintiff brought proceedings before the
Verwaltungsgerichtshof, contending that its manager, although resident in Berlin, was entitled, as an
employee in its service and therefore as a worker, to enjoy the right to freedom of movement established
by art 481 of the EC Treaty. The court stayed the proceedings and referred to the Court of Justice of the
European Communities for a preliminary ruling the questions: (i) whether the rule of equal treatment in the
context of freedom of movement for workers set out in art 48 could be relied on by an employer in order to
employ, in the member state in which it was established, workers who were nationals of another member
state; and (ii) whether art 48 precluded a member state from providing that an undertaking exercising a
trade on its territory could not appoint as manager a person not resident there. The city council contended
that the residence requirement was justified on the grounds that it was intended to ensure that the
manager could be served with notice of fines which could be enforced against him and that he was in a
position to act effectively in the business.
1
Article 48, so far as material, provides: (2) freedom of movement shall entail the abolition of any discrimination based
on nationality between workers of the Member States as regards employment, remuneration and other conditions of
work and employment.
Held (1) The right of workers to be engaged and employed without discrimination necessarily entailed
as a corollary the employers entitlement to engage them in accordance with the rules governing freedom
of movement for workers. It followed that the rule of equal treatment in the context of free movement of
workers set out in art 48 could be relied on by an employer to employ, in the member state in which it was
established, workers who were nationals of other members states (see p 449 d j and p 451 j, post).
(2) A requirement that nationals of other member states reside in the state concerned in order to be
appointed managers of undertakings exercising a trade constituted indirect discrimination based on
nationality contrary to art 48(2). 434Accordingly, art 48 precluded a member state from providing that an
employer could not employ as a manager a person not resident in that state, unless the imposition of
such a requirement was based on objective considerations independent of the nationality of the
employees concerned and proportionate to a legitimate aim pursued by the national law. In the instant
case, although the national rules had a legitimate aim, that aim could be achieved with less restrictive
measures with the result that the residence requirement went beyond what was necessary for that
purpose. Furthermore, the residence requirement could not be justified on grounds of public policy within
the meaning of art 48(3) and was therefore precluded by art 48 (see p 450 d to h and p 541 c g j, post);
Schning- Kougebetopoulou v Freie und Hansestadt Hamburg Case C-15/96 [1998] All ER (EC) 97 and
R v Bouchereau Case 30/77 [1981] 2 All ER 924 applied.
Notes
For equal treatment in the context of the material scope of a workers right to free movement, see 52
Halsburys Laws (4th edn) para 1513.
For the EC Treaty, art 48, see 50 Halsburys Statutes (4th edn) 283.
Cases cited
Algemene Transport (NV)en Expeditie Ondememing van Gend & Loos v Nederlandse
Belastingadministratie Case 26/62 [1963] ECR 1.
Asscher v Staatssecretaris van Financin Case C-107/94 [1996] All ER (EC) 757, [1996] ECR I-3089,
ECJ.
Bachmann v Belgium Case C-204/90 [1994] STC 855, [1992] ECR I-249, ECJ.
Cowan v Trsor public Case 186/87 [1989] ECR 195.
EC Commission v Luxembourg Case C-351/90 [1992] ECR I-3945.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Futura Participations SA v Administration des Contributions Case C-250/95 [1997] ECR I-2471.
GB-INNO-BM v Confdration du Commerce Luxembourgeois Case C-362/88 [1990] ECR I-667.
Hfner v Macrotron GmbH Case C-41/90 [1991] ECR I-1979.
Lawrie-Blum v Land Baden-Wrttemberg Case 66/85 [1986] ECR 2121.
Levin v Staatssecretaris van Justitie Case 53/81 [1982] ECR 1035.
Luisi v Ministero del Tesoro Joined cases 286/82 and 26/83 [1984] ECR 377.
Merci Convenzionali Porto de Genova SpA v Siderurgica Gabrielli SpA Case C-179/90 [1991] ECR I-
5889.
Merino Garca v Bundesanstalt fr Arbeit Case C-266/95 [1997] ECR I-3279.
Peskelogou v Bundesanstalt fr Arbeit Case 77/82 [1983] ECR 1085.
R v Bouchereau Case 30/77 [1981] 2 All ER 924, [1978] QB 732, [1978] 2 WLR 250, [1977] ECR 1999,
ECJ.
R v Ministry of Agriculture, Fisheries and Food, ex p Agegate Ltd Case C-3/87 [1991] 1 All ER 6, [1990] 2
QB 151, [1990] 3 WLR 226, [1989] ECR I-4459, ECJ.
Ramrath v Ministre de la Justice Case C-106/91 [1992] ECR I-3351.
Rewe-Zentral AG v Bundesmonopolverwaltung fr Branntwein Case 120/78 [1979] ECR 649.
Rush Portuguesa Lda v Office national dimmigration Case C-113/89 [1990] ECR I-1417.
Scholz v Opera Universitaria di Cagliari Case C-419/92 [1994] ECR I-505.
Schning-Kougebetopoulou v Freie und Hansestadt Hamburg Case C-15/96 [1998] All ER (EC) 97, ECJ.
435
Stoeckl (Criminal proceedings against) Case C-345/89 [1991] ECR I-4047.
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER
(EC) 97, [1995] ECR I-4921, ECJ.
van Binsbergen v Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid Case 33/74 [1974] ECR
1299.
Van Duyn v Home Office (No 2) Case 41/74 [1975] 3 All ER 190, [1974] ECR 1337, ECJ.
Walrave v Union Cycliste Internationale Case 36/74 [1974] ECR 1405.
Wielockx v Inspecteur der Directe Belastingen Case C-80/94 [1995] All ER (EC) 769, [1995] ECR I-2493,
ECJ.
Reference
By order of 8 October 1996, the Verwaltungsgerichtshof (the Administrative Court) referred to the Court of
Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty two
questions (set out at p 448 f, post) on the interpretation of art 48 of that treaty and arts 1 to 3 of Council
Regulation (EEC) 1612/68 on freedom of movement for workers within the Community. Those questions
were raised in proceedings brought by Fortress Immobilien Entwicklungs GesmbH, now Clean Car
Autoservice GesmbH, an Austrian company established in Vienna, against the Landeshauptmann von
Wien (the Prime Minister of the Land of Vienna), concerning the rejection of an application by Clean Car
to register for a trade on the ground that it had appointed as manager a person who did not reside in
Austria. Written observations were submitted on behalf of: Clean Car, by C Kerres, Rechtsanwalt, Vienna;
the Landeshauptmann von Wien, by E Hechtner, Senatsrat am Amt der Wiener Landesregierung; the
Austrian government, by F Cede, Ambassador, Federal Ministry of Foreign Affairs, acting as agent; and
the European Commission, by P Hillenkamp and P J Kuijper, Legal Advisers, acting as agents. Oral
observations were submitted by the Commission. The language of the case was German. The facts are
set out in the opinion of the Advocate General.
4 December 1997.
I INTRODUCTION
1.
This case concerns Austrian rules requiring managers of certain businesses to reside in Austria. It
raises the preliminary question of the entitlement of employers to invoke in national proceedings the
Community-law rights of workers (inter alios, the manager), as well as an issue of indirect discrimination,
and of its possible justification by reference to the need to ensure the effective notification and execution
of administrative sanctions.
III QUESTIONS
9.
In order to be able to give judgment in the case, the national court considered it necessary to refer the
following questions for a preliminary ruling pursuant to art 177 of the Treaty:
(1) Are Article 48 of the EC Treaty and Articles 1 and 3 of Council Regulation (EEC) 1612/68 on
freedom of movement for workers within the Community (OJ S edn, First Series 1968 (II) p 475) to
be interpreted as meaning that employers in the host state also derive therefrom the right to employ
workers who are nationals of another Member State without being bound by conditions which
even if they do not depend on nationalityare typically linked with nationality?
(2) If employers of the host state have the right stated in Question 1: Are Article 48 of the EC
Treaty and Articles 1 and 3 of Regulation 1612/68 to be interpreted as meaning that a provision
such as Paragraph 39(2) of the Gewerbeordnung 1994, under which the owner of a trade may
appoint as a manager for trade law purposes only a person whose residence is in the host state
(Austria), is consistent therewith?
10.
The national court indicated that the first question essentially relates to the possibility of an employer
relying upon provisions which are couched in terms of workers rights. It also suggested that account be
taken, in answering the second question, of the fact that the manager is responsible to the authorities for
the observance of the provisions of Austrian trade law.
IV OBSERVATIONS
11 Written observations were submitted by Clean Car, the Landeshauptmann von Wien, the Republic
of Austria and the European Commission. Oral observations were submitted by the Commission.
12.
Clean Car argues that an interpretation of art 48 of the EC Treaty and of arts 1 and 3 of Regulation
1612/68, which did not grant employers the right to engage workers without their having to comply with
conditions which are typically connected with having the nationality of a particular state would undermine
the right of free movement. The potential derogations provided for in art 48(3) of the Treaty should be
interpreted restrictively and are not relevant to the present case (see the judgment in Van Duyn v Home
Office (No 2) Case 41/74 [1975] 3 All ER 190, [1974] ECR 1337). In particular, the public policy
justification would be applicable only if a worker from another member state were engaged in work which
was itself contrary to public policy. Clean Car adds that the requirement that a manager be in a position to
act effectively in a business could, in certain locations, be more easily satisfied by a frontier worker
resident in a contiguous part of Germany than by a person residing in a distant part of Austria.
13.
The Landeshauptmann von Wien accepts that employers may derive rights from art 48 of the Treaty
and from arts 1 and 3 of Regulation 1612/68, but maintains that the restriction at issue in the present case
is justified by reference to 438 considerations of general interest. He emphasises that a manager is
responsible to the Austrian authorities, on behalf of the owner of the business, for the observance of all
applicable legal provisions, and is liable to administrative sanctions for any breach thereof. He must
therefore reside where such sanctions can be notified to him and, if necessary, executed. The amended
version of para 39(2) of the GewO, applicable from 1 July 1996 (but not to the facts of this case), provides
that the manager must live in Austria, in so far as the notification and execution of any sanctions imposed
is not guaranteed pursuant to an international agreement. The Landeshauptmann von Wien compares
para 39(2) of the GewO with art 38(2) of the Rules of Procedure of the court, which requires that
applications to the court state an address for service in the place where the court has its seat and the
name of the person who is authorised and has expressed willingness to accept service. The function of
manager, moreover, is not limited to accepting service of administrative or other documents, but extends
to personal responsibility for the conduct of the business.
14.
The Austrian government submits, by reference to the case law of the court, that an employer does
not, as such, fall within the personal scope of application of art 48 of the Treaty (see the judgments in
Levin v Staatssecretaris van Justitie Case 53/81 [1982] ECR 1035 (para 9), Lawrie-Blum v Land Baden-
Wrttemberg Case 66/85 [1986] ECR 2121 (paras 16ff) and Asscher v Staatssecretaris van Financin
Case C-107/94 [1996] All ER (EC) 757, [1996] ECR I-3089 (para 25)). This entails a negative answer to
the first question, thereby removing any need to answer the second.
15.
In the alternative, the Austrian government argues that the material provisions of para 39(2) of the
GewO are justified by reference to considerations of the general interest (see the judgments in
Bachmann v Belgium Case C-204/90 [1994] STC 855, [1992] ECR I-249, Ramrath v Ministre de la
Justice Case C-106/91 [1992] ECR I-3351 (paras 29ff) and Finanzamt Kln-Altstadt v Schumacker Case
C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225). Service of notice of sanctions and their execution in
other member states of the European Union are possible only in very limited circumstances, other than
pursuant to bilateral accords. In these circumstances, consideration of arts 1 and 3 of Regulation 1612/68
is superfluous, as they merely implement art 48 of the Treaty.
16.
The Commission states that art 48 of the Treaty and Regulation 1612/68 grant rights to employees,
not employers. It, therefore, seeks to establish whether Mr Henssen is a worker within the meaning of
those provisions, as defined in the courts judgment in Lawrie-Blum [1986] ECR 2121. In that case, the
court stated that an employment relationship is defined in accordance with objective criteria by reference
to the rights and duties of the persons concerned, and that its essential feature is that for a certain period
of time a person performs services for and under the direction of another person in return for
remuneration (see [1986] ECR 2121 (para 17)). As the manager of a business is subject to the board of
the company and to the general meeting of the shareholders, who appoint him to perform certain
administrative tasks on their behalf and at their direction, and as he probably has a contract of
employment with the company, and as he cannot be deemed, in the case of a limited company, to be an
independent service provider within the meaning of art 52 unless he owns all the shares in the company,
the Commission concludes that a manager in circumstances such as those of the present proceedings is
a worker within the meaning of art 48 of the Treaty.
17.
The Commission adds that the principal effect of the residence rule in para 39(2) of the GewO is to
exclude non-Austrians. Furthermore, it prevents businesses from appointing managers responsible for
their activities in more than 439 one member state. The Commission submits, furthermore, that art 48(3)
of the Treaty is not applicable in the present case. While it is possible to justify national rules which are
not directly discriminatory by reference to considerations of the general interest, and there is a general
interest in securing the effective service and execution of administrative sanctions in the case of non-
compliance by a business with the applicable law, the Commission submits that the Austrian rules are
disproportionately restrictive of the freedom guaranteed by art 48 of the Treaty (see the judgments in
Bachmann [1994] STC 855, [1992] ECR I-249 (paras 21ff) and EC Commission v Luxembourg Case C-
351/90 [1992] ECR I-3945 (paras 19ff)). It would be sufficient to oblige the manager to have a
professional address in Austria, which could be that of the company itself where it is established in
Austria, or to require the company to furnish, by agreement with the authorities, a suitable guarantee
regarding possible future administrative sanctions.
V ANALYSIS
Question 1
18.
The national court has not raised a question regarding whether Mr Henssen is a worker within the
meaning of Community law. In fact, it refers to a manager as an employee in its order for reference, a
view which implicitly underlies both the first and the second questions. The court has indicated that
employees are to be treated as workers for the purposes of Community law (see the judgment in Lawrie-
Blum [1986] ECR 2121 (para 17)). It is also well established that art 48 of the Treaty gives rise to rights
which are directly effective before national courts (see eg the judgment in Walrave v Union Cycliste
Internationale Case 36/74 [1974] ECR 1405). The issue raised by the first question is whether an
employer, rather than an employee, can invoke before national courts rights deriving from art 48 of the
Treaty and arts 1 and 3 of the regulation. Since the latter provisions merely clarify and give effect to the
rights already conferred by Article 48, the answer to the first question must be sought in that article (see
the judgment in Scholz v Opera Universitaria di Cagliari Case C-419/92 [1994] ECR I-505 (para 6)).
19.
Austria has argued that employers do not fall within the personal scope of application of art 48 of the
Treaty. The cases which it cites2 establish the definition of a worker and of the employment relationship on
which that status depends, and state that the rights of freedom of movement are linked to that status
(see esp the judgment in Levin Case 53/81 [1982] ECR 1035 (para 9)). However, those decisions do not
address, nor do they exclude, either expressly or by implication, the extension of the benefit of
Community-law provisions on freedom of movement of workers to persons other than workers who, none
the less, have a material connection with a person who has that status. Nor can any such inference be
drawn from the texts of the relevant Treaty and legislative provisions. For example, art 49 of the Treaty is
the legal basis for the regulation, including its provisions on rights relating to the residence, housing,
employment and education of members of workers families, irrespective of their nationality.
2
See the judgments in Levin v Staatssecretaris van Justitie Case 53/81 [1982] ECR 1035, Lawrie-Blum [1986] ECR 2121
and Asscher [1996] All ER (EC) 757, [1996] ECR I-3089.
20.
Article 48(3) of the Treaty is couched in terms of rights which are, of their nature, attributed to workers:
to accept offers of employment, to move freely for this purpose, and to stay in a member state for the
purpose of employment. Article 1 of the regulation, similarly, speaks of the right of any member state
national, 440irrespective of his place of residence, to take up and pursue activity as an employed person
in another member state, with the same priority as its own nationals. Article 48(1) and (2), on the other
hand, does not expressly identify any particular beneficiary of freedom of movement of workers, which
shall be secured in the Community by the end of the transitional period at the latest, and which shall
entail the abolition of any discrimination based on nationality between workers of the Member States as
regards employment, remuneration and other conditions of work and employment. In the same vein, art 3
of the regulation simply states that national legal, regulatory or administrative provisions or administrative
practices shall not apply where they limit application for, offers of, or the taking up and pursuit of
employment, or subject these to conditions not applicable in respect of their own nationals or which,
though applicable irrespective of nationality, have as their exclusive or principal aim or effect to keep
nationals of other member states away from the employment offered.
21.
It would add greatly to the effectiveness of these rights and prohibitions if they could also be invoked
by economic actors other than workers, whose freedom of access to workers from member states other
than their own is restricted. For example, the right of workers under art 48(3) of the Treaty to accept offers
of employment actually made, could be set at nought if employers were not free to challenge national
restrictions on the making of such offers. It must also be borne in mind that, while freedom of movement
of workers may be conceived of, in part, in terms of workers personal rights, and is strengthened by their
efforts to secure such rights, inter alia before national courts, it ultimately serves an objective of general
interest, provided for in art 3(c) of the Treaty: the establishment of an internal market characterised by the
abolition, as between member states, of obstacles to the free movement of persons.
22.
The court has already directly addressed the entitlement of employers to invoke what are normally
characterised as workers rights in R v Ministry of Agriculture, Fisheries and Food, ex p Agegate Ltd Case
C-3/87 [1991] 1 All ER 6, [1989] ECR I-4459. That case concerned the interpretation of arts 55 and 56 of
the Act of Accession (1985) (EC 27 (1985); Cmnd 9634; OJ 985 L302 p 1) (Spain and Portugal), on
freedom of movement of workers. The court was asked if provisions of Community law precluded the
laying down in UK law of conditions regarding the nationality, residence and social security contributions
of crew members for the grant of fishing licences which excluded most Spanish nationals, and whether
such provisions could be relied upon in national courts by the owner of a fishing vessel with a partly
Spanish crew. The court stated that the concept of worker in art 55 of the Act of Accession was identical
to that in art 48 of the Treaty and that the crew members were not ineligible to be treated as workers by
reason of the manner in which they were paid (see [1991] 1 All ER 6, [1989] ECR I-4459 (para 34)). The
court ruled, furthermore, that the derogation in art 56(1) of the Act of Accession from the immediate
application of art 48 of the Treaty as between Spain and the existing member states must be interpreted
restrictively (see para 39)3. In particular, it could not be interpreted as permitting the introduction of new
restrictions, such as some of the conditions in the United Kingdom law at issue (see the judgment in R v
Ministry of Agriculture, Fisheries and Food, ex p Agegate Ltd Case C-3/87 [1991] 1 All ER 6, [1989] ECR
I-4459 (para 40)).
3
See also Peskelogou v Bundesanstalt fr Arbeit Case 77/82 [1983] ECR 1085.
In response to the question of the entitlement of the shipowner and employer to invoke these
provisions, the court responded simply that all of the provisions in 441 question had direct effect and that
they could, consequently, be relied upon by individuals before a national court (see [1991] 1 All ER 6,
[1989] ECR I-4459 (para 42)).
23.
In Merci Convenzionali Porto de Genova SpA v Siderurgica Gabrielli SpA Case C-179/90 [1991] ECR
I-5889 (para 23 and operative part), the court found that, even within the framework of art 90, the
provisions of art 48 have direct effect and give rise for interested parties to rights which the national courts
must protect. In that case, the interested party was an importer who complained of the fact that its own
ships crew was not permitted to unload a cargo at the port of Genoa because such dock work was
reserved to an undertaking whose workers were required to be of Italian nationality. Furthermore, in the
field of sexual equality in the workplace, which is probably also conceived of primarily in terms of workers
rights, the court implicitly accepted in Criminal proceedings against Stoeckl Case C-345/89 [1991] ECR I-
4047 the right of an employer to invoke, in his defence to a prosecution under national labour rules
prohibiting nightwork, the directly effective provisions of Council Directive (EEC) 76/207 on the
implementation of the principle of equal treatment for men and women as regards access to employment,
vocational training and promotion, and working conditions (OJ 1976 L39 p 40).
24.
The extension to employers and other interested parties of the right to invoke Community-law
provisions on freedom of movement of workers is also consistent with the case law of the court regarding
the personal scope of other internal market freedoms. In Luisi v Ministero del Tesoro Joined cases 286/82
and 26/83 [1984] ECR 377 (paras 10, 16) and in Cowan v Trsor public Case 186/87 [1989] ECR 195
(para 15) the court found that the Treaty provisions on services, which speak only of the freedom to
provide services, can also be relied upon by the recipients of services, because this is a necessary
corollary thereof (see Luisi [1984] ECR 377 (para 10)); and had in fact been expressly envisaged from the
outset (see [1984] ECR 377 (paras 1214). Indeed, in Bachmann [1994] STC 855, [1992] ECR I-249
(para 31), the court held, in a case brought by a recipient of insurance services, that the impugned
provisions of Belgian tax law constituted a restriction on insurers freedom to provide services. It is worth
noting that art 59, like art 48(1) and (2), is couched, not in terms of the rights of any particular class of
persons, but in terms of the abolition of restrictions. A broad definition of the persons who derive rights
from the provisions of the Treaty on fundamental economic freedoms is not, therefore, inconsistent with
the relevant texts. It reflects the courts statement in NV Algemene Transporten Expeditie Ondememing
van Gend & Loos v Nederlandse Belastingadministratie Case 26/62 [1963] ECR 1 at 12 that the
functioning of the common market, which it is the objective of the Treaty to establish, is of direct concern
to interested parties in the Community. Thus, interested individuals could derive directly enforceable rights
even from a Treaty provision expressed in terms of a prohibition, and their vigilance could amount to an
effective supervision of the implementation of Community law in addition to that arising under arts 169
and 170 of the Treaty (see [1963] ECR 1 at 13).
25.
It would be strange if consumers had a directly effective Community-law right to travel to other
member states to avail of tourist or other services, or to shop for goods, but employers did not have an
equivalent right to travel to recruit workers in another member state (see the judgment in GB-INNO-BM v
Confdration du Commerce Luxembourgeois Case C-362/88 [1990] ECR I-667 (para 8)). It would also
be illogical if an employer could not complain of discriminatory limitations of his ability to hire workers
abroad, whereas a recruiting agency which he hired to do 442 so could complain before the national
courts about such restrictions on its freedom to provide services 4.
4
On the relationship of recruitment activities with the services provisions of the Treaty, see the judgment in Rush
Portuguesa Lda v Office national dimmigration Case C-113/89 [1990] ECR I-1417 (para 16); see also the judgment in
Hfner v Macrotron GmbH Case C-41/90 [1991] ECR I-1979 (paras 3540).
Employers have a direct and real economic interest in the effectiveness of art 48. An employer is an
inescapable participant in the exercise by workers of the freedoms guaranteed to them. As interested
individuals, employers can play an effective role in the supervision of the achievement of the common
market, in addition to that of the Commission pursuant to art 169 of the Treaty.
26.
I conclude, therefore, in response to the first question, that employers in the host state derive from art
48 of the Treaty the directly effective right to employ workers who are nationals of another member state
without being bound by national rules which discriminate, directly or indirectly, on grounds of the
nationality of the workers in question.
Question 2
27.
It is contrary to art 48(2) of the Treaty, as well as to art 3(1) of the regulation, for member states to lay
down conditions for employment which are indirectly or overtly discriminatory on grounds of nationality.
The court has observed that national rules under which a distinction is drawn on the basis of residence
are liable to operate mainly to the detriment of nationals of other member states. Non-residents are in the
majority of cases foreigners (see eg the judgment in Schumacker [1995] All ER (EC) 319, [1995] ECR I-
225 (para 28)).
28.
It is evident, therefore, that the imposition of a condition that managers appointed by certain
companies in Austria be resident in that country may constitute indirect discrimination on grounds of
nationality. None the less, such apparent discrimination may be justified by reference to the requirements
of the general interest (see [1995] All ER (EC) 319, [1995] ECR I-225 (para 39)). Two such possible
justifications have been mentioned in the present case, both related to the fact that the manager is
responsible in Austrian law for the conduct of the business.
29.
Regard may be had to the courts judgment in van Binsbergen v Bestuur van de Bedrijfsvereniging
voor de Metaalnijverheid Case 33/74 [1974] ECR 1299. The courts analysis of the professional rules
imposed by member states on service-providers established in other member states can, for certain
purposes, be extended to the situation of workers who, though resident in one member state, occupy
positions of responsibility in another. The court stated ([1974] ECR 1299 (para 12)):
taking into account the particular nature of the services to be provided, specific requirements
imposed on the person providing the service cannot be considered incompatible with the Treaty
where they have as their purpose the application of professional rules justified by the general good
in particular rules relating to organization, qualifications, professional ethics, supervision and
liabilitywhich are binding upon any person established in the State in which the service is
provided, where the person providing the service would escape from the ambit of those rules being
established in another Member State.
30.
The first possible justification in the present case is that the residence requirement ensures
compliance with the condition that the manager be in a 443 position to act as such in the business, that is,
that he exercise a real rather than a merely formal role. In the light of the managers responsibility to the
authorities for the conduct of the business, this is a legitimate objective, which can be placed in the van
Binsbergen category of professional rules on organisation. However, the residence requirement may be,
according to the circumstances, either unnecessary for or, more fundamentally, unrelated to the
achievement of this aim. It is unnecessary if, as has been suggested, a frontier worker is able to perform
his managerial tasks without giving up his residence in a neighbouring member state. However, at the
material time, Mr Henssen appears to have been resident in Berlin. It is more germane to this case to
consider how the residence requirement is designed to secure the desired end. It is insufficient if; despite
residence in Austria, a manager still does not, or cannot, participate as required in the effective
management of the company. It would thus be less restrictive for the national authorities simply to impose
directly a condition of effective involvement, if necessary specifying, as is done in respect of certain firms
in the GewO, conditions regarding working hours, and to leave it to the manager to decide, in the light of
geographical and other circumstances, how to reconcile his residence with this condition.
31.
Secondly, it has been argued that it is necessary that the manager reside in Austria for the purpose of
the service of notice and execution of administrative sanctions in the case of breach of the rules
governing the conduct of the business. This is a legitimate objective. The member states have an obvious
interest in the public and regular conduct of traders registered pursuant to laws such as the GewO and
consequently in maintaining effective rules for their supervision. In my view, such supervision, just as
much as fiscal supervision and a number of other established mandatory requirements of general interest,
is capable of justifying a restriction on the exercise of fundamental freedoms guaranteed by the Treaty
(see the judgments in Rewe-Zentral AG v Bundesmonopolverwaltung fr Branntwein Case 120/78 [1979]
ECR 649 (para 8) and Futura Participations SA v Administration des Contributions Case C-250/95 [1997]
ECR I-2471 (para 31)). In the light of the apparent difficulty in enforcing administrative penalties outside
the states jurisdiction, conditions may be imposed to ensure that managers do not escape the ambit of
Austrias rules on professional responsibility by residing outside Austria.
32.
It must also be considered, however, whether there are less restrictive ways in which this objective
could be achieved5. As regards service of notice of sanctions, the court recognised in it judgment in van
Binsbergen [1974] ECR 1299 (paras 14, 16), in the context of the need to ensure the observance of
professional rules of conduct connected with the administration of justice and with respect for professional
ethics, the adequacy of a lawyer established in another member state choosing an address for service in
the member state in question. In the context of the present case, this could conceivably be either at the
managers place of business or, as the Commission has suggested, the seat of the legal person which
employs him, if it is established in Austria.
5
It has not been suggested that managers must reside in Austria in order to permit the exercise of a jurisdiction to impose
administrative sanctions in the first place. Thus, the analysis which follows relates solely to the practical problems raised
by the notification and execution of such sanctions.
33.
However, van Binsbergen concerned a lawyer providing services in a member state other than his
own. The court was at pains to distinguish the position of persons permanently established. The analogy
with services provision is less compelling in the case of the enforcement of substantive professional rules
against 444 a worker engaged exclusively in one member state. Since I am not in doubt that Austria is
within its rights in requiring that there be an effective mechanism for the enforcement of administrative
sanctions, it needs to be seen whether there is a possible, less restrictive means to this end than the
residence requirement. The court recognised in Bachmann [1994] STC 855, [1992] ECR I-249 (para 24)
that the difficulties which a member states tax authorities might have in enforcing an undertaking by an
insurer established in another member state to pay tax on sums payable to a taxable person residing in
the former member state could justify indirectly discriminatory tax treatment of that persons insurance
contributions. However, while accepting that the expense involved would be prohibitive in the
circumstances of that case, the court also stated that It would certainly be possible in principle for such
an undertaking to be accompanied by the deposit by the insurer of a guarantee (see [1994] STC 855,
[1992] ECR I-249 (para 25)).
34.
By the same token, it would be less restrictive of the freedom of movement of workers if a foreign-
resident prospective manager had the option of furnishing a guarantee or security for compliance with
potential administrative sanctions to the Austrian authorities, whether by a deposit, the blocking of a
certain sum in a bank account, the nomination of a guarantor, or some other means, in lieu of changing
his residence. The material available does not enable a judgment to be made as to whether such financial
means would secure the Austrian objective. There may be features of the registered traders obligations
which can only be effectively enforced against a manager liable in person. It is appropriate, therefore, to
allow the national court to decide whether, in the light of all circumstances and the objectives of GewO, a
financial guarantee would meet the demands of the case. If so, I believe that the Austrian rule is more
restrictive than necessary. If not, I believe it would be justified, in the absence of some other means of
securing the objective of managerial responsibility.
35.
Of course, even the burdensome requirement that a manager provide a guarantee need only be
imposed where enforcement of administrative sanctions cannot otherwise be secured in the member
state where he resides. Similarly, an address for service need only be provided where service at his place
of residence cannot be ensured. Both of these restrictions could be avoided if notification and
enforcement of sanctions were secured through, for example, an international convention. This, indeed, is
recognised by the amended version of para 39 of the GewO, which, as from 1 July 1996, waives the
residence requirement for managers where Austria is a party to such a convention with their country of
residence. It appears that such a convention has been concluded between Austria and the Federal
Republic of Germany, the member state where Mr Henssen resided at the material time, and that it was
applicable at that time6. However, that is a matter for investigation by the national court. If such a
convention was in force, it follows from the courts decision in Wielockx v Inspecteur der Directe
Belastingen Case C-80/94 [1995] All ER (EC) 769, [1995] ECR I-2493 (para 25) that the relevant
mandatory requirement of general interestin that case fiscal cohesionwas sufficiently secured by the
possibility of resort to its terms. The fact that all member states may not have concluded such
conventions is not a bar to relying upon them to reduce as far as possible the restrictions imposed on
freedom of movement of workers, even if there results a difference in the conditions imposed by the host
state on the nationals of the various other member states. Therefore, assuming the 445 effectiveness of
the convention in question, the imposition of a requirement of Austrian residence on Mr Henssen
constituted a disproportionate measure, whose indirectly discriminatory character cannot be justified in
the light of the requirements of the general interest.
6
See the Vertrag zwischen der Republik sterreich und der Bundesrepublik Deutschland ber Amts- und Rechtshilfe in
Verwaltungssachen, Bundesgesetzblatt fr die Republik sterreich, 1990, No 526.
VI CONCLUSION
36.
In the light of the foregoing, I recommend that the Court of Justice answer the questions referred by
the national court as follows:
(1) Employers in the host state derive from art 48 of the EC Treaty the directly effective right to
employ workers who are nationals of another member state without being bound by national rules
which discriminate, directly or indirectly, on grounds of the nationality of the workers in question.
(2) A national rule under which the owner of a business may only appoint as a manager for
trade-law purposes a person whose residence is in the host state constitutes indirect discrimination
on grounds of nationality.
(3) Such a national rule may be justified by the member states interest in securing compliance
with national rules or administrative decisions regarding the conduct of a registered trade unless
the same objective can be effectively secured by the alternative of a financial guarantee or the
terms of an applicable international convention.
7 May 1998.
Costs
44.
The costs incurred by the Austrian government and by the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the action pending before the national court, the decision on
costs is a matter for that court.
On those grounds, The Court of Justice (Sixth Chamber), in answer to the questions referred to it by
the Verwaltungsgerichtshof by order of 8 October 1996, hereby rules: (1) The rule of equal treatment in
the context of freedom of movement for workers, enshrined in art 48 of the EC Treaty, may also be relied
upon by an employer in order to employ, in the member state in which he is established, workers who are
nationals of another member state. (2) Article 48 of the Treaty precludes a member state from providing
that the owner of an undertaking exercising a trade on the territory of that state may not appoint as
manager a person not resident there.
451
The applicant, a Greek national, had worked in Germany since May 1966. Initially her civil status
documents gave her date of birth as 3 December 1933, but, in 1986, that date was rectified by a Greek
district court and she was issued with a new birth certificate showing her date of birth as 20 February
1929. In 1988 she applied to the German pension fund for the early retirement benefit for women who had
reached the age of 60, producing for that purpose the new birth certificate and, at the request of the
pension fund, the judgment of the Greek court ordering rectification. Under German provisions on civil
status, certificates drawn up in another country did not benefit from the usual presumption of accuracy so
that a court seised of the matter had to evaluate the document before it and, in the event of inconsistency
between several documents of differing dates, there was a presumption that the one closest in time to the
event prevailed in the absence of other evidence. Although the applicant satisfied all the other conditions
of entitlement, the pension fund refused her application, basing its decision on the date of birth before
rectification. Thereafter the applicant brought an action before the Sozialgericht Hamburg, which stayed
the proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling
the question whether, in proceedings for determining entitlements to social security benefits of a migrant
worker who was a Community national, art 481 of the Treaty required that the competent social security
authorities and the courts of a member state recognise certificates and analogous documents concerning
civil status issued by the competent authorities of other member states.
1
Article 48, so far as material, provides: (2) freedom of movement shall entail the abolition of any discrimination based
on nationality between workers of the Member States as regards employment, remuneration and other conditions of
work and employment.
Held The possibility of successfully challenging the accuracy of a certificate of civil status depended not
only on the procedures followed but also on the conditions which had to be satisfied in order for such a
certificate to be altered, which could vary considerably from one member state to another. As a result,
452Community law did not require the administrative and judicial authorities of a member state to treat as
equivalent subsequent rectifications of certificates of civil status made by the competent authorities of
their own state and those made by the competent authorities of another member state. However, those
authorities had to accept certificates and analogous documents concerning personal status issued by the
competent authorities of other member states, unless their accuracy was seriously undermined by
concrete evidence regarding the individual in question; to rule otherwise would compromise the exercise
of rights arising from the freedom of movement for workers. In those circumstances, a national rule
establishing a presumption that, in the event of inconsistency between several documents of differing
dates, the document closest in time to the event to be proved prevailed in the absence of other sufficient
evidence could not justify refusal to take account of a rectification made by a court in another member
state (see p 465 a to j, post).
Notes
For equal treatment in the context of the material scope of a workers right to free movment, see 52
Halsburys Laws (4th edn) para 1513.
For the EC Treaty, art 48, see 50 Halsburys Statutes (4th edn) 283.
Cases cited
Amministrazione delle Finanze dello Stato v Ariete SpA Case 811/79 [1980] ECR 2545.
Amministrazione delle Finanze dello Stato v Denkavit Italiana Srl Case 61/79 [1980] ECR 1205.
Amministrazione delle Finanze dello Stato v San Giorgio Case 199/82 [1983] ECR 3595.
Amministrazione delle Finanze dello Stato v Sas Mediterranea Importazione Rappresentanze
Esportazione Commercio (MIRECO) Case 826/79 [1980] ECR 2559.
Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043.
Hans Just I/S v Danish Ministry for Fiscal Affairs Case 68/79 [1980] ECR 501.
Konstantinidis Case C-168/91 [1993] ECR I-1191.
Micheletti v Delegacin del Gobierno en Cantabria Case C-369/90 [1992] ECR I-4239.
Mund & Fester v Hatrex International Transport Case C-398/92 [1994] ECR I-467.
Paletta v Brennet AG Case C-45/90 [1992] ECR I-3423.
Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989.
Reference
By order of 12 September 1994, the Sozialgericht (the Social Court) Hamburg referred to the Court of
Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty a question
(set out at p 463 j, post) on the interpretation of arts 48 and 51 of that treaty in the light of German
provisions under which certificates of civil status were accorded different probative value, depending on
whether they were German or foreign. That question was raised in proceedings between Mrs Dafeki and
the Landesversicherungsanstalt Wrttemberg. Written observations were submitted on behalf of: Mrs
Dafeki, by J S Politis, of the Athens Bar; the German government, by E Rder, Ministerialrat in the
Federal Ministry of the Economy, and B Kloke, Regierungsrat in the same ministry, acting as agents; the
Greek government, by P Kamarineas, Legal Adviser at the State Legal Council, K Grigoriou, legal
representative to the state Legal Council, and I Galani-Maragkoudaki, Deputy Special Legal Adviser in the
Special Community Legal Affairs Department of the Ministry of Foreign Affairs, acting as 453 agents; and
the European Commission, by J Sack, Legal Adviser, acting as agent. Oral observations were made by:
Mrs Dafeki, represented by J S Politis; the Landesversicherungsanstalt Wrttemberg, represented by E
Graner, Regierungs- direktor, acting as agent; the German government, represented by S Maa,
Regierungsrtin zur Anstellung in the Federal Ministry of the Economy, acting as agent; the Greek
government, represented by F Georgakopoulos, Deputy Legal Adviser at the State Legal Council, acting
as agent, and I Galani-Maragkoudaki; and the Commission, represented by J Sack. The language of the
case was German. The facts are set out in the opinion of the Advocate General.
3 December 1996.
2
See also the judgments in Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043 (para 13), Hans
Just I/S v Danish Ministry for Fiscal Affairs Case 68/79 [1980] ECR 501, Amministrazione delle Finanze dello Stato v
Denkavit Italiana Srl Case 61/79 [1980] ECR 1205, Amministrazione delle Finanze dello Stato v Ariete SpA Case 811/79
[1980] ECR 2545, Amministrazione delle Finanze dello Stato v Sas Mediterranea Importazione Rappresentanze
Esportazione Commercio (MIRECO) Case 826/79 [1980] ECR 2559 and Amministrazione delle Finanze dello Stato v
San Giorgio Case 199/82 [1983] ECR 3595 (para 12).
However, that principle of procedural autonomy is circumscribed by the requirement, emphasised by the
Court of Justice on several occasions, that the procedural rules laid down by the competent state must
not make it impossible in practice to exercise the right conferred by Community law 3.
3
Ibid.
And it is specifically in the light of that requirement that the present case falls to be examined. What
rules of evidence does the national court consider it has to apply here? It cites a rule of case law under
which, if two documents of differing dates are inconsistent with one another, it is the one which is closest
in time to the event to be proved which prevails. It is in application of that rule that the national court
considers that it has to attach greater probative value to Mrs Dafekis old identity card than to the new
birth certificate issued to her following a judicial decision rectifying her date of birth. Since the document
resulting from that rectification is obviously of later date than the document that was rectified, Mrs Dafeki
is precluded from proving the alteration in status, which, in turn, constitutes an indispensable prerequisite
for asserting the right to receive the pension guaranteed to her under Community law. Furthermore, and
quite apart the above-mentioned rule of case law, the German authorities refusal to take account of the
certificates submitted by Mrs Dafeki means that it is in practice impossible for her to be awarded the
pension. She has to prove that she has 456 reached the age of sixty, and I fail to see how she can do this
other than by relying on the documents issued by her country of birth. After all, it cannot be said that Mrs
Dafeki has not made every effort to provide proof of her age: she submitted to the court the new birth
certificate issued by the competent authorities of her country of origin together with the court order
constituting the authority for the rectification. Were any further condition to be imposed, it would, in my
view, be either impossible or at least extremely difficult to meet. It would therefore be impermissible under
the above-mentioned case law.
In essence, I consider that the rules of evidence that the national court intends applying in this case
make it impossible in practice to prove a fact which is a necessary prerequisite for the exercise of the right
in question. Those rules must therefore be disapplied by the national court.
6.
It remains to be clarified how, for the purposes of Community law, the German court is to evaluate, in a
case of the kind described in the order for reference, documents relating to civil status issued in another
member state. A preliminary point needs to be made here. There are circumstances in which an
individuals civil status is a condition for entitlement to a subjective legal position guaranteed under
Community law. Can it be accepted in such circumstances that the status of the person concerned should
be evaluated differently from one member state to another? The answer, in my view, has to be that it
cannot.
It cannot be accepted that an individuals status, in the sense of his legal position within the legal
system in questionin this instance the Community legal systemshould be evaluated differently
depending on the law of the state in which he is residing or working within the territory of the Community.
Were that to be the case, the way in which the competent national authorities treat the events which are
relevant for the purpose of defining the status of the person concerned would determine whether that right
of the individual was recognised or denied. That is incompatible with the basic concept underlying the
Treaty according to which subjective legal positions under Community law must enjoy equal recognition,
that is to say it must be possible to invoke them in the same way in every member state of the
Community. In other words, the immutability of statuswhenever, of course, it constitutes an element of
or prerequisite for a right of the individualderives from the necessity to guarantee in a uniform manner
the actual form of subjective legal positions under Community law and their protection. It would be
contrary to the very idea of integration were a right to exist and be enforceable in one member state but
not in another because the civil status of the person concernedand more specifically his age, upon
which that right dependsis assessed differently within the Community, though the Community itself is
conceived, also for the purposes under consideration here, as being a single area without internal
frontiers.
7.
The Court of Justice has already affirmed this principle of the uniformity of the status of Community
citizens in the judgment in Micheletti v Delegacin del Gobierno en Cantabria Case C-369/90 [1992] ECR
I-4239. The question raised in that case was whether Spain could refuse to accept, on the basis of its own
laws, the status of Mr Micheletti as an Italian citizen. The answer was that it could not: it is not
permissible for the legislation of a member state to restrict the effects of the grant of the nationality of
another Member State (see [1992] ECR I-4239 (para 10)). The reason for this was that the consequence
of allowing such a possibility would be that the class of persons to whom the Community rules on
freedom of establishment were applied might vary from one Member State to another (see [1992] ECR I-
4239 (para 12); my emphasis). In support of that interpretation, the court 457 cited Council Directive
(EEC) 73/148 on the abolition of restrictions on movements and residence within the Community for
nationals of member states with regard to establishment and the provision of services (OJ 1973 L172 p
14) which
(13) provides that Member States are to grant to the persons referred to in Article 1 the right
to enter their territory merely on production of a valid identity card or passport (Article 3) and are to
issue a residence card or permit to such persons, and to those mentioned in Article 4, upon
production, in particular, of the document with which they entered their territory (Article 6).
(14) Thus, once the persons concerned have produced one of the documents mentioned in
Directive 73/148 in order to establish their status as nationals of a Member State, the other Member
States are not entitled to challenge that status (See [1992] ECR I-4239 (paras 1314).)
Two conclusions can be drawn from the judgment in Micheletti [1992] ECR I-4239 (paras 1314). First,
as Advocate General Tesauro rightly pointed out in his opinion
the provisions of Community law which require an individual to possess the nationality of a
Member State as a prerequisite for their application must be understood as referring to the national
law of the State whose nationality serves as the basis of the right relied upon. (See [1992] ECR I-
4239 (para 3).)
Second, once it has thus been established that a persons status is determined by the law of the state
to which he belongs and, consequently, that it is the authorities of that state which have the power to
certify that status, the determinations made by those authorities must be accepted uniformly in all the
member states and cannot be the subject of differing assessments 4.
4
Confirmation of the considerations so far set out is to be found in the judgment in Konstantinidis Case C-168/91 [1993]
ECR I-1191. The issue in that case was whether it was compatible with Community law for a member state to enter the
name of a Greek citizen in its own registers using a system of transliteration that had the effect of substantially altering
the name of the person concerned. The courts negative answer to that question was essentially based on the
consideration that that transliteration exposed the Greek citizen to the risk that potential clients may confuse him with
other persons (see [1993] ECR I-1191 (para 16)). That case clearly differed from the present case. The court did,
however, take account of the need for the citizen to be able to move in the Community with the name accorded him in
his country of origin. In that case too, therefore, the court confirmed the principle that an individual has to be treated as
the person he is with all of the personal attributes that distinguish him in the legal system of his country of origin.
8.
As I see it, although the Micheletti judgment concerns status civitatis, there are good reasons for
taking the view that the considerations set out by the court in that case may be applied by analogy to this
case. In providing that Member States shall grant to the persons referred to in Article 1 the right to enter
their territory merely on production of a valid identity card or passport art 3 of Directive 73/148 takes
account of a fundamental requirement for the effective realisation of the integration process 5: Community
citizens may move freely, 458taking with them all the elements needed to identify them as subjects, as
persons, and which are certified in the documents relating to their civil status. They must therefore be
able to rely on the documents issued to them by the competent authorities of their country of origin. That
is whyagain, of course, for the limited purposes of the exercise of the rights guaranteed under
Community lawrecognition must be accorded to the principle of the uniformity of a persons civil status;
he must be able to move within the Community precisely as he is individualised by that status, that is to
say with the relationships that are determined on the basis of age, sex, status civitatis, and so on. Only in
that way can citizens effectively exercise freedom of movement, now establishedby designas a right
of citizenship of the Union, throughout the entire territory of the Community.
5
We find that same approach in Council Directive (EEC) 68/360 on the abolition of restrictions on movement and
residence within the Community for workers of member states and their families (OJ S edn 1968, p 485). Article 3(1) of
the directive provides: Member States shall allow the persons referred to in Article 1 to enter their territory simply on
production of a valid identity card or passport. Article 4(1) then goes on to provide: Member States shall grant the right
of residence in their territory to the persons referred to in Article 1 who are able to produce the documents listed in
paragraph 3.
In this caseas the Commission has rightly pointed outthe proper functioning of the system
established by Regulation 1408/71 is necessarily based on implicit reference to the national legal systems
in regard to all those elements that are needed in order to determine the rights of workers and,
consequently, on reference to the documents concerning status which are issued to the person in
question by the authorities vested with the power of certification. In other words, those aspects of
personal status that affect the acquisition or exercise of a right under Community law are not governed
directly by the Community legal order but are implicitly and of necessity a matter for the legal system of
the particular member state that determines the status of the person concerned. A court or administrative
authority of a member state that is called upon to consider a case concerning an aspect of a persons
status that is governed by the law of another member state may not therefore disregard the facts as
determined by the authority vested, under that law, with the power to bring about, with respect to the
aspect of status in point, a special form of legal certainty and cause it to have effect in legal relations.
9.
At the hearing the Commission conceded that determining a persons age is a question of status but
ruled out the possibility of extending to this case the principle laid down in Micheletti in regard to
citizenship. To be more precise, the Commission acknowledges that it is a matter for the state of which
the person concerned is a national to determine and certify status. It adds that the authorities of the host
member state are normally required not to challenge that certification but considers that those authorities
may disregard the content of the document in cases of doubt. According to the Commission, that is
precisely the case of Mrs Dafeki who did not ask for rectification of her age until shortly before she applied
for early retirement benefit. Thataccording to the Commissionprovides grounds for more than mere
suspicion.
That is a view which, to be frank, I find baffling. In my opinion, if there are doubts concerning the scope
and effectiveness of the new birth certificate produced by Mrs Dafeki, the only avenue open to the
administrative and judicial authorities of the state concerned is to have recourse to the arrangements for
co-operation provided for by art 84 of Regulation 1408/71 and seek the requisite clarification from their
counterparts in the country in which the document in question was issued. If the latter confirm that the
certificate in question was indeed issued by the competent authority and produces legal certainty as
regards the age of the person concerned, that aspect may no longer be called in question.
In other words, the national court must confine itself to verifying that the certificate was issued by the
competent authorities and produces, within the legal system relied upon by the person concerned, the
requisite effects of legal certainty 459 as regards his age; it cannot hold the content of such certificates to
be unreliable, citing its freedom under its national law to evaluate evidence. Once the certificates have
been issued by the competent authorities of the state concerned, the principle of good faith and mutual
trust which has, pursuant to art 5 of the Treaty, to inform relations between the authorities of the different
member states, means that the accuracy and reliability of the data certified may not be challenged.
The opposite approach would be hard to reconcile with the need to ensure a relationship of trust and
scrupulous co-operation between authorities and institutions in the Member States; the importance of the
latter principle was rightly pointed out by Advocate General Gulmann in Paletta v Brennet AG Case C-
45/90 [1992] ECR I-3423 at 3453. The court held in the judgment in that case that
the competent institution is bound in fact and in law by the medical findings made by the
institution of the place of residence or temporary residence concerning the commencement and
duration of the incapacity for work, when it does not have the person concerned examined by a
doctor of its choice, as it may do under Article 18(5). (See [1992] ECR I-3423 (para 28).)
It is true that that case was covered by a specific provision of Council Regulation (EEC) 574/72 fixing the
procedure for implementing Council Regulation (EEC) 1408/71 on the application of social security
schemes to employed persons and their families moving within the Community (OJ S edn 1972 (I) p 159).
However, as the Advocate General rightly pointed out, that was a problem that involved a fundamental
principle
namely that there should be scrupulous cooperation between the institutions in the Member
States, built on mutual trust (see in this regard Article 84 of Regulation No 1408/71, in conjunction
with Article 5 of the EEC Treaty) and that the authorities in one Member State must recognize the
correctness of certificates issued by the authorities in other Member States (See [1992] ECR I-
3423 (para 12).)
10.
In my view, the solution to this case follows from the above considerations. Once it is accepted that the
question of Mrs Dafekis age is governed by Greek law and that the Greek authorities are vested with the
power of certification, it necessarily follows that those same authorities are also vested with the
consequential power to rectify the document they have issued. Reference to national law covers not only
the initial determinations but also any subsequent amendments to them. The power to rectify and the
power to certify are of the same legal nature. It is not possible to recognise the one and deny the other.
It therefore follows that both the German social security institution and the national court are bound by
the content of the administrative and judicial documents issued by the competent Greek authorities
relating to the status of Mrs Dafeki. This is because it is for those authorities alone to establish once and
for all and erga omnes Mrs Dafekis age, so far as concerns the exercise of rights arising out of
Community law.
11.
The rectification has therefore to be accorded the same value as is attached to it in the legal system of
the state of origin. The German government has contended that the rectification requested and obtained
by Mrs Dafeki is not valid in Greek law for the purpose of obtaining social security benefits 6; consequently,
were that possibility to be accepted in Germany, it would produce the absurd result of according a foreign
certificate greater value than is attached to it under 460 the law of its state of origin. I too agree that the
rectified document must be accorded an effect which is neither greater nor lesser than that which it
produces in the legal system under which it was drawn up. It is then for the national court, which has to
adjudicate on the substance of the case, to ascertain what that effect is and determine, in particular,
whether what is concerned is a document that creates legal certainty such that its contents must be held
to be binding. It is for the national court to inquire whether this is so. The Court of Justice can only
indicate to that court the principle to be applied. As I have said, that principle is to the effect that reference
must be made to the competent legal system, and exclusively, let it be said, as regards that aspect of
personal status upon which, in this case, the recognition by the German authorities of a right guaranteed
under Community law depends. The national court will have to ascertain whether the certificate submitted
by Mrs Dafeki in Germany constitutes proof under Greek law that she has reached the age of 60 years.
Whether the social security institution in the country of origin might, under the law of that country, require
other documents to be submitted or further formalities to be completed for pension purposes is a question
that does not fall within the ambit of the proceedings now before the court.
6
It need hardly be mentioned that the assumption on which the German government bases its argumentnamely that
the rectification obtained by Mrs Dafeki is of limited probative value in Greecewas discussed at the hearing but was in
no way substantiated and would in fact appear to have been denied by the Greek government, both in its written reply to
the question put to it on this subject by the Court of Justice and in its oral argument. That point is, in any event,
completely irrelevant for the purposes of a decision by the court, which is not required to rule on the substance of the
main proceedings. It will be for the national court to evaluate the effect that has to be accorded to the certificates in
question under the legal system under which they were issued.
12.
It must next be said that the case before the court does not in any way touch, as the Commission
appears to think, upon the thorny problem of the automatic recognition of judgments. The Commission
has stated that if the German social security institution were to accord to the rectification of Mrs Dafekis
age the same value as is accorded to it in Greece, this would in fact be tantamount to the mutual
recognition of judgments in matters of civil status. According to the Commission, the courts case law,
particularly Mund & Fester v Hatrex International Transport Case C-398/92 [1994] ECR I-467, shows that
such recognition may be accorded only on the basis of the appropriate international agreements; in this
case Germany and Greece are not bound by any instrument of public international law in the field in
question.
We have, however, to consider what are the circumstances in the present case. In the first place, Mrs
Dafeki submitted to the German institution a rectified birth certificate and not a judgment. According to the
order for reference, the decision of the Athens court merely constituted the authority for making that
rectification.
That aside, even if one were willing to contemplate the hypothesis that Mrs Dafeki had produced only
the judgment rectifying her birth certificate, I do not consider that this in itself would mean that there was
any question of automatic recognition of judgments in the absence of an appropriate agreement. Mrs
Dafekis request does not seek to have the Greek judgment enforced in Germany, that is to say to
establish in German law the legal situation brought about by that judgment, but to exercise a right for
which that legal situation (as actually produced) forms the prerequisite. In other words, the judgment is
not in this case to be considered in terms of its significance as a judicial decision; it is the findings to
which that judgment gives specific effect that have to be taken into account by 461 the German
authorities. The reason for this, as I have already explained, is that for the purposes in point here the
question of status is governed by the law of the state to which the person concerned belongs. That being
so, Mrs Dafekis age as established by judicial decision in her own country constitutes, for the German
authorities, a determination already made and given concrete form by the only authorities empowered to
do so. The situation would be different were Mrs Dafeki to seek to avail herself of the foreign judgment
from the point of view of its significance as a judicial decision, as would, for example, be the case if she
were primarily applying to have her age as rectified entered in the German registers of civil status. In that
case, in the absence of appropriate international agreements on the automatic recognition of such
judgments, there would have in fact to be an examination of the foreign judgment or other equivalent
procedure under German law.
13.
In conclusion, I do not find that this case discloses any prohibited discrimination of the kind envisaged
by the national court. German public documents are not the same as Greek public documents. It is
therefore not possible to extend to the latter the same probative value as that accorded to the former
under German procedural law. None the less, both the social security institution and the national court
have a duty to take into account documents relating to civil status issued to the person concerned by the
competent authorities of his country of origin. More specifically, they must accord to those documents the
same value as that attributed to them under the legal system under which they were drawn up. It is then
for the administrative authority and the court to evaluate the significance and effects of the document
under that legal system. Should the authorities of a member state have doubts concerning the legality or
effect of the document, they must consult their counterparts in the other member state and ask them to
provide the necessary clarification.
Conclusion
14.
The reply to the question referred to the Court of Justice by the Sozialgericht Hamburg should
therefore be:
In proceedings concerning entitlement to social security benefits, German social security
institutions and courts are not free to disregard the content of documents relating to civil status that
determine or rectify particulars of a Community citizens civil status and have been issued to the
person concerned by the competent authorities of their country of origin. Those institutions and
courts must accord to those certificates the same value as that attached to them under the legal
system of that country.
2 December 1997.
Costs
22.
The costs incurred by the German and Greek governments and by the European Commission, which
have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are,
for the parties to the main proceedings, a step in the proceedings pending before the national court, the
decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the question referred to it by the Sozialgericht
Hamburg by order of 12 September 1994, hereby rules: in proceedings for determining the entitlements to
social security benefits of a migrant worker who is a Community national, the competent social security
institutions and the courts of a member state must accept certificates and analogous documents relative
to personal status issued by the competent authorities of the other member states, unless their accuracy
is seriously undermined by concrete evidence relating to the individual case in question.
465
A building company, J & Co, provided free transport to work for employees who lived more than 6km from
their workplace. Employees were mainly transported in vehicles belonging to J & Co, although some were
transported by a fellow employee in his own private vehicle on the companys behalf. The employees
made no payment and no sum was deducted from their wages to pay for or contribute to the cost of the
transport services. The Finanzamt Neustadt considered that the provision of transport was taxable under
the German value added tax legislation. In proceedings in which J & Co disputed an assessment to value
added tax raised on that basis, the Bundesfinanzhof referred to the Court of Justice of the European
Communities for a preliminary ruling three questions to determine: (i) whether transport such as that
provided by J & Co constituted a service effected for consideration within the meaning of art 2(1) 1 of
Council Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover
taxescommon system of value added tax: uniform basis of assessment; (ii) whether the transport was
to be treated as a supply of services by virtue of art 6(2)2 in that it involved a use of goods forming part of
the assets of J & Cos business or a service carried out free of charge, even though it did not serve
purposes other than business purposes, as far as J & Co was concerned, but did serve the employees
private purposes; and (iii) if such transport was to be regarded as a supply of services under art 6(2),
whether the fact that an employee was commissioned to provide transport in his own private vehicle was
relevant to the application of art 6(2).
1
Article 2, so far as material, is set out at p 476 b, post
2
Article 6, so far as material, is set out at p 476 c, post
Held (1) A supply of services within the meaning of art 2(1) presupposed the existence of a direct link
betweeen the service provided and the consideration received. In the instant case, J & Cos employees
did not pay for the transportation provided and it was not possible to regard a proportion of the work
performed as consideration for that service, since the work to be performed and the wages received were
independent of whether or not the employees used 466 the transport provided to them by their employer.
In those circumstances it followed that there was no service effected for consideration for the purposes
of art 2(1) (see p 477 b e to j and p 480 c, post); Apple and Pear Development Council v Customs and
Excise Comrs Case 102/86 [1988] 2 All ER 922, applied.
(2) Under art 6(2) transport provided by an employer free of charge for employees between their
homes and the workplace in a company vehicle served, in principle, the employees private purposes and
thus served purposes other than those of the business. However, that provision did not apply when,
having regard to the difficulty of finding other suitable means of transport and changes in the place of
work, the requirements of the business made it necessary for the employer to provide transport for
employees, in which case the supply of those transport services was not effected for purposes other than
those of the business. That interpretation also applied when the employer did not convey the employees
in its own vehicles, but commissioned one of its employees to provide the transport using his own private
vehicle (see p 479 f g j to p 480 a d to f, post).
Notes
For supply of services within the context of the Sixth Directive, see 52 Halsburys Laws (4th edn) para
2017.
Cases cited
Apple and Pear Development Council v Customs and Excise Comrs Case 102/86 [1988] 2 All ER 922,
[1988] STC 221, [1988] ECR 1443, ECJ.
Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] STC 1359, [1996] I-5311.
Boots Co plc v Customs and Excise Comrs Case C-126/88 [1990] STC 387, [1990] ECR I-1235, ECJ.
Empire Stores Ltd v Customs and Excise Comrs Case C-33/93 [1994] 3 All ER 90, [1994] STC 623,
[1994] ECR I-2329, ECJ.
Enkler v Finanzamt Homburg Case C-230/94 [1996] STC 1316, [1996] ECR I-4517, ECJ.
Finanzamt Mnchen III v Mohsche Case C-193/91 [1997] STC 195, [1993] ECR I-2615, ECJ.
Glawe (H J) Spiel und Unterhaltungsgerte Aufstellungsgesellschaft mbH & Co KG v Finanzamt
Hamburg-Barmbek-Uhlenhorst Case C-38/93 [1994] STC 543, [1994] ECR I-1679, ECJ.
Khne v Finanzamt Mnchen III Case 50/88 [1990] STC 749, [1989] ECR 1925.
Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR
6365, ECJ.
Staatssecretaris van Financin v Coperatieve Aardappelenbewaarplaats GA Case 154/80 [1981] ECR
445.
Staatssecretaris van Financin v Hong Kong Trade Development Council Case 89/81 [1982] ECR 1277.
Tolsma v Inspecteur der Omzetbelasting Case C-16/93 [1994] STC 509, [1994] ECR I-743, ECJ.
Reference
By order of 11 May 1995 the Bundesfinanzhof (the Federal Finance Court) referred to the Court of Justice
of the European Communities for a preliminary ruling three questions (set out at p 476 e to h, post)
concerning the interpretation of arts 2(1) and 6(2) of Council Directive (EEC) 77/388 on the harmonisation
of 467 the laws of the member states relating to turnover taxescommon system of value added tax:
uniform basis of assessment. Those questions were raised in proceedings between Julius Fillibeck Shne
GmbH & Co KG (Fillibeck) and the Finanzamt Neustadt (the Neustadt Tax Office), concerning the
imposition of value added tax on the free transport provided by Fillibeck for certain employees from their
homes to their place of work. Written observations were submitted on behalf of: Fillibeck, by K Heiniger,
Accountant and Tax Adviser, acting as agent; the Finanzamt Neustadt, by R Preuninger,
Oberregierungsrat, acting as agent; the German government, by E Rder, Ministerialrat at the Federal
Ministry of Economic Affairs, and B Kloke, Oberregierungsrat at the same ministry, acting as agents; the
UK government, by S Braviner, of the Treasury Solicitors Department, acting as agent, and N Paines,
Barrister; and the European Commission, by J Grunwald, Legal Adviser, acting as agent. Oral
observations were submitted on behalf of Fillibeck, represented by K Heininger; the Finanzamt Neustadt,
represented by W Widmann, Leitender Ministerialrat at the Ministry of Finance of Rheinland-Pfalz, acting
as agent; and the Commission, represented by J Grunwald. The language of the case was German. The
facts are set out in the opinion of the Advocate General.
16 January 1997.
Both the defendant and the Finanzgericht (the finance court), before which its action was
unsuccessful, it claimed, failed to recognise that the transport services at issue were not provided to
employees for their own private use, but were provided by the employer predominantly in the interests of
its business and pursuant to its obligation, in its capacity as a building firm, under the collective
agreement.
7.
The national court considers that this case raises questions relating to the taxation of so-called
benefits in kind provided by an employer to its employees where the employees do not have to provide
any specifically agreed, fixed return for the benefit in kind. It therefore referred the following questions to
the Court of Justice for a preliminary ruling:
(1) Does the transport provided by an employer constitute a service effected for consideration
within the meaning of Article 2(1) of the Sixth Directivethat is to say, effected for a proportion (to
be estimated) of the work performed by the employeeswhere, pursuant to a collective
agreement, the employer conveys employees (without specially agreed and calculated
consideration) from their homes to the workplace where they are more than a specified distance
apart, and the work performedwhich has no actual connection with such transport servicesis
already to be carried out in return for the agreed money wages as in the case of the other
employees?
(2) Does Article 6(2) of the Sixth Directive cover the use of goods forming part of the assets of
the business or a service carried out free of charge even whereas in the case of free transport for
employees from their homes to the workplace and back in a company vehicleit does not serve
purposes other than those of the business as far as the employer is concerned, but does serve the
employees private purposes and the employees are not charged turnover tax in this respect (on
account of their use free of charge of the transport service)?
(3) In the event that question 2 is answered in the affirmative: does Article 6(2) of the Sixth
Directive also cover a case where the employer does not convey the employees in its own vehicles,
but commissions a third party(in this case, one of its own employees) to effect the transport?
First question
8.
The Bundesfinanzhof is in doubt, first, as to whether, and if so the extent to which, the transport
services provided by the employer to its employees in this case constitute supplies effected for
consideration (in the form of a proportionto be estimated as appropriateof the work performed) within
the meaning of art 2(1) of the Sixth Directive.
9.
Article 2(1) provides:
469
The following shall be subject to value added tax: 1. the supply of goods or services effected for
consideration within the territory of the country by a taxable person acting as such
10.
It is not disputed that in this case the transport services constitute a supply of services by a taxable
person for the purposes of the Sixth Directive; the national courts only question is whether the supply is
effected for consideration.
11.
The question of whether a supply of services is effected for consideration has been addressed in
numerous cases and has now been settled.
12.
According to the court, in order for a supply of services to be regarded as effected for consideration,
and thus to be taxable, there must be a direct link between the service provided and the consideration
received.
13.
That principle was first laid down in Staatssecretaris van Financin v Coperatieve
Aardappelenbewaarplaats GA Case 154/80 [1981] ECR 445 (paras 1213), which concerned Council
Directive (EEC) 67/228 on the harmonisation of legislation of member states concerning turnover taxes
structure and procedures for application of the common system of value added tax (OJ S edn 1967 (I) p
16) (the Second VAT Directive).
14.
In Apple and Pear Development Council v Customs and Excise Comrs Case 102/86 [1988] 2 All ER
922, [1988] ECR 1443 the court confirmed that decision, this time in the context of the Sixth Directive, and
held that the body in question which, in pursuit of its task of defending the common interests of growers of
apples and pears, carried out collective advertising campaigns financed by a mandatory annual charge,
was not supplying services for consideration, in the absence of any direct link between the service
provided and the consideration received.
The court held that if individual growers did receive benefits, then those benefits were only derived
indirectly from those accruing generally to the industry as a whole and, furthermore, that there was no link
between the level of benefit derived by individual growers from the services of the Apple and Pear
Development Council and the level of the mandatory charge which they had to pay.
15.
It is also useful to refer to Tolsma v Inspecteur der Omzetbelasting Case C-16/93 [1994] STC 509,
[1994] ECR I-743 (para 14), in which the court held that a supply of services is effected for consideration
within the meaning of art 2(1) of the Sixth Directive, only
if there is a legal relationship between the provider of the service and the recipient pursuant to
which there is reciprocal performance, the remuneration received by the provider of the service
constituting the value actually given in return for the service supplied to the recipient.
On that occasion, the court recalled ([1994] STC 509, [1994] ECR I-743 (para 12)) that
[it] has already held with reference to the concept of the provision of services against payment
in art 2(a) of the Second Directive, whose wording is similar to that of art 2(1) of the Sixth Directive,
that taxable transactions, within the framework of the VAT system, presuppose the existence of a
transaction between the parties in which a price or consideration is stipulated. The court concluded
that, where a persons activity consists exclusively in providing services for no direct consideration,
there is no basis of assessment and the services are therefore not subject to VAT (see the 470
judgment in Staatssecretaris van Financin v Hong Kong Trade Development Council (Case 89/81)
[1982] ECR 1277 at 1286, paras 9, 10).
And ([1994] STC 509, [1994] ECR I-743 (para 13)):
In its judgments in Staatssecretaris van Financin v Coperatieve Aardappelenbewaarplaats
GA (Case 154/80) [1981] ECR 445 at 454, para 12, and Naturally Yours Cosmetics Ltd v Customs
and Excise Comrs (Case 230/87) [1988] STC 879 at 886, [1988] ECR 6365 at 6389, para 11, the
court stated on this point that the basis of assessment for a provision of services is everything
which makes up the consideration for the service and that a provision of services is therefore
taxable only if there is a direct link between the service provided and the consideration received
(see also the judgment in Apple and Pear Development Council v Customs and Excise Comrs
(Case 102/86) [1988] STC 221 at 237, [1988] ECR 1443 at 1468, paras 11, 12).
16.
The three following criteria can be identified from those decisions, which makes it possible to define
the concept of the supply of services effected for consideration 5: there must be a direct link between the
service supplied and the consideration received6; the consideration must be capable of being expressed
in money7; the consideration must be the subjective value given to it by the parties 8.
5
See, to that effect, the opinion of Advocate General Lenz in Tolsma [1994] STC 509, [1994] ECR I-743 (para 14).
6
See the judgments in Coperatieve Aardappelenbewaarplaats [1981] ECR 445 (para 12), Apple and Pear Development
Council [1988] 2 All ER 922, [1988] ECR 1443 (para 11) and Naturally Yours Cosmetics [1988] STC 879, [1988]
ECR 6365 (para 11).
7
See the judgments in Coperatieve Aardappelenbewaarplaats [1981] ECR 445 (para 13) and Naturally Yours
Cosmetics [1988] STC 879, [1988] ECR 6365 (para 16).
8
See the judgments in Coperatieve Aardappelenbewaarplaats [1981] ECR 445 (paras 1314) and Naturally Yours
Cosmetics [1988] STC 879, [1988] ECR 6365 (para 16).
17.
The three conditions which the case law of this court requires to be satisfied in order for a supply of
services to be regarded as being effected for consideration and, as such, subject to VAT, are not satisfied
here.
18.
A mere proportion (to be estimated) of the work performed by the employee, to use the words of the
national court, cannot be considered real consideration for the transport services received by the
employee.
19.
In the present case, no direct link can be observed between the service supplied and the consideration
received.
20.
The service which, in this case, consists of the transport services is supplied independently of any
consideration received. Employees using the free collective transport made available to them by the
employer do not make any payment, nor is any sum deducted from their wages as consideration for that
service. Furthermore, the wages cannot be regarded as comprising consideration for that service, since
they are only paid as consideration for the work performed.
Just as in Apple and Pear Development Council in which all apple and pear growers paid the same
charge to the body in question and there was no link between the charge paid and the benefits derived,
the employees in this case are required to perform the same work and receive the same salary,
irrespective of whether they derive a benefit from the free transport; there is no consideration which has a
direct link with the transport provided by the employer.
The employer is required to make free transport available for all its employees under the relevant
collective agreement, but they are free to choose whether or not to make use of it.
471
21.
A distinct proportion of the work performed by the employee cannot therefore be regarded as the
(estimated) value of the consideration for the transport services.
22.
Furthermore, in the course of the proceedings, neither party proposed any estimation of the distinct
proportion of the work performed which represents the consideration for the transport services.
23.
As a result, in so far as no consideration having a direct link with the service supplied can be identified,
it is, a fortiori, impossible in this case to express the consideration in money, as required by the case law
cited above, and to recognise a subjective value given to it by the parties.
24.
Since transport services provided free of charge by an employer to its employees cannot be regarded
as effected for consideration within the meaning of art 6(2) of the Sixth Directive, those services do not
fall within the scope of that provision and on that basis cannot therefore be subject to VAT.
25.
The first question should therefore be answered in the negative.
Second question
26.
In the event that the first question is answered in the negative, the national court asks whether the
transport services at issue fall within the definition of taxable transactions for the purposes of art 6(2) of
the Sixth Directive.
27.
That provision reads as follows:
The following shall be treated as supplies of services for consideration: (a) the use of goods
forming part of the assets of a business for the private use of the taxable person or of his staff or
more generally for purposes other than those of his business where the value added tax on such
goods is wholly or partly deductible, (b) supplies of services carried out free of charge by the
taxable person for his own private use or that of his staff or more generally for purposes other than
those of his business.
Member States may derogate from the provisions of this paragraph provided that such
derogation does not lead to distortion of competition.
28.
According to art 11A(1)(c) of the Sixth Directive, the taxable amount of the transactions referred to in
art 6(2) is the full cost to the taxable person of providing the services.
29.
The wording of the national courts question seems to suggest that a distinction should be made
between the use of goods forming part of the assets of [the] business (art 6(2)(a)) and supplies of
services carried out free of charge (art 6(2)(b)).
However, that distinction does not seem to me to be necessary in the circumstances of this case. Only
the expressions private use of the taxable person or of his staff and purposes other than those of his
business, which are used in both provisions, are relevant.
30.
To summarise, either the transport at issue is regarded as being effected for the private use of the
staff, for purposes other than those of the business, or, alternatively, it is regarded as serving the
purposes of the business, in which case it is not subject to any tax under art 6(2) of the Sixth Directive.
31.
Arguments were submitted in favour of both approaches during the proceedings.
32.
First, the applicant claimed that the transport provided for employees directly and exclusively serves
the purposes of the business and therefore falls within the employment relationship and does not concern
the private domain 472 of employees. It submits, in that respect, that even if the transport did
theoretically concern the employees private sphere, it would have been brought within the employment
relationship by virtue of the collective agreement pursuant to which it is provided. It concluded therefore
that art 6(2) does not apply in this case.
33.
In contrast, the other parties considered that the free transport of employees serves their private
purposes and thus serves purposes other than those of the business; art 6(2) therefore applies.
34.
The UK government and the European Commission, however, consider that the special circumstances
of this case should be taken into account and justify non-taxation under art 6(2).
35.
I support that view.
36.
First, it seems difficult to deny that the transport provided for employees from their home to the
workplace is a matter which in principle concerns their private life.
37.
The employee decides where his home will be with regard, where appropriate, to his place of work,
and that determines the distance between the two and the means of transport he is free to choose for that
journey. The employer is not involved in any way in those decisions, since the employees only obligation
towards him is to report to his place of work at the agreed time. The employee is responsible for taking
the necessary steps to arrive at the workplace and he alone is responsible for deciding how to do so. As a
result, under normal circumstances, transport provided for an employee from his home to the workplace is
for the private use of staff, and is effected for purposes other than those of the business. That is not
altered by the fact that the transport may be organised by the employer, who makes free collective
transport available to those employees wishing to use it.
38.
In general, therefore, the transport provided for employees by an employer free of charge using a
company vehicle must be considered to be subject to VAT, since it is treated as a supply of services
effected for consideration in accordance with art 6(2) of the Sixth Directive.
39.
That principle is consistent with the aim of that provision, which is designed to prevent the non-
taxation of business goods used for private purposes (see the judgments in Finanzamt Mnchen III v
Mohsche Case C-193/91 [1997] STC 195, [1993] ECR I-2615 (para 8) and Khne v Finanzamt Mnchen
III Case 50/88 [1990] STC 749, [1989] ECR 1925 (para 8)).
40.
However, I believe that, in exceptional cases and under special circumstances, which in this case
relate to the nature of the business, transport provided by an employer could be regarded as being
supplied for purposes which are not other than those of the business.
41.
The particular characteristic of a building firm is that its employees are required to work on building
sites in various locations according to the needs of the companys customers, rather than working on a
permanent basis at a place of work agreed in advance with the employer. The place in which they are
required to work can change from one day to the next, or even in the course of a single day. Employees
must be prepared to move as soon as the employer asks them to do so. That is a specific characteristic
which distinguishes employees in the building sector, in this case, from employees who are required to
work in a place determined in advance, for example on the premises of the company employing them.
Employees are consequently unable to exercise any degree of choice or control over the length of the
journey between their home and the workplace.
473
42.
The places where the employees concerned are required to work are generally difficult to reach by
traditional means, since they are building sites which may be situated, for example, on industrial estates
or in outlying areas.
43.
Furthermore, because those building sites may be some distance from the employees homes,
depending on where they are required to work, working hours in the building sector can mean that
employees have to get up particularly early in the morning in order to reach their place of work in time.
44.
In those circumstances, the risk involved for the employer in leaving employees to choose for
themselves how to travel from their homes to the workplace could be detrimental to the successful
operation of the company. It is possible that other more traditional means of transport, such as public
transport, might prove to be inadequate or even non-existent in those circumstances.
45.
Therefore, transport organised by an employer for its employees from their homes to their places of
work may, in certain special circumstances, such as those in the present case, be necessary to meet
fundamental requirements for the proper operation of the business. Although it cannot be denied that the
employees derive a benefit from the transport made available to them, that benefit seems to be of
secondary importance compared to the purposes of the business in respect of which the free collective
transport was organised.
46.
Although the fact that a collective agreement expressly provides for such transport is not conclusive, it
is none the less indicative of the fact that the building sector involves an activity with special
characteristics, which must be taken into account.
47.
I therefore consider that the answer to the second question should be that, although in general the
transport provided for employees from their homes to the workplace using a vehicle belonging to the
employer must be regarded as serving the private purposes of those employees and, on that basis,
subject to tax under art 6(2) of the Sixth Directive, that is not the case when, as a result of special
circumstances inherent, for example, in the nature of the business, those transport services serve
purposes which are not other than those of the business. Such a situation falls outside the scope of art
6(2) and the transaction is not taxable.
Third question
48.
By this question, the Bundesfinanzhof asks the Court of Justice, in the event that the second question
is answered in the affirmative, whether the fact that an employee may be commissioned to provide the
transport at issue, using his own private vehicle, is relevant.
49.
In view of the suggested answer to the second question, there is no need to answer the third question
in this case.
50.
However, if the circumstances were not such as to justify regarding the transport as being provided for
purposes which are not other than those of the business, the answer to the third question would not differ
from that given to the previous question. An employee commissioned to carry out a task on behalf of the
taxable person, within the meaning of the Sixth Directive, is not acting independently within the meaning
of art 4(1) thereof: transport services supplied by an employee must be regarded as comparable to
transport services supplied by the taxable trader, since they are carried out on behalf of that trader.
474
Conclusion
51.
For those reasons, I propose that the questions referred by the Bundesfinanzhof should be answered
as follows:
(1) Article 2(1) of Council Directive (EEC) 77/388 on the harmonisation of the laws of the
member states relating to turnover taxescommon system of value added tax: uniform basis of
assessment (the Sixth Directive) is to be interpreted as meaning that an employer who provides
transport for employees free of charge from their homes to the workplace, in the absence of any
real connection either with the work performed or the wages received, does not effect a supply of
services for consideration within the meaning of that provision.
(2) Article 6(2) of the Sixth Directive is to be interpreted as meaning that it applies where
employees are conveyed free of charge by the employer from their homes to the workplace and
back, in so far as the transport provided serves, in principle, the employees private purposes and
thus serves purposes other than those of the business. That provision does not, however, apply
where, as in this case, because of the specific nature of the business, the supply of those transport
services is not effected for purposes other than those of the business and therefore serves the
purposes of the business.
(3) The first sentence of the answer to question 2 also applies when the employer does not
convey the employees in its own vehicles, but commissions a third party (in this case, one of its
own employees) to do so.
16 October 1997.
Costs
38.
The costs incurred by the German government, the UK government and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the
national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the questions referred to it by the
Bundesfinanzhof by order of 11 May 1995, hereby rules: (1) Article 2(1) of Council Directive (EEC) 77/388
on the harmonisation of the laws of the member states relating to turnover taxescommon system of
value added tax: uniform basis of assessment (the Sixth Directive) is to be interpreted as meaning that an
employer who provides transport for employees free of charge from their homes to the workplace where
they are more than a specified distance apart, in the absence of any real connection either with the work
performed or the wages received, does not effect a supply of services for consideration within the
meaning of that provision. (2) Article 6(2) of the Sixth Directive is to be interpreted as meaning that
transport provided for employees free of charge by the employer between their homes and the workplace
in a company vehicle serves, in principle, the employees private purposes and thus serves purposes
other than those of the business. However, that provision does not apply when, having regard to certain
circumstances, such as the difficulty of finding other suitable means of transport and changes in the place
of work, the requirements of the business make it necessary for the employer to provide transport for
employees, in which case the supply of those transport services is not effected for purposes other than
those of the business. (3) The answer to the second question also applies when the employer does not
convey the employees in its own vehicles, but commissions one of its employees to provide the transport
using his own private vehicle.
480
Note
John Deere Ltd v European Commission
(Case C-7/95 P)
Cases cited
Hilti v European Commission Case C-53/92 P [1994] ECR I-667.
San Marco v European Commission Case C-19/95 P [1996] ECR I-4435.
Notes
For the EC Statute of the Court of Justice, art 51, see 50 Halsburys Statutes (4th edn), Current Service, p
5.
For the EC Treaty, art 168a (as amended by art G.50 of the Treaty on European Union), see ibid p 96.
Appeal
By application lodged at the registry of the Court of Justice of the European Communities on 13 January
1995, John Deere Ltd, a company incorporated in the United Kingdom, brought an appeal pursuant to art
49 of the EC Statute of the Court of Justice against the judgment of the Court of First Instance of the
European Communities ([1994] ECR II-957), by which it dismissed John Deere Ltds application for
annulment of Commission Decision (EEC) 92/157 relating to a proceeding pursuant to art 85 of the EC
Treaty. In its subsequent judgment dismissing the appeal, the Court of Justice outlined the principles
applying to appeals, and, in particular, the extent of the courts jurisdiction when hearing an appeal. John
Deere Ltd were represented by H-J Niemeyer and R Bechtold, Rechtanwlte, Stuttgart, with an address
for service in Luxembourg at the Chambers of Loesch and Wolter, 11 Rue Goethe. The European
Commission were represented by J Currall, of its Legal Service, acting as agent, and N Forwood QC, with
an address for service in Luxembourg at the office of Carlos Gmez de la Cruz, of its Legal Service,
Wagner Centre, Kirchberg. The language of the case was English.
28 May 1998.
482
A South African company, CMI, arranged to have a cargo of ferrochromium transported from the
Netherlands to France on the Rhine. The vessel chartered for that purpose foundered with its cargo in
Dutch inland waters and Drouot, the insurer of the vessels hull, had the vessel refloated at its own
expense thereby enabling the cargo to be salvaged. In August 1990 CMI and Protea (the insurers of the
cargo) brought an action in the Rotterdam district court against the owner and charterer of the vessel for a
declaration, inter alia, that they were not obliged to contribute to the general average. In December 1990
Drouot brought proceedings before the commercial court in Paris against CMI, Protea and GIE (Proteas
agents at the time of the experts report on the salvaging costs) for payment of the sum set for their
contribution to the general average. CMI and Protea raised an objection of lis alibi pendens in the French
court on the grounds of their earlier action before the Dutch court. The court rejected that objection on the
grounds that neither the parties nor the subject matter of the two actions were the same. Following a
series of appeals, the Cour de Cassation stayed the proceedings and referred to the Court of Justice of
the European Communities for a preliminary ruling the question whether, in such circumstances, the
insurer of the hull of a vessel was deemed to be the same person as its insured for the purposes of the lis
pendens provisions of art 211 of the Convention on Jurisdiction and the Enforcement of Judgments in Civil
and Commercial Matters 1968.
1
Article 21, so far as material, is set out at p 496 g, post
Held Where, having regard to the subject matter of two disputes, there was such a degree of identity
between the interests of an insurer and those of its insured that a judgment delivered against one of them
would have the force of res judicata as against the other, the insurer and the insured had to be considered
to be the same party for the purposes of art 21 of the convention. However, that provision did not preclude
the insurer and its insured, where their interests 483 diverged, from asserting their respective interests
before the courts as against the other parties concerned and, in those circumstances, it was for the
national court to ascertain whether the interests of the two parties could be considered to be identical.
Moreover, the existence of a national procedural rule which precluded insurers from being brought into an
action was of no relevance to the solution of the dispute. Accordingly, art 21 would only apply in the
instant case if it could be established, with regard to the subject matter of the two disputes, that the
interests of Drouot were identical and indissoluble from those of the owner and charterer of the vessel
(see p 498 h j and p 499 c to e g to h, post).
Notes
For the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
1968, art 21 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982), see 11 Halsburys
Statutes (4th edn, 1991 reissue) 1147.
Cases cited
Gubisch Maschinenfabrik KG v Palumbo Case 144/86 [1987] ECR 4861.
Maciej Rataj (The), Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92 [1995] All ER (EC) 229,
[1994] ECR I-5439, ECJ.
Zelger v Salinitri Case 129/83 [1984] ECR 2397.
Reference
By order of 8 October 1996, the French Cour de Cassation referred to the Court of Justice of the
European Communities for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by
the Court of Justice of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and
Commercial Matters 1968, a question (set out at p 497 j to p 498 a, post) on the interpretation of art 21 of
that convention, as amended. That question was raised in proceedings brought by Drouot Assurances
SA, a company incorporated under French law (Drouot), against Consolidated Metallurgical Industries
(CMI) and Protea Assurance (Protea), companies incorporated under South African law, and Groupement
dIntrt conomique (GIE) Runion Europenne (GIE Runion), on the subject of the cost of refloating a
barge known as the Sequana which foundered in the inland waters of the Netherlands on 4 August 1989.
Written observations were submitted on behalf of: Drouot, by V Delaporte, of the Paris Bar; GIE Runion,
by D Le Prado, of the Paris Bar; the French government, by C de Salins, Head of Sub-directorate in the
Legal Directorate of the Ministry of Foreign Affairs, and J-M Belorgey, Charg de Mission in that
directorate, acting as agents; the German government, by J Pirrung, Ministerialrat in the Federal Ministry
of Justice, acting as agent; and the European Commission, by X Lewis, of its Legal Service, acting as
agent. Oral observations were made by: Drouot, represented by V Delaporte; CMI and Protea,
represented by J-C Balat, of the Paris Bar; of the French government, represented by J-M Belorgey; and
the Commission, represented by X Lewis. The language of the case was French. The facts are set out in
the opinion of the Advocate General.
15 January 1998.
IINTRODUCTION
1.
The Court of Justice of the European Communities is asked, in this reference from the French Cour de
Cassation, to interpret the notion of the same 484 parties in art 21 of the Convention on Jurisdiction and
the Enforcement of Judgments in Civil and Commercial Matters 1968, as amended by the 1978
Accession Convention (Denmark, Ireland, United Kingdom) and the 1982 Accession Convention
(Greece)2. The issue is whether, in the context of a claim in general average made by an insurer in a
French court and an earlier claim for a negative declaration against the insured in a Dutch court that there
is no such liability, there is a lis alibi pendens for the purposes of art 21. Accordingly, the issue effectively
is whether the insured should be treated as the same party as its insurer.
2
Article 21 has been amended by art 8 of the 1989 Accession Convention (Spain, Portugual) (the San Sebastian
Convention), but the amended version entered into force between France and the Netherlandsthe two contracting
states concerned by the legal proceedings brought in the present caseonly on 1 February 1991. Although the facts of
this case arose in 1990, no changes made by the San Sebastian Convention are material to it.
485
7.
The lis alibi pendens plea was rejected on 11 March 1992 by the Tribunal de Commerce on the basis
that the parties to the two actions were not the same; viz Drouot was not a party to the Netherlands action
and Messrs Velghe and Walbrecq were not parties to the proceedings before it. Moreover, in the view of
the Tribunal de Commerce, the issues in the two actions were not the same. The defendants appealed to
the Cour dAppel (the Court of Appeal), Paris.
8.
According to the judgment of the Cour dAppel, CMI and Protea contended before that court that the
object of the two actions was the same and that Drouot was not a party to the Netherlands action only
because Dutch procedural rules 486 did not permit insurers to be named. In its judgment of 29 April 1994,
the Cour dAppel took the view that it was uncontested that Netherlands procedural rules precluded the
possibility for an insurance company to be present in a case involving its insured. Having recited the
broader scope of the Netherlands action (including, as it did, a claim regarding the owners liability for the
unseaworthy state of the vessel), it held that, in fact, it, none the less, encompassed the subject matter of
the French action. Furthermore, it held that Drouot could be regarded as a party to the Netherlands action
through the intermediary of the insured. Accordingly, the plea of lis alibi pendens was upheld.
9.
On appeal to the Cour de Cassation, Drouot contended, primarily, that the Cour dAppel should not
have upheld the lis alibi pendens plea, since neither the nature of the proceedings nor the identity of the
parties in the two actions was the same, and that the impugned judgment was incompatible with art 21 of
the convention10.
10
At the oral hearing, counsel for Drouot explained that, under the procedural rules of the Cour de Cassation, it had not
been possible for it to question the finding of the Cour dAppel regarding its presence through its insured in the
Netherlands action.
10.
The Cour de Cassation, being of the view that the appeal before it turned on the interpretation of the
concept of the same parties used in art 21 of the convention 11, decided to refer the following question to
the Court of Justice pursuant to arts 1 to 3 of the Protocol of 3 June 1971 on the interpretation of the
convention (see OJ 1978 L304 p 97):
11
The reference was received at the court on 25 October 1996. The report of the Cour de Cassations rapporteur, included
in the case file sent to this court, assists in appreciating the concerns that motivated the reference in the instant case.
The report notes that the courts case law regarding art 21 of the convention requires that it be interpreted autonomously
and that this would appear to preclude the application of the French-law principle under which there would be identity of
parties if the party opposing the plea of lis alibi pendens were represented by another party in allegedly related foreign
proceedings. While expressing some doubt as to the precise nature of the principle of Netherlands law relied upon in the
judgment of the Cour dAppel, the report suggests that the presumed presence at issue could satisfy the French-law
notion of effective representation.
whether, with regard in particular to the independent concept of same parties used in
Article 21 of the Brussels Convention, there is inter-state lis alibi pendens for the purposes of that
provision where a court of one Contracting State is seised by the insurer of a vessel that has been
shipwrecked with an action seeking from the owner and the insurer of the cargo on board partial
reimbursement, by way of contribution to the general average, of the refloating costs, when a court
of another Contracting State was seised previously by that owner and insurer with an action against
the owner and the charterer of the vessel for a declaration that they were not obliged to contribute
to the general average, and the court seised second declines jurisdiction, despite the parties in the
two cases not being strictly identical, on the ground that the procedural law applicable before the
court seised first restricts the opportunity for an insurer to be party to proceedings in which the
insured is involved so that the insurer of the vessel is in fact also involved, through the
intermediary of the insured, in the case brought first.
IIIOBSERVATIONS
11.
Written and oral observations have been submitted by Drouot, the French Republic and the European
Commission. On the other hand, GIE and the Federal Republic of Germany merely submitted written
observations while CMI 487 and Protea submitted joint oral observations. They may be summarised as
follows.
12.
At the hearing, counsel for Drouot pointed out that the general provisions of maritime law apply to
fluvial transport on the Rhine and Moselle rivers, under which, he submitted, Drouots contract of
insurance, in the absence of an express stipulation to the contrary, must be regarded as merely covering
the hull. Vessel insurance covers only liability for damage done by the vessel to other vessels or to port or
riverside installations. Drouot also submitted that the maritime rules of general average apply to
navigation on the Rhine and Moselle rivers (see further paras 17 to 19, below). Based on the case law
concerning art 21 of the convention12 Drouot submits that no lis alibi pendens may arise unless the same
parties figure in both proceedings. The criteria set out in art 21 must be construed autonomously from
related concepts in the respective laws of the contracting states. Both the judgment and Advocate
General Tesauros opinion in The Maciej Rataj, Tatry (cargo owners) v Maciej Rataj (owners) Case C-
406/92 [1995] All ER (EC) 229, [1994] ECR I-5439 support the view that there is lis alibi pendens only
when there is a strict identity of parties in the two procedures. At the hearing, Drouot submitted that, for
parties to be identical, they must have a common interest to defend or, at least, a common argument to
make, which, in its view, cannot be the case regarding its supposed representation by Mr Velghe in the
Netherlands action. It claims that, as insurer of the hull, it was not responsible for the general presumed
liability of the boat owner. In its written observations, Drouot submits that the status of a person as a party
before a court allegedly first seised must be determined by the law of the forum where the plea of lis alibi
pendens is raised, ie by French law in the present case 13. Finally, Drouot submitted that, apart from the
fact that it was neither voluntarily nor involuntarily a party to the Netherlands action, it had no interest in
that action, since, as insurer of the Sequana, it was liable to reimburse Mr Velghe in respect of his
contribution to the general average, notwithstanding the possible responsibility for the occurrence of the
accident.
12
It refers to Zelger v Salinitri Case 129/83 [1984] ECR 2397, Gubisch Maschinenfabrik KG v Palumbo Case 144/86
[1987] ECR 4861 and The Maciej Rataj, Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92 [1995] All ER
(EC) 229, [1994] ECR I-5439.
13
Drouot cites Zelger [1984] ECR 2397 (para 15), in favour of this contention and alleges that, in French law, it could not,
by virtue merely of being the insurer of the Sequana, be considered a party to the Netherlands action.
13.
In their oral observations, CMI and Protea, first, contended that Drouot was not merely, as claimed, the
insurer of the vessel but also of the personal liabilities of its captain and owner, namely Mr Velghe.
Secondly, counsel for CMI and Protea pointed out that his clients had initially brought an action in France
before the Tribunal de Commerce, Bthune (the place of Mr Velghes residence) against both Mr Velghe
and Drouot, in which, it was alleged, Drouot claimed that the action against it should have been brought in
Rotterdam. Accordingly, CMI and Protea instituted the Netherlands action but did not cite Drouot because
of the alleged Dutch procedural rules which prevent the insurer being a party to proceedings brought
against its insured. As regards the interpretation of art 21 of the convention, CMI and Protea contended
that the most important consideration was the avoidance of the adoption of incompatible decisions by
courts in different contracting states. They relied in particular on Gubisch Maschinenfabrik KG v Palumbo
Case 144/86 [1987] ECR 4861 as establishing the 488 identity of two causes of action concerning, on the
one hand, the annulment of a contract and, on the other, its enforcement.
14.
France submits that the autonomy of the conditions required for the occurrence of a lis alibi pendens
by art 21 of the convention would be undermined if the peculiarities of the procedural law of a contracting
state were to determine whether the same parties are present 14. It laid particular emphasis on the need
to respect the rights of defence, or fair hearing, of the insured. An insurer is not represented in national
proceedings by its insured. It does not have access to the court in legal proceedings involving its insured,
so as to permit it to present its own arguments or defend its position, and the legal rights and interests of
an insurer and its insured often do not coincide. Thus, even assuming identity between insurer and
insured, the rights of defence of insurance companies could only properly be guaranteed if art 21 of the
convention were interpreted as requiring, as a prerequisite to upholding a plea of lis alibi pendens, that
the parties supposedly present in both actions actually be involved as principal parties.
14
It refers esp to the opinion of Advocate General Tesauro in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-
5439 (para 19).
15.
Germany also stresses the importance of adopting an autonomous interpretation but argues for a
broad concept of same parties so as to avoid the occurrence of irreconcilable judgments within the
meaning of the third indent of art 27 of the convention. Given the relationship between the concepts of lis
alibi pendens and res judicata, Germany contends that parties to a second action, who are not formally
identical to those involved in a first action, should not be regarded as being the same, unless they would
be bound by the effects of the judgment given by the court first seised, so as to create a danger of
irreconcilable judgments if the plea were not upheld. For this purpose, the second court seised should
refer to either the substantive or procedural rules of the first court seised, as well as its own, in order to
determine whether any binding third party effects of the first courts judgment would be recognised.
Finally, Germany emphasises the need to ensure that art 21 be applied in a manner that respects the
requirements of effective access to court. Thus, where a plea of lis alibi pendens is upheld but the first
action is unsuccessful, it must remain possible for the party whose second action was affected by that
plea subsequently to resume its action before the second court.
16.
The Commission, though recognising that the question referred focuses only on the concept of the
same parties, submits that the two actions may be regarded as having the same cause of action and
object15. On the identity of the parties, the Commission observes that the question referred raises the
novel issue as to whether art 21 of the convention permits a court before which a plea of lis alibi pendens
is raised to go beyond the formal identification of the parties in the proceedings before the court first
seised. The concept of the same parties should, in its view, be interpreted strictly.
15
At the oral hearing the Commissions agent nevertheless expressed doubts as to whether this initial assessment was
correct.
Besides the need to preserve the autonomy of that concept from the laws of the contracting state
concerning matters such as subrogation, there are various other reasons which militate against
assimilating an insurer with its insured. The interests of an insured and an insurer are not necessarily
identical; the efficient administration of justice may not be well served by making the insurer await the
outcome of a first set of proceedings to which it is not a party whenever it wishes 489 to claim, in a
different action, that, for example, no subrogation actually arises. In the Commissions view the wording of
art 21, by referring to the same parties and not to other parties who may have rights or liabilities arising
from the rights or liabilities of the actual parties, supports this approach. At the hearing, the Commissions
agent questioned the practicality of the approach suggested by Germany: if the second court seised were
obliged systematically to assess the binding effects of a potential judgment to be given by the first court
seised before upholding a plea, the practical application of the notion of lis alibi pendens in art 21 would
become unduly complicated.
IVANALYSIS
AIntroduction
17.
The disputed claim in the French action concerns a contribution to general average. Although, as
France rightly points out, the court has not been asked to assess the similarity of that cause of action with
those involved in the Netherlands action, I think that it would still be helpful to take cognizance of the
nature of a claim for general average contribution. A short review of the particularities of the legal doctrine
of general average will, I think, assist the application in this particular case of the concept of identity of
parties in art 21 of the convention.
19.
The gist, therefore, of the notion of general average is that participants in a common commercial
adventure should contribute equitably to the damage or loss of one of the participants who has, for the
benefit of all, suffered a sacrifice or, by extension, reasonably incurred expense to prevent loss. Insurers
of the hull and cargo are treated as participants and may claim or be liable for general average
contribution. A claim for general average contribution is, therefore, not necessarily made by an insurer.
20.
That conclusion seems to me to have a bearing on the question of the capacity of Mr Velghe (and Mr
Walbrecq) before the Dutch court. It is true that an insurer, having fully discharged its liability to its
insured, may in certain circumstances, by virtue of a right of subrogation, effectively step into the shoes of
the insured so as to pursue claims (including a claim for general average contribution) against third
parties. This right may, depending on the applicable law, be exercised either in the name of the insured or
by the insurer in its own name, but only so as to invoke the rights of the insured and after payment. That
clearly does not apply to the Netherlands action; nor does it apply to the French action where Drouots
claim is not based on subrogation to any rights of Mr Velghe but on its general average claim. The precise
nature of the action before the Dutch court is known only indirectly; but it is generally agreed that it
includes, as one element, a claim for a negative declaration that CMI and Protea be held not liable to
contribute to general average. Thus, in the particular context of a general average claim, it is difficult to
see how the prima facie lack of identity between Mr Velghe and Drouot should be merged into an identity
of interest.
21.
However, there are other problems of a practical nature to be addressed in considering whether a
party should be treated as representing his insurers for the purposes of art 21 of the Brussels Convention.
The court in the contracting state where the issue of lis alibi pendens in the sense of art 21 of the
convention is raised, and which is informed of the existence of a prior action claimed to be between the
same parties in another contracting state, will need to conclude that an insured, a named party in the
other contracting state, should be treated as being the same party as his insurer. To start with, that court
will need to investigate the relationship between insurer and insured. It is notorious that disputes between
insurer and insured take a great variety of forms. I will cite only a few. The very existence of the policy
may be in dispute; if its existence is established or admitted its validity may be contested on grounds of
fraud, misrepresentation or non-disclosure; its application to the particular loss may be in doubt, as may
be the quantum of the loss, the means of proving it or the time for payment. Even in the present case,
there is a dispute between CMI and Protea, on the one hand, and Drouot, on the other (though not, so far
as I am aware, between Drouot and Mr Velghe), regarding the scope of the cover under Drouots policy of
insurance. The second national court, in my hypothesis, might have to reach a conclusion on any of those
potentially complex issues by reference to the law applicable in the other, or even a third, contracting
state.
22.
The comparison of the capacity in which the claim for general average contribution is made by Drouot
in the French court with that of Mr Velghe in the Dutch court is the key to the application of art 21 of the
convention. The Drouot claim is made in its capacity as a party to the enterprise having made a sacrifice.
It is not made as representative of Mr Velghe. Indeed, any claim made by the owner of a vessel which
had sunk against the owner of the damaged cargo would 491 be met, to say the least, with surprise,
unless it were itself based on general average, ie on sacrifice. However, in the present case, Mr Velghe
would not appear to have participated in the salvage of the vessel and, thus, would scarcely have
incurred any such sacrifice.
23.
Consequently, viewing the matter exclusively within the context of the present claim for general
average contribution, there is no such identity of interest between Drouot and Mr Velghe as would justify,
even if that were permitted, overlooking their nominal and real differences of identity so as to treat them
as the same party.
17
See also the judgment in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-5439 (para 30).
18
See footnote 11, above, regarding the possible position in French law.
25.
Next, it is necessary to assess what guidance the Court of Justices case law furnishes in respect of
the autonomous convention concept of the same parties. Zelger v Salinitri Case 129/83 [1984] ECR
2397 is not relevant because it only concerned the procedural formalities regulating the temporal point at
which a court may be regarded as having been seised of an action (see [1984] ECR 2397 (paras 1316)).
In Gubisch [1987] ECR 4861 (para 13), the court was concerned with a situation whose salient features
were that
one of the parties [had] brought an action before a court of first instance for the enforcement of
an obligation stipulated in an international contract of sale [while] an action was subsequently
brought against him by the other party in another Contracting State for the rescission or discharge
of the same contract.
The court declared that the conditions laid down by art 21 are exhaustive; namely, the two actions must
be between the same parties and involve the same cause of action and the same subject-matter (see
[1987] ECR 4861 (para 14))19. It proceeded, in circumstances where the present issue of identity of
parties was not in doubt, to take the view that the concept of the same cause of action cannot be
restricted so as to mean two claims which are entirely identical (see [1987] ECR 4861 (para 17)). That
the court was clearly motivated by the need to avoid 492 conflicting judgments emerges clearly from its
statement that in circumstances such as those of the case before it ([1987] ECR 4861 (para 18)):
19
The court, by oversight, stated ([1987] ECR 4861 (para 14)) that onlythe German version of Article 21 (which refers
to: Klagen wegen desselben Anspruchs zwischen denselben Parteien anhngig gemacht) does not expressly
distinguish between the terms subject-matter and cause of action, and that accordingly it must be construed in the
same manner as the other language versions, all of which make that distinction (my emphasis). In fact, at least the
English and Irish versions of art 21 of the convention also make no such distinction; thus, the English version refers to
proceedings involving the same cause of action and between the same parties while the Irish version refers to
imeachta leis an gcis channa chaingne agus idir na pirtithe canna (my emphases). The Danish text, for example,
would also appear merely to contain two conditions: derhar samme genstand og hviler pa samme grundlag (my
emphasis). However, in its judgment in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-5439 (para 38), the
court implicitly corrected the slip made in Gubisch by recognising that: the English version of art 21 does not expressly
distinguish between the concepts of object and cause of action. Reiterating the principle declared in Gubisch, the
court stated that that language version must however be construed in the same manner as the majority of the other
language versions in which that distinction is made.
There can be no doubt that a judgment given in a Contracting State requiring performance of
the contract would not be recognized in the state in which recognition is sought if a court in that
state had given a judgment rescinding or discharging the contract. Such a result, restricting the
effects of each judgment to the territory of the state concerned, would run counter to the objectives
of the convention, which is intended to strengthen legal protection throughout the territory of the
Community and to facilitate recognition in each Contracting State of judgments given in any other
Contracting State.
26.
CMI and Protea have argued from Gubisch for a broad and flexible interpretation of the concept of the
same cause of action and, by extension, of the same parties as those terms are used in art 21 of the
convention. It is true that, in Gubisch, the court held that the concept of the same subject-matter, which,
in effect, it interpreted into the English text by reference to the other language versions, could not be
restricted so as to mean two claims which are entirely identical ([1987] ECR 4861 (para 17)). In practice,
it applied that reasoning to the two actions one of which was brought to enforce and the other to rescind
or discharge the same contract. In doing so, it attached great importance to the purpose expressed, inter
alia, in art 27(3) of the convention of avoiding irreconcilable judgments between the same parties and how
such judgments could arise if the competing claims had to be entirely identical before a lis alibi pendens
plea could be upheld. That reasoning is not, however, equally applicable to the concept of the same
parties, since the judgment proceeds on the assumption that, whatever differences exist in the subject
matter, the parties are the same. Nothing in the judgment, in the text of art 21 or in the purpose of the
convention requires that a flexible approach be adopted in that instance. The contrary is rather the case.
Judgments are, in my view, truly irreconcilable only if they are contrary and given in actions between the
same parties.
27.
The judgment in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-5439 confirms this view and
has the merit of having addressed the issue of identity of parties, albeit not in the radical form suggested
in the instant case. The court had to examine whether the convention could be regarded as applicable in
the case of two sets of proceedings involving the same cause of action but where some but not all of the
parties were the same; ie where at least one of the plaintiffs 493 and one of the defendants to the
proceedings first commenced were among the plaintiffs and defendants in the second proceedings, or
vice versa (see [1995] All ER (EC) 229, [1994] ECR I-5439 (paras paras 2930)) 20. The court first agreed
with the recommendation of its Advocate General to the effect that the identity of the parties cannot
depend on the procedural position of each of them in the two actions, and that the plaintiff in the first
action may be the defendant in the second (see para 31) 21. Having regard to the wording and objective of
art 21, to prevent parallel proceedings, the court declared that art 21 must be understood as requiring,
as a condition of the obligation of the second court seised to decline jurisdiction, that the parties to the two
actions be identical (see paras 3233; my emphasis)22. It follows that this requirement must be strictly
construed.
20
The fifth question concerned the alleged identity of the causes of action in the two actions; namely, an action brought by
cargo owners in one contracting state (the Netherlands) in respect of damage caused during transit to their goods and
an action previously brought in another contracting state (the United Kingdom) by the shipowner whereby the latter
effectively sought a negative declaration regarding its possible liability for the damage to the cargo. The court took the
view that such causes of action were the same, since the positive and negative terms in which they were couched did
not render their object (to wit the determination of liability) different; see esp [1995] All ER (EC) 229, [1994] ECR I-
5439 (para 43).
21
See also the opinion of Advocate General Tesauro: [1995] All ER (EC) 229, [1994] ECR I-5439 (para 14).
22
In the English language, at least, the adjective identical refers to a thing that agrees in every detail with another thing
(see eg The Concise Oxford Dictionary (1990) p 585).
28.
Thus, in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-5439 (para 34), the court ruled that
where some of the parties are the same as the parties to an action which has already been
started, art 21 requires the second court seised to decline jurisdiction only to the extent to which the
parties to the proceedings pending before it are also parties to the action previously started before
the court of another contracting state. (My emphasis.)
I agree with the Commissions contention that the application of art 21 of the convention cannot depend
on the court before which the plea of lis alibi pendens is raised carrying out an inquiry into the true
capacity of parties before the court of a different contracting state.
29.
My view, therefore, is that the concept of same parties is to be interpreted literally and strictly. The
court has used the word identical. This means that not only must the parties to the two actions be the
same in the literal sense of the same natural or legal person, but also that they must appear in the same
right. In particular, a person suing in his own right and for his own benefit is obviously not to be equated
with the same person suing or being sued in a purely representative capacity, for example, as the legal
personal representative of a deceased person or a person under a disability, or in any of the wide range
of cases where a person may, in law, be named to represent corporate bodies or their creditors in cases
of insolvency.
30.
This does not, to my mind, create too rigid a framework for the operation of art 21 of the convention.
On the contrary, it is in conformity with the objective of simplification of formalities governing the
reciprocal recognition and enforcement of judgments found in art 220 of the EC Treaty, which authorised
the member states, among other things, to enter into the convention. Simple and transparent rules,
capable of being applied on the basis of objective and readily accessible factors best serve this objective.
Cases where a broader discretion is 494 required to stay proceedings where related actions are brought
in the courts of different contracting states are catered for by art 22 of the convention. As Advocate
General Tesauro explained in his opinion in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-5439
(para 28), the idea of irreconcilable judgments in the third paragraph of art 22 does not bear the same
restrictive meaning as in art 27(3). According to him, art 22
is intended rather to improve coordination of the judicial function within the Community and to
avoid conflicting and contradictory decisions, even where the separate enforcement of each of
them is not precluded
that is to say
the rationale of the provision is therefore to encourage harmonious judicial decisions and
thereby obviate the danger of judgments which conflict with each other, albeit only as regards their
reasoning.
An unduly broad interpretation of the requirements of art 21 would run the risk of confusing related actions
with lis alibi pendens. No question has, however, been referred to the court in this case with regard to the
exercise of the discretionary power conferred by art 22.
31.
Moreover, I share the concerns expressed, particularly in the observations of France and the
Commission, that a more flexible approach to the application of the condition that the parties must be the
same in order for an obligation to decline jurisdiction to arise under art 21 of the convention could
seriously imperil the right to a fair hearing and, in some cases, even the efficient administration of justice.
In the instant case, it is apposite to recall that the principle of Netherlands procedural law which forms the
basis for the supposed implicit presence of Drouot in the Netherlands actionat least if the court were to
accept the uncontradicted description furnished by counsel for Drouot at the hearingwould appear to
have slipped onto the case file before the Cour dAppel23. As Advocate General Tesauro pointed out in
his opinion in The Maciej Rataj [1995] All ER (EC) 229, [1994] ECR I-5439 (para 19), when
23
It should perhaps be added, although no criticism of the Cour dAppel is intended, that there is nothing on the case file
to indicate that its finding in respect of Dutch law was based either on expert evidence or other reliable sources of that
law.
reference to the domestic laws of contracting states [is] rendered necessary by the
incompleteness of the rules contained in the Brussels Convention [it] must be conducive to the
application of the provisions of the convention and may not in any circumstances lead to results
which conflict with its aims and rationale.
Accordingly, I do not think that the right of Drouot to a fair hearing would be served if art 21 of the
convention were to be interpreted as imposing an obligation, in circumstances such as those of the
present case, on the Cour dAppel to decline jurisdiction in respect of its claim in the French action when
its right to be heard in the Netherlands action would effectively depend on the attitude of Mr Velghe.
32.
The conclusion which must, to my mind, be drawn in circumstances such as those of the present case
is that no lis alibi pendens for the purposes of art 21 of the convention arises.
495
VCONCLUSION
33.
In the light of all the foregoing considerations, I recommend that the Court of Justice answer the
question referred by the French Cour de Cassation as follows:
No lis alibi pendens for the purposes of art 21 of the Convention on Jurisdiction and the
Enforcement of Judgments in Civil and Commercial Matters 1968, as amended, arises where a
court of one contracting state is seised by the insurer of a vessel that has been shipwrecked with
an action seeking from the owner and the insurer of the cargo on board partial reimbursement, by
way of contribution to the general average, of the refloating costs, when a court of another
contracting state was seised previously by that owner and insurer with an action against the owner
of the vessel for a declaration that they were not obliged to contribute to the general average.
19 May 1998.
Costs
26.
The costs incurred by the French and German governments and by the European Commission, which
have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are,
for the parties to the main proceedings, a step in the action pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the question referred to it by the
Cour de Cassation, France, by order of 8 October 1996, hereby rules: art 21 of the Convention on
Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968, as amended, is not
applicable in the case of two actions for contribution to general average, one brought by the insurer of the
hull of a vessel which has foundered against the owner and the insurer of the cargo which the vessel was
carrying when it sank, the other brought by the latter two parties against the owner and the charterer of
the vessel, unless it is established that, with regard to the subject matter of the two disputes, the interests
of the insurer of the hull of the vessel are identical to and indissociable from those of its insured, the
owner and the charterer of that vessel.
499
The two defendants were accused respectively of purchasing and selling counterfeit perfume products
without being registered for value added tax, and of participating in the manufacture, production,
distribution and sale of counterfeit perfume products through a business organisation which was not
registered for value added tax. The Inner London Crown Court held that the supply of counterfeit
perfumes could be subject to value added tax under Council Directive (EEC) 77/388 on the harmonisation
of the laws of member states relating to turnover taxescommon system of value added tax: uniform
basis of assessment and convicted both defendants of fraudulently evading value added tax contrary to s
72(1)1 and (8) of the Value Added Tax Act 1994. The defendants appealed to the Court of Appeal,
contending inter alia that Directive 77/388 precluded the charging of value added tax on the supply of
counterfeit products. The Court of Appeal stayed the proceedings and referred to the Court of Justice of
the European Communities for a preliminary ruling the question whether, on a proper construction of art
22 of Directive 77/388, the supply of counterfeit perfumes constituted a supply goods which was subject
to value added tax.
1
Section 72, so far as material, provides: (1) If any person is knowingly concerned in the fraudulent evasion of VAT
he shall be liable(a) to a penalty of three times the amount of the VAT (8) Where a persons conduct must
have involved the commission by him of one or more offences under the preceding provisions he shall be liable
(a) to a penalty of three times the amount of any VAT that was or was intended to be evaded
2
Article 2, so far as material, is set out at p 508 d, post
Held Directive 77/388 was based on the principle of fiscal neutrality which precluded a generalised
differentiation between lawful and unlawful transactions, except where, because of the special
characteristics of certain products, all competition between a lawful economic sector and an unlawful
sector was precluded. Although transactions involving counterfeit products infringed intellectual property
rights, any consequential prohibition of those goods was not linked to their nature, but to their detrimental
impact on the rights of third parties. Since such a prohibition was conditional and not absolute, as in the
case of narcotics or counterfeit currency, it was not sufficient to place trade in such products outside the
scope of the directive. Moreover, in so far as the trade in 500 counterfeit goods had a specific impact on
the lawful market in perfume products, the possibility of competition between counterfeit and lawfully
produced goods could not be ruled out and, accordingly, such goods could not, like narcotics or
counterfeit currency, be regarded as extra commercium. It followed that, on a proper construction of art 2
of the directive, value added tax was payable on counterfeit perfumes (see p 508 e j to p 509 a c to e h,
post).
Lange v Finanzamt Frstenfeldbruck Case C-111/92 [1993] ECR I-4677 and Witzemann v
Hauptzollamt Mnchen Case C-343/89 [1990] ECR I-4477 applied.
Notes
For the supply of goods in the context of Community VAT provisions, see 52 Halsburys Laws (4th edn)
para 2016.
Cases cited
Einberger v Hauptzollamt Freiburg Case 240/81 [1982] ECR 3699.
Einberger v Hauptzollamt Freiburg Case 294/82 [1984] ECR 1177.
Fischer v Finanzamt Donaueschingen Case C-283/95 (opinion) (1997) Transcript, 20 March, ECJ.
Horvath v Hauptzollamt Hamburg-Jonas Case 50/80 [1981] ECR 385.
Lange v Finanzamt Frstenfeldbruck Case C-111/92 [1993] ECR I-4677.
Mol v Inspecteur der Invoerrechten en Accijnzen Case 269/86 [1988] ECR 3627.
Vereiniging Happy Family Rustenburgerstraat v Inspecteur der Omzetbelasting Case 289/86 [1988] ECR
3655.
Witzemann v Hauptzollamt Mnchen Case C-343/89 [1990] ECR I-4477.
Wolf v Hauptzollamt Dsseldorf Case 221/81 [1982] ECR 3681.
Reference
By judgment of 24 December 1996, the English Court of Appeal referred to the Court of Justice of the
European Communities for a preliminary ruling under art 177 of the EC Treaty a question (set out at p 508
b, post) on the interpretation of Council Directive (EEC) 77/388 on the harmonisation of the laws of the
member states relating to turnover taxescommon system of value added tax: uniform basis of
assessment. That question arose in criminal proceedings against Mr Goodwin and Mr Unstead, who were
charged with the fraudulent evasion of VAT in respect of sales of counterfeit perfume products. Written
observations were submitted on behalf of: Mr Goodwin and Mr Unstead, by A Newman QC and P Guest,
Barrister, instructed by A Oxford, Solicitor, acting for Mr Unstead; the UK government, by J E Collins,
Assistant Treasury Solicitor, acting as agent, with S Richards and M Hoskins, Barristers; the Greek
government, by F Georgakopoulos, Legal Adviser to the State Legal Service, acting as agent, and A
Rokofyllou, Adviser to the Deputy Minister for Foreign Affairs, acting as agents; and the European
Commission, by H Michard and B Doherty, of its Legal Service, acting as agents. Oral observations were
made by: Mr Goodwin and Mr Unstead, represented by A Newman QC and P Guest; the UK government,
represented by J E Collins, with K Parker QC and M Hoskins; the Greek government, represented by F
Georgakopoulos and A Rokofyllou; and the Commission, represented by B Doherty. The language of the
case was English. The facts are set out in the opinion of the Advocate General.
501
12 March 1998.
which have special characteristics inasmuch as, because of their very nature, they are subject
to a total prohibition on their being put into circulation in all the Member States, with the exception
of strictly controlled economic channels for use for medical and scientific purposes (See the
judgments in Mol [1988] ECR 3627 (para 18) and Happy Family [1988] ECR 3655 (para 20).)
or, inasmuch as they may not be marketed or incorporated into economic channels 4, are wholly alien to
the provisions of the Sixth Directive on the definition of the basis of assessment and, in consequence, to
the provisions on the origination of a turnover tax debt 5.
4
See the judgment in Lange [1993] ECR I-4677 (para 12)
5
See the judgments in Happy Family [1988] ECR 3655 (para 17), Mol [1988] ECR 3627 (para 15) and Witzemann v
Hauptzollamt Mnchen Case C-343/89 [1990] ECR I-4477 (para 19). See also the judgments in Einberger v
Hauptzollamt Freiburg Case 294/82 [1984] ECR 1177 (para 20) (Einberger No 2) and Lange [1993] ECR I-4677 (para
12).
9.
Two kinds of product have already been recognised as possessing such special characteristics. The
first is narcotics, such as amphetamines or hashish, whose supply or importation independently of an
economic channel strictly controlled by the competent authorities for use for medical and scientific
purposes can give rise only to penalties under the criminal law (see the judgments in Mol [1988] ECR
3627 (para 15) and Happy Family [1988] ECR 3655 (para 18)). Similarly, and a fortiori, VAT is not payable
on imports of counterfeit currency, there being no circumstances in which such imports could be
authorised (see the judgment in Witzemann v Hauptzollamt Mnchen Case C-343/89 [1990] ECR I-4477
(para 20)).
10.
In the case of unlawful goods of that kind, an exception to the principle of fiscal neutrality is justified,
since because of [their] special characteristics, all competition between a lawful economic sector and an
unlawful sector is precluded (see the judgment in Lange [1993] ECR I-4677 (para 16))6.
6
See also the judgments in Mol [1988] ECR 3627 (para 18) and Happy Family [1988] ECR 3655 (para 20).
11.
On the other hand, when that case law was relied on in respect of computer systems, where there is
no absolute prohibition based on the nature of the goods or their special characteristics, the court held
that the mere fact that export of those goods to certain destinations was prohibited, because of their
potential use for strategic purposes, [could] not be sufficient to remove those products from the scope of
the Sixth Directive (see [1993] ECR I-4677 (para 17)).
12.
Finally, I would refer to Fischer v Finanzamt Donaueschingen Case C-283/95, currently pending before
the court, in which Advocate General Jacobs proposes in his opinion that the court should conclude that
unlawful roulette transactions such as those in issue fall within the scope of VAT [and] are therefore
taxable 503 under Article 2(1) of the Directive (see (1997) ECJ Transcript, 20 March (para 20)).
22.
Counterfeit products such as the perfumes at issue are not, as such, banned in the Community by
reason of their intrinsic nature. Obviously there is a lawful trade in perfumes, as indeed in any product
which can be counterfeited. While the marketing of counterfeit products may be banned, the object of this
is not the direct protection of a general interest; rather, the aim is either to prevent consumers from being
cheated as a result of purchasing goods other than those covered by the guarantees attaching to the
mark that is infringed, or, above all, to protect the individual interests of the holder of a right. Although
transactions involving such products infringe rules such as those governing intellectual property, the
ensuing prohibition is not linked to the nature or essential characteristics of the products.
23.
Counterfeiting is admittedly a plague which causes serious damage to lawful commercial activities 8,
and against which the Community has sought to guard itself, in the specific field of goods coming from or
destined for non-member countries, through the adoption of two successive regulations 9. Even today,
however, a finding that counterfeiting is illegal can only come about at Community level if the holder of the
flouted right takes action.
8
For comment, supported by statistics, see Gourdin-lamblin La lutte contre la contrefaon en droit communautaire
(1996) Revue du march commun et de lUnion europenne No 394.
9
Council Regulation (EEC) 3842/86 laying down measures to prohibit the release for free circulation of counterfeit goods
(OJ 1986 L357 p 1), replaced and amended by Council Regulation (EC) 3295/94 laying down measures to prohibit the
release for free circulation, export, re-export or entry for a suspensive procedure of counterfeit and pirated goods (OJ
1994 L341 p 8).
24.
The Community procedure which has been established opens as a rule with the lodging of an
application by the holder of the right which has been infringed (see art 3 of Council Regulation (EC)
3295/94 laying down measures to prohibit the release for free circulation, export, re-export or entry for a
suspensive procedure of counterfeit and pirated goods (OJ 1994 L341 p 8)). Regulation 3295/94 also
provides for the customs authorities to initiate a proceeding of their own motion by notifying the holder of
a right of a suspected risk of infringement and withholding the goods to enable him to lodge an application
for suspension of release (art 4). The fact remains that, even in such cases, continued suspension of
release depends on the holder of the right having applied to the competent authority for a decision on the
merits.
25.
Similarly, in cases involving not imported products, but goods manufactured in the Community (the
position in the present case cannot be 505 determined from the order for reference), the sale of those
goods must be presumed to be lawful unless and until the owner of the trade mark or a related right
shows that his exclusive rights have been infringed10.
10
In such cases the rules governing trade marks would apply, and in particular art 5 of Council Directive (EEC) 89/104 to
approximate the laws of the member states relating to trade marks (OJ 1989 L40 p 1), which provides that the owner of
a trade mark is entitled to prevent all third parties from using his trade mark or any sign where, because of its similarity
to that trade mark, there exists a likelihood of confusion.
26.
Thus, counterfeit goods, such as the perfumes at issue, are not unlawful at Community level by reason
of their inherent characteristics. They can only be prohibited if it is proved that they infringe a valid
property right. As the Commission has pointed out, the marketing of such products could at most be
subject to a conditional prohibition but not, as in the case of narcotics or counterfeit currency, wholly
banned. By contrast with those cases, the circumstances here are similar to those in Lange, where the
goods were not prohibited by reason of their very nature, and their exportation was banned only in
respect of certain countries where they could be used for strategic purposes. This is also the line of
reasoning which Advocate General Jacobs, in his opinion in Fischer, proposes that the court should follow
with regard to the unlawful organisation of roulette games.
27.
Since counterfeit products cannot, by reason of special characteristics, be ranked among goods which
may not be marketed or incorporated into economic channels, the possibility of competition with goods
which are traded lawfully can by no means be ruled out.
28.
As the UK government and the Commission rightly point out, unlike counterfeit currency or narcotics
(in respect of which either there is no lawful market or there is trading, but subject to such strict controls
that it can never compete with lawful trade), there is obviously a lawful market in perfume products which
forms an integral part of the Community economy. However, even though trade in counterfeit products is
prohibitedbecause of the harm it causes to the lawful business activities which are liable to be
supplanted by it, and in order to protect consumers 11and however much its existence may be deplored,
the fact that it still goes on cannot be denied. Refusal to take account of this (particularly from the tax
aspect, which is the one in point here) on the ground that, if such goods are banned, they are extra
commercium and cannot therefore be subject to VAT would confer on unlawful traders an unfair
competitive advantage over their legitimate rivals who, alone, would have to pay VAT.
11
See, to that effect, the second recital in the preamble to Regulation 3295/94.
29.
Moreover, the present case clearly illustrates the dangers of widening the courts case law concerning
exceptions to the principle of fiscal neutrality. It may very well be that the appellants calculated that,
notwithstanding the risk of prosecution entailed, trading in counterfeit perfume products would
nevertheless be worthwhile on the basis that VAT did not apply to those products. By the same token,
there can be no question of encouraging transactions of that type by guaranteeing them the benefit of an
unjustified tax exemption.
30.
Furthermore, as the UK government and the Commission emphasise 12, if levying of VAT were to
depend on whether or not a product is counterfeit, the whole integrity of the internal market would be
undermined. Given the lack of 506 harmonisation in this field, the catalogue of counterfeit goods varies
from one member state to another. Consequently, if the same tax treatment is to be accorded to all
transactions within the Community, the question whether VAT is payable on goods must be kept entirely
separate from the question whether or not those goods are counterfeit.
12
See also Advocate General Jacobs opinion in Fischer (1997) ECJ Transcript, 20 October (para 26).
31.
One last point. In all the cases cited above, the court has taken care to make it clear that the question
whether a transaction is subject to VAT is independent of the operation of other rules of domestic law,
particularly in the field of criminal law. In the present case, it is clear that this continues to hold true and
that the courts judgment will be wholly without prejudice to the powers of Member States to impose
appropriate penalties, including those with financial consequences, for contraventions of their legislation
(see, most recently, the judgment in Lange [1993] ECR I-4677 (para 24)).
32.
Accordingly, I conclude that transactions involving counterfeit products, such as the perfume products
at issue, fall within the scope of VAT. They are therefore subject to taxation under art 2 of the Sixth
Directive.
Conclusion
33.
In view of the foregoing considerations, I propose that the Court of Justice reply as follows to the
question referred by the Court of Appeal:
Article 2 of the Council Directive (EEC) 77/388 on the harmonisation of the laws of the member
states relating to turnover taxescommon system of value added tax: uniform basis of
assessment, must be interpreted as making the supply of counterfeit products, such as perfumes,
subject to VAT.
28 May 1998.
Costs
17.
The costs incurred by the Greek and UK governments and the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main action, a step in the proceedings pending before the national court, the decision on
costs is a matter for that court.
On those grounds, the Court of Justice (First Chamber), in answer to the question referred to it by the
Court of Appeal by judgment of 24 December 1996, hereby rules: on a proper construction of art 2 of
Council Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover
taxescommon system of value added tax: uniform basis of assessment, VAT is payable on the supply of
counterfeit perfumes.
509
The plaintiffs were a Danish farmer, who was entitled to a compensatory payment under Council
Regulation (EEC) 1756/92 establishing a support system for producers of certain arable crops, and KFK,
the assignee of a payment due to another Danish farmer under the same regulation. In the first case, the
farmer owed the state an amount in respect of value added tax which exceeded that of the payment to
which he was entitled under the regulation, with the result that the European Affairs Directorate of the
Danish Ministry of Agriculture set off the whole amount of the aid against that debt. In the second case the
farmer had assigned the annual amount of aid he could claim under the regulation to KFK. The document
recording the assignment had been notified to the directorate, which took note of it subject to the states
right of set off. Since the farmer had become indebted to the state before the date of the assignment, and
since his debt fell due before the aid could be paid, the directorate effected set off to cover the states
claim against the beneficiary of the aid and informed KFK that, as a result, it would not receive any
payment. The farmer in the first case and KFK both brought proceedings before the stre Landsret,
seeking payment of the amounts of aid to which they were entitled. The stre Landsret stayed the
proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling,
inter alia, the question whether Community law precluded a member state from setting off an amount due
to a beneficiary of aid payable under Community legislation against outstanding debts to that state.
Held Community law did not preclude a member state from setting off an amount due to a beneficiary of
aid payable under Community legislation and an outstanding debt to that member state. The position
would be different only if that practice interfered with the proper functioning of the common organisation of
the agricultural markets. In that respect, the capacity in which the member state granted aid under the
regulation, the fact that the rules of that member state on set-off required for set-off to be aviailable,
reciprocity of debts as between debtor and creditor, the practice generally followed by the member state
regarding set-off and the legal basis of the debt to the state involved in the set-off were of no importance,
provided that the national authorities ensured that the effectiveness of Community law was not in any way
undermined and that 510 economic operators enjoyed equal treatment; and it was for the national court to
determine whether that was the case (see p 541 j to p 542 b and p 544 a to c, post).
Cases cited
Albert Ruckdeschel & Co v Hauptzollamt Hamburg-St Annen, Diamalt AG v Hauptzollamt Itzehoe Joined
cases 117/76 and 16/77 [1977] ECR 1753.
Amministrazione delle Finanze dello Stato v San Giorgio Case 199/82 [1983] ECR 3595.
Association comit conomique agricole rgional fruits et lgumes de Bretagne (Cerafel) v Le Campion
Case 218/85 [1986] ECR 3513.
Balkon-Import-Export GmbH v Hauptzollamt Berling-Packhof Case 118/76 [1977] ECR 1177.
BayWa AG v Bundesanstalt fr Landwirtschaftliche Marktordnung Joined cases 146/81, 192193/81
[1982] ECR 1503.
Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043.
Continental Irish Meat Ltd v Minister for Agriculture Case 125/84 [1985] ECR 3441.
De Samvirkende Danske Landboforeninger v Ministry of Fiscal Affairs Case 297/82 [1983] ECR 3299.
DEKA Getreideprodukte GmbH & Co KG (in liq) v EEC Case 250/78 [1983] ECR 421.
Deutsche Milchkontor GmbH v Germany Joined cases 205-215/82 [1983] ECR 2633.
EC Commission v Germany Case 48/85 [1986] ECR 2549.
Eridania-Zuccherifici nazionali (SpA) v Minister of Agriculture and Forestry Case 230/78 [1979] ECR
2749.
Eurico Srl v EC Commission Case 109/83 [1984] ECR 3581.
Finsider v EC Commission Case 250/83 [1985] ECR 131.
France v EC Commission Case C-366/88 [1990] ECR I-3571.
Futura Participations SA v Administration des Contributions Case C-250/95 [1997] ECR I-2471.
Garage Molenheide BVBA v Belgium Joined cases C-286/94, C-340/95, C-401/95 and C-47/96 [1998] All
ER (EC) 61, ECJ.
Granaria BV v Hoofdproduktschap voor Akkerbouwprodukten Case 101/78 [1979] ECR 623.
Interagra (Compagnie) (SA) v EC Commission Case 217/81 [1982] ECR 2233.
Irish Creamery Milk Suppliers Association v Ireland Joined cases 36/80 and 71/80 [1981] ECR 735.
Italy v EC Commission Case C-34/89 [1990] ECR I-3603.
Peter v Hauptollamt Regensburg Case C-290/91 [1993] ECR I-2981.
Reichelt (Otto) GmbH v Hauptzollamt Berlin-Sd Case 113/81 [1982] ECR 1957.
Rewe-Zentral AG v Bundesmonopolverwaltung fr Branntwein Case 120/78 [1979] ECR 649.
Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989.
Russo v Azienda di Stato per gli Interventi Sud Mercato Agricolo (AIMA) Case 60/75 [1976] ECR 45.
Sucrimex SA v EC Commission Case 133/79 [1980] ECR 1299.
Unione Nazionali di Produktori di Olive (Unaprol) v Azienda di Stato per gli Interventi Sud Mercato
Agricolo (AIMA) Case C-186/93 [1994] ECR I-3615.
Wilhelm Fromme (Firma) v Bundesanstalt fr Landwirtschaftliche Marktordnung Case 54/81 [1982] ECR
1449.
511
Reference
By order of 10 April 1995, the stre Landsret (the Eastern Regional Court) referred to the Court of Justice
of the European Communities for a preliminary ruling under art 177 of the EC Treaty a number of
questions (set out at p 538 h to p 539 d, post) on the interpretation of Community law with regard to set-
off of amounts paid under Community law against debts payable to a member state and of arts 10(1) and
15(3) of Council Regulation (EEC) 1765/92 establishing a support system for producers of certain arable
crops. Those questions were raised in proceedings brought by Mr Jensen, a farmer entitled to a
compensatory payment under the regulation, and Korn- og Foderstofkompagniet A/S (KFK), the assignee
of another compensatory payment due under the same regulation, against Landbrugsministeriet, EF-
Direktoratet (the Directorate of European Affairs of the Ministry of Agriculture), concerning set-off by the
latter between the compensatory payments in question and outstanding debts payable to the state.
Written observations were submitted on behalf of: Mr Jensen, by A Philip of the Copenhagen Bar;
Landbrugsministeriet, EF-Direktoratet, by K Hagel- Srensen, of the Copenhagen Bar; the Danish
government, by P Biering, Head of Division in the Ministry of Foreign Affairs, acting as agent; the Irish
government, by M A Buckley, Chief State Solicitor, acting as agent, and E R Alkin, Barrister-at-law; the
Finnish government, by H Rotkirch, Ambassador, Head of the Legal Service in the Ministry of Foreign
Affairs, acting as agent; the Swedish government, by E Brattgrd, Departementsrd, acting as agent; the
UK government, by J E Collins, Assistant Treasury Solicitor, acting as agent, and K Parker QC; and the
European Commission, by H P Hartvig and T van Rijn, Legal Advisers, acting as agents. Oral
observations were made by Mr Jensen, represented by A Philip; Korn- og Foderstofkompagniet A/S,
represented by J Sberg, of the Silkeborg Bar; of Landbrugsministeriet; EF-Direktoratet, represented by K
Hagel-Srensen; the Danish government, represented by J Molde, Head of Division in the Ministry of
Foreign Affairs, acting as agent; the Greek government, represented by I Chalkias, Deputy Legal Adviser
to the State Legal Council, and E Mamouna, lawyer in the Special Department for Community
Proceedings of the Ministry of Foreign Affairs, acting as agents; the French government, represented by F
Pascal, Attach dAdministration Centrale in the Legal Directorate of the Ministry of Foreign Affairs, acting
as agent; the Irish government, represented by D Moloney, Barrister-at-law; the Finnish government,
represented by T Pynn, Legal Adviser in the Ministry of Foreign Affairs, acting as agent; and the
Commission, represented by H P Hartvig and T van Rijn. The language of the case was Danish. The facts
are set out in the opinion of the Advocate General.
27 November 1997.
IINTRODUCTION
1.
The issue in this case is whether member states can apply national rules of set-off between fiscal
debts owed under national law and sums due to the same persons pursuant to Community law. The
applicable Community legislation, part of the McSharry agricultural reforms, requires that certain
agricultural aids be paid to their intended recipients in their entirety, by a specified date.
512
4.
Article 13 of the regulation states that the measures provided for shall be deemed to be interventions
intended to stabilise the agricultural markets within the meaning of art 3(1) of Council Regulation (EEC)
729/70 on the financing of the common agricultural policy (OJ S edn 1970 (I) p 218). Article 10(1)
provides that the compensatory payments shall be made between 16 October and 31 December following
the harvest. Article 15(3), which is central to the present case, states that [t]he payments referred to in
this Regulation are to be paid over to the beneficiaries in their entirety. Article 2(2) of Regulation 615/92
provided, similarly, that [t]he payments referred to in this Regulation shall be made to 513 producers
without any deductions except as otherwise provided in this Regulation.
5.
At the time of the events giving rise to the present action 2, art 4 of Regulation 729/70 provided for the
designation by member states of authorities and bodies, empowered to effect the expenditure provided
for, to whom the European Commission would make available the necessary credits. The second indent
of art 4(2) provided that [t]he member states shall ensure that those credits are used without delay and
solely for the purposes laid down. After the end of the 1987 financial year, the member states were
required to mobilise the financial resources to cover the necessary expenditure, in accordance with the
needs of their disbursing authorities, while the Commission made payments to cover expenditure already
effected by the member states3.
2
Articles 4, 5 and 8 of Regulation 729/70 were amended by Council Regulation (EC) 1287/95, OJ 1995 L125 p 1, with
effect from 16 October 1995
3
Third sub-paragraph of arts 4(2) and 5(2)(a) of Regulation 729/70, as inserted and amended, respectively, by Council
Regulation (EEC) 3183/87 introducing special rules for the financing of the common agricultural policy, OJ 1987 L304 p
1, and further amended by Council Regulation (EEC) 2048/88, OJ 1988 L185 p 1. Article 5(2)(a) formerly provided for
the Commission to make advances to member states before expenditure was effected.
However, Member States may decide that the amount owed [in the case of wrongful payment to
a farmer] should not be paid over but deducted from the first advance or first payment due to the
farmer concerned after the date on which the repayment decision was taken. No interest shall run
after the beneficiary has been informed of the wrong payment.
10.
However, set-off is, in certain cases, precluded by social and general considerations 6. It is not the
practice to set off debts to private parties arising under the law of property (eg for the supply of goods and
services or under contracts) against other debts, such as fiscal debts 7. In addition, it appears that the
states practice with regard to economic subsidies has varied. In certain fields, set-off has not been
operated in the past as regards subventions for specific projects, on the grounds that the project might not
otherwise be completed. Law No 284 of 27 April 1994 provides for set-off in certain specified cases of
amounts not to exceed 20% of such subventions, although it appears that this is without prejudice to the
states general entitlement to set off the full amount. Subventions within the province of the Ministry of
Agriculture which are subject, in practice, to this limited form of set-off include those for the development
of agricultural or fishery products, whether in respect of projects in primary agriculture or those concerning
the processing of such products. It appears that set-off does not take place at all in respect of subventions
outside the scope of Law No 284.
6
It appears that set-off is not possible in respect of payments necessary to satisfy basic needs, such as salaries,
pensions and social aids.
7
See Circular No 186 of the Minister for Justice, of 22 November 1983.
11.
The assignment of a debt will not normally affect the right of set-off. Where a creditor assigns a debt to
a third party, the debtor may still claim set-off between that debt and moneys owed to him by the original
creditor save where the latter debt arose after he knew or could have known of the assignment. If, at the
time the debtor knew or ought to have known of the assignment, the assigned debt was not yet due, the
debtor can still proceed to set it off against the original creditors debt to him where the latter debt
becomes due, at the latest, on the same day as the assigned debt (see art 28 of law No 669 of 23
September 1986).
13.
The present litigation involves one case of simple set-off and one of set-off after an assignment, both
of which occurred in 1993, before the change of policy on the part of the Commission and the Danish
state. The aids owed to Mr Jensen at the end of 1993 (D Kr 33,563) were set off against VAT debts which
were due and which were greater than the amount of the aid. It appears that the aid would otherwise have
been used to make part payment of all of Mr Jensens debts, including that to the fiscal authorities, in the
framework of an agreement with his creditors, and that the set-off resulted in a significant reduction in his
payments to the other creditors.
14.
The Korn- og Foderstofkompagniet NS (KFK), a farm supplies company, had, for its part, received an
assignment in spring 1993 from a farmer, Mr Stenholt, of aid moneys which would be owed to him at the
end of the season (D Kr 45,574), in order to pay for certain supplies. However, the Danish state was able
to set off that amount against Mr Stenholts debts to the state under a debt-conversion loan dating from
1984, when his total debts to both public and private creditors were reduced in a procedure akin to
bankruptcy.
15.
Both Mr Jensen and KFK initiated proceedings before the stre Landsret (the Eastern Regional Court)
for the payment to them by the EC Directorate of the Ministry of Agriculture of the aids in question. The
national court suspended proceedings and referred the following questions for a preliminary ruling
pursuant to art 177 of the EC Treaty:
(1) Does Community law in general preclude a Member State from setting off an amount due to
the beneficiary of aid under a Community measure against outstanding debts to a Member State?
(2)(a) Is it of any significance for the answer to Question 1 whether the amount of aid under
Community law is paid in advance by the Member State 516 which has a claim to be reimbursed
for the aid paid out only if the rules of Community law on payment are satisfied, and which must
itself defray the expenditure involved in the administration of the support system? (b) Is it of any
significance for the answer to Question 1 that under the Member States rules on set-off it is a
condition for effecting set-off that there be reciprocity between the debtor under the principal claim
and the creditor under the counterclaim? (c) Is it of any significance for the answer to Question 1
that the Member States practice with regard to certain trade and environmental subsidies is
established in such a way as to permit set-off in an amount not exceeding 20% of the said state
subsidies? (d) Is it of any significance for the answer to Question 1 what legal basis exists for the
outstanding debt to the state against which set-off is to be effected? An answer is desired in
particular to the question whether the Member States have a greater scope to effect set-off if all or
part of the sum to be set off constitutes part of the Communitys own income?
(3) If Questions 1 and 2(a) to 2(d) are answered to the effect that set-off is in general possible,
or possible subject to certain conditions, is Article 15(3) of Council Regulation No 1765/92 to be
interpreted as meaning that a Member State is precluded from requiring a national intervention
agency to effect set-off in the case of a beneficiary of compensatory payments with outstanding
debts to the state which could otherwise be involved in set-off?
(4) Is Article 10(1) of Council Regulation No 1765/92 to be interpreted as meaning that the
compensatory amounts in question are to be paid over immediately the intervention agency has
concluded the procedure with regard to the beneficiarys application, or is it permissible to delay the
payment for an investigation as to whether the state has outstanding claims against the beneficiary
in respect of which it wishes to effect a set-off, provided always that the payment is effected at the
latest by 31 December of the relevant support year?
IIIOBSERVATIONS
16.
Written observations were submitted by Mr Jensen, the EC Directorate of the Danish Ministry of
Agriculture, the Commission, the Kingdom of Denmark, the Republic of Finland, Ireland, the Kingdom of
Sweden and the United Kingdom of Great Britain and Northern Ireland. Oral observations were submitted
by Mr Jensen, KFK, the ministry, the Commission, the Kingdom of Denmark, the Republic of Finland, the
French Republic, the Hellenic Republic and Ireland.
17.
Generally speaking, all of the member states which have submitted observations, as well as the
ministry, support the possibility of set-off of compensatory payments under the regulation against fiscal
debts, for largely similar reasons, although they do not all make submissions regarding all of the
questions referred by the national court. I will not, therefore, seek to distinguish the arguments attributable
to each in respect of the first and third questions. I will refer to them, simply, as the member states. While
the Commission does not wish to exclude in all circumstances the possibility of set-off by member state
public authorities of Community aids against national fiscal debts, it submits, as do Mr Jensen and KFK,
that this is impermissible in respect of aids granted pursuant to the regulation. It is, therefore, convenient
to summarise the arguments put forward regarding each of the questions referred by the national 517
court in terms of these two broad schools of thought. As the observations raise related arguments
in respect of the more general issue of set-off in Question 1 and the more specific issue of legislative
interpretation in Question 3, I propose to treat those two questions together.
Questions 1 and 3
18.
Mr Jensen, KFK and the Commission submit that art 15(3) of the regulation contains a clear
prohibition of set-off. The set-off and, thus, satisfaction of a counter-debt cannot be deemed to be
equivalent to payment in the absence of receipt of the moneys in question. The Commission argues that
the farmer should receive the money in the same way as if he had sold his produce. The farmer should
have a choice regarding its expenditure, rather than having a particular use of the money imposed
unilaterally. Both Mr Jensen and the Commission rely on the objectives of the regulation, summarised
immediately below, to reinforce this interpretation of art 15(3). The Commission states that art 15(3) of the
regulation does not prejudice either the attachment procedure or the imposition and recovery of taxes,
provided that this is not discriminatory and does not undermine the common organisation of the markets.
In response to a question at the oral hearing, the Commission stated that art 15(3) of the regulation would
not preclude the set-off of aid against moneys owed by a farmer under Community law, as is confirmed by
the case law of the court.
19.
Mr Jensen submits that, irrespective of whether reciprocity between the debts in question is required
by Community law or merely by Danish law, this condition is not satisfied in the present case. The aid
scheme established by the regulation is regulated, paid for and supervised by the Community. He and
KFK state that the aid scheme is merely managed by the member states, and that aids must be passed
on faithfully to its intended beneficiaries (see Unione Nazionali di Produktori di Olive (Unaprol) v Azienda
di Stato per gli Interventi Sud Mercato Agricolo (AIMA) Case C-186/93 [1994] ECR I-3615). It is
immaterial, therefore, whether the member states capacity is described as that of an agent or
intermediary, as the aid is really owed by a third party, the Community. Mr Jensen and KFK argue that set-
off by the state must be prohibited in all cases, as a member state cannot be permitted unilaterally to
exploit its position as the distributor of aid, without any form of judicial control (see Italy v EC Commission
Case C-34/89 [1990] ECR I-3603). Member state authorities would otherwise be in a privileged position
relative to other creditors, a view echoed by the Commission at the oral hearing. Mr Jensen states that
the objective of the agricultural reforms was not to give member states an easy new tax-collection device.
Furthermore, KFK states that the distribution of aid by an organ of the state itself, rather than by an
independent designated body, was not imposed by Regulation 729/70, but was a matter of choice for the
member states.
20.
The Commission states that there is no general Community law obstacle to the imposition or recovery
of national taxes in the agricultural sector, in the light of its close links with the economy as a whole, so
long as the structure of the market or the functioning of market mechanisms established by the common
organisation of the markets is not thereby undermined (see art 39(2)(c) of the Treaty). There are no
Community rules regarding set-off of Community aids against national fiscal debts, though art 14 of
Regulation 3887/92 and the decisions of the court in DEKA Getreideprodukte GmbH & Co KG (in liq) v
EEC Case 518250/78 [1983] ECR 421 and Continental Irish Meat Ltd v Minister for Agriculture Case
125/84 [1985] ECR 3441 permit set-off in cases where the reciprocal debts concerned arise pursuant to
Community law. The Commission states that neutral national rules on set-off would, therefore, normally
be permitted to apply in the absence of Community rules. Although Mr Jensen suggests that the express
legislative provision for set-off in art 14(2) of Regulation 3887/92 excludes it in all other circumstances,
the Commission does not think that provision relevant to other situations.
21.
However, Mr Jensen, KFK and the Commission all argue that the application of national set-off rules in
the present case would prejudice the achievement of the objective of the regulation, which is to make a
direct contribution to farmers incomes and to compensate for losses from the scaling down of price
guarantees and export refunds. The aid is an integral part of the credit base of farming enterprises. This
would be threatened if their cash-flow were to be cut off, whereas the former intervention system, being
indirect, did not lend itself to the use of set-off by the state. KFK observes that a mortgage on the crop
alone does not provide sufficient security because of the reduction in prices entailed by the agricultural
reforms, and submits that farmers should be able to choose the creditors to whom they grant security. Mr
Jensen and the Commission also point out that attachment of debts would remain possible and claim that
this is a more transparent procedure which is open to all creditors.
22.
The member states argue that art 15(3) of the regulation is insufficiently precise to give rise to a
prohibition of set-off of fiscal debts against aid. There is nothing in the recitals in the preamble to the
regulation to suggest any such legislative intention. Variations on the formula used in art 15(3) are to be
found in other legislation, such as art 2(2) of Regulation 615/92 and art 7(2) of Commission Regulation
(EEC) 84/93 on the specific aid to be granted to producer groups in the raw tobacco sector (OJ 1993 L12
p 5). The Commissions linguistic interpretation of the article would lead to legal uncertainty, as it would
never be clear in any given case whether the operation of set-off would prejudice the wider objectives of
the aid scheme.
23.
The member states argue that set-off results in the full payment of aid to the affected farmer: in so far
as his indebtedness is reduced by that entire amount, he is thereby enriched. Payment can take place
other than by the issuing of a cheque or other banking transaction. Thus, set-off is neutral in its effects.
Article 15(3) of the regulation is designed to prohibit, in reality, the deduction by the member states from
aid payments of administrative charges, which are not financed by the Community, or of special taxes, as
distinct from those of general application. The Commission communication which accompanied the
proposal for the regulation is cited in support of this view (see COM(91) 379 final, 18 October 1991,
Reform of the common agricultural policy).
24.
The member states argue that, in the absence of Community rules, national rules can continue to
apply, provided they are non-discriminatory and do not undermine the common organisation of the market
(see Rewe-Zentralfinanz eG v Landwirtschaftskammer fr das Saarland Case 33/76 [1976] ECR 1989,
Comet BV v Produktschap voor Siergewassen Case 45/76 [1976] ECR 2043 and Amministrazione delle
Finanze dello Stato v San Giorgio Case 199/82 [1983] ECR 3595). The courts case law recognises the
possibility of set-off, and its operation in the circumstances of the present case is no different, in principle,
from set-off in respect of wrongly paid Community aid pursuant to art 14(2) of Regulation 3887/92 (see
DEKA [1983] ECR 421). The provision for set-off in that provision 519 applies both to schemes which are
wholly financed by the Community and to those which are co-funded by the Community and the member
states. The universal right, in the member states legal systems, to set-off or to similar types of debt
recovery procedure should be considered to give rise to a general principle of Community law in its
favour. In the light of the principle of subsidiarity, any applicable national rules would have to be excluded
expressly.
25.
The consequences for debt collection of the agricultural reforms were not discussed by the Community
legislature, so that the objectives of those reforms cannot be invoked to prevent set-off. The reforms are
concerned with a move towards world market prices, rather than with guaranteeing a specific payment to
individual farmers, or their protection from creditors. Farmers do not escape the reach of the member
states general law9, and the close links between the agricultural sector and the rest of the economy can
vary the effect of the common agricultural policy in accordance with local economic conditions, including
levels of taxation (see art 39(2)(c) of the Treaty and Irish Creamery Milk Suppliers Association v Ireland
Joined cases 36/80 and 71/80 [1981] ECR 735).
9
See De Samvirkende Danske Landboforeninger v Ministry of Fiscal Affairs Case 297/82 [1983] ECR 3299.
26.
Prior to the reforms, there was nothing to prevent set-off of debts by operators, such as KFK, against
producers under the former system of indirect agricultural aids, nor does anything appear to preclude the
operation of set-off by private actors such as banks under the new regime. Furthermore, set-off was
possible as between public authorities and the operators under the price-support system. In any event, a
new system may give rise to new consequences for beneficiaries when managed within the framework of
a national legal system. The exclusion of the operation of set-off by member state tax authorities would
unjustifiably discriminate in favour of, and give a competitive advantage to, those farmers who do not pay
their taxes, to the detriment of the public treasury, of other categories of taxpayer, such as salaried
persons, and of farmers who punctually pay their taxes. Furthermore, private creditors such as KFK, who
are not even the intended beneficiaries of aid, would also benefit from this privilege. It would be especially
inappropriate since the state, unlike a private creditor, is not in a position to choose its debtors. The
recovery of taxes is a central state function, and the mandatory requirement of fiscal control is recognised
by Community law (see Rewe-Zentral AG v Bundesmonopolverwaltung fr Branntwein Case 120/78
[1979] ECR 649 (Cassis de Dijon)). There is a Community interest in the economies and fiscal health of
the member states. Moreover, it is unreasonable to force a solvent creditor to pay money to his insolvent
debtor.
27.
The member states emphasise the potential significance of this case for other types of debt recovery,
such as attachment. They take the view that the logic of the Commissions arguments would lead to the
condemnation of all types of seizure of aid, even by private parties, and would extend to set-off in favour
of the Community, which has already been expressly approved by the court. The exclusion of any type of
aid seizure for the purposes of debt recovery could make it more difficult for farmers to obtain credit. In
the alternative, continued acceptance of other debt recovery procedures such as attachment would
demonstrate the benefits of set-off, which is speedier and involves no additional cost for affected farmers.
The Commissions preference for judicial recovery procedures would interfere with the balance between
the rights of debtors and of creditors developed in the legal systems of the different member states.
520
Question 2
28.
Regarding Question 2(a), Mr Jensen submits that it is irrelevant that member states advance the
necessary moneys for aid payments from their own resources, as they have a right to claim a full
reimbursement from the Community. The change in payment procedure in 1988 (replacing the former
system of advance payment by the Community to the member states) cannot have altered the nature of
the agency relationship between the member states and the Community. The fact that member states can
only claim reimbursement if aid has been paid out in conformity with Community rules is in no way
inconsistent with such an agency relationship. The Commission took the view at the oral hearing that the
principle of reciprocity was not, in itself, a barrier to set-off because the member state acted on its own
account in distributing aid (see Eurico Srl v EC Commission Case 109/83 [1984] ECR 3581).
29.
The Ministry, Denmark and Finland argue that the debts in question are owed mutually by and to the
Danish state. The payment mechanism, the support of administrative costs by the member state, and the
fact that the member state is solely responsible to the Community for this expenditure, indicate that the
ministry is the farmers debtor in respect of the aid. The obligation to pay the aid is imposed directly upon
the member states, with the result that the beneficiary cannot claim aid directly from the Community (see
Unione Nazionali di Produktori di Olive (Unaprol) v Azienda di Stato per gli Interventi Sud Mercato
Agricolo (AIMA) Case C-186/93 [1994] ECR I-3615 and Eurico Srl [1984] ECR 3581).
30.
In response to Question 2(b), Mr Jensen argues that the general principle of equality requires that
reciprocity of debts be a condition of acceptance by Community law of the possibility of set-off. While the
court cannot interpret the Danish rules in this regard, it should make a finding as to the capacity in which
the ministry acts when managing Community aid schemes. Set-off would result in unacceptable inequality
as between member states, due to divergent practices.
31.
The Ministry agrees that the court should only rule on whether aid moneys are owed to the farmer by
the member state acting in its own capacity (on which it favours a positive response, however), and that
consequential questions of national law, regarding, for example, whether the state constitutes a single
juridical entity, should be left to be decided by the national court. The United Kingdom, on the other hand,
submits that reciprocity is a generally applicable condition for the operation of set-off in a Community law
context, but that it exists in the present context, as national authorities do not work for the account of the
Community, and that a wide margin of appreciation should be left to national law (see Eurico Srl [1984]
ECR 3581, Continental Irish Meat Ltd [1985] ECR 3441 and Unaprol [1994] ECR I-3615).
32.
Mr Jensen and the Commission argue, in respect of Question 2(c), that the operation of set-off in
respect of direct agricultural aids is discriminatory, and therefore unlawful, because equivalent national
subventions are either not subject to set-off at all or are subject to set-off limited to 20% of the total
amount (see BayWa AG v Bundesanstalt fr Landwirtschaftliche Marktordnung Joined cases 146/81,
192193/81 [1982] ECR 1503). The Commission adds that the highly discretionary manner in which set-
off is operated would in any event, create a permanent risk of discrimination. In the alternative, Mr Jensen
states that aid payments should be deemed to relate to the law of property, so that they cannot be set off
against fiscal debts.
521
33.
The Ministry argues that, although it is for the national court to undertake a comparison of Community
agricultural aids with national subventions, they are not equivalent, so that no unlawful discrimination
exists in Danish law.
34.
Mr Jensen suggests that the court should declare, in response to Question 2(d), that there is nothing
in Community law which indicates that member states should resort to otherwise impermissible recovery
techniques in respect of fiscal debts which contribute to the Communitys own resources. In any event,
only approximately 14% of VAT receipts form part of the Communitys own resources.
35.
The Ministry submits that, if set-off of fiscal debts against Community agricultural aids is not generally
permissible, it should, at least, be possible in respect of taxes which contribute to the Communitys own
resources. It observes that Council Regulation (EEC, Euratom) 1552/89 implementing Council Decision
(EEC, Euratom) 88/376 on the system of the Communities own resources (OJ 1989 L155 p 1), requires
member states to do all in their power to collect the taxes in question.
Question 4
36.
Mr Jensen submits that, where examination of an aid application has been completed, it is contrary to
art 10(1) of the regulation for payment to be delayed, even before the final deadline set out in that
provision, in order to permit an additional check for possible fiscal debts. This delay serves member
states unilateral interests, and is contrary to the requirement in art 4(2) of Regulation 729/70 that member
states ensure that payments are made without delay and solely for the purposes laid down. Furthermore,
such delays result in inequality of treatment, because they will vary as between different member states
(see Deutsche Milchkontor GmbH v Germany Joined cases 205-215/82 [1983] ECR 2633). Mr Jensen
has sought interest from the ministry from the date on which the examination of his aid application ended.
The Commission, on the other hand, takes the view that art 10(1) of the regulation has no significance for
the present case independently of art 15(3).
37.
The Ministry remarks that the regulation contains no special rules on the processing of applications,
and that the member states have a wide margin of appreciation regarding the manner in which they
manage the payment of aids, provided the deadline is respected (see Unaprol [1994] ECR I-3615). It is
for the national court to determine whether a speedy examination of the application has taken place. Both
Ireland and the United Kingdom submit that payment should take place within a reasonable period after
the completion of the examination of the aid application, subject to observance of the final deadline
imposed by art 10(1).
IVANALYSIS
38.
The first three questions referred by the national court all concern the question whether there are any
obstacles to the application of the Danish rules on set-off in the circumstances of the present case, either,
firstly, on the basis of its inconsistency with Community law in general, taking into account factors such as
the capacity in which the ministry acts when distributing Community aids, or, secondly, on the particular
basis of the operation of the Danish rule of reciprocity, the allegedly discriminatory manner in which set-off
is operated, and the legal basis of the fiscal debt which is satisfied by way of set-off, or, thirdly, on the
basis of its inconsistency with art 15(3) of the regulation. I shall, therefore, treat these 522 three questions
together, although it will be convenient to examine first Question 3 regarding art 15(3), since that provision
is claimed to amount to an express negation of set-off, followed by the more general Question 1 and then
the more specific queries in Question 2. I will then examine separately Question 4, which relates to the
manner in which set-off is operated, and needs to be answered only if set-off is permissible.
Questions 1, 2 and 3
39.
The text of art 15(3) of the regulation, cited particularly by the Commission, does not expressly
mention set-off. The crediting of the aid to the beneficiary by way of set-off against and, pro tanto,
discharge of an existing fiscal debt to the state responsible for granting the aid is clearly distinguishable
from the deduction of special administrative fees or taxes from the aid, which are the only forms of
deduction mentioned in the Commission communication accompanying its proposal for the regulation.
However, the imposition of special charges to compensate for national administrative costs would secure
no benefit of equal value for the beneficiary, and would be clearly prohibited by art 15(3). In the case of
set-off, the beneficiary receives the entire monetary value of the aid, although he does not have full
control over its disposal. The same would be true in the case of attachment of the aid to discharge a debt,
or of any other process of execution applied against the beneficiary or his assets either in anticipation of
or after actual payment. These are all consequences of the fact that, as Advocate General Mancini put it
in DEKA [1983] ECR 421 at 439:
a person who is under an obligation to make a monetary payment offers his creditors a kind
of general guarantee in the form of his assets [T]he debtor is in a subordinate position in regard
to his own assets.
There would be no question of the aid not being considered to have been paid in full if it were transferred
to the beneficiary, formed (perhaps only momentarily) part of his assets and were then seized or attached,
against his will, for the benefit of any creditor. Execution before the actual transfer of money differs little,
from the point of view of the degree of liberty enjoyed by the beneficiary in respect of his assets, from any
form of post-payment execution10. Furthermore, there is no evidence that the Community legislature
intended, in adopting the rather laconic art 15(3), to limit the widely varying debt-recovery methods which
exist in national law. I conclude, therefore, that art 15(3) of the regulation does not prohibit the setting off,
under national rules, of aid under the regulation against prior debts to the state, where that is provided for
by national law and the beneficiary of the aid is credited with its full value.
10
Regarding its effects on creditors, see paras 47 to 54, below.
40.
I now turn to the more fundamental inquiry required by Question 1, namely whether the application of
national rules on set-off in the context of the regulation is contrary to Community law.
41.
It is one of the fundamental characteristics of a common organisation of the market that the member
states are deprived of their powers unilaterally to regulate the sector concerned. The court said of
member states in EC Commission v Germany Case 48/85 [1986] ECR 2549 (para12), [t]heir legislative
competence can only be residual; it is limited to situations which are not governed by the Community
rules and to cases where those rules expressly give them power to act. The latter situation is exemplified
by art 8(1) of Regulation 729/70, which 523 provides for the supervision of the exercise of Community
policies and the prevention and remedying of irregularities to be governed by national law 11. In the former
situation, where Community law is silent, it is supplemented by national procedural or substantive rules in
order to give effect to Community law rights12. On the other hand, nothing in the common organisation of
markets deprives member states of their right generally to legislate in respect of independent aspects of
national policy. The court has, for example, ruled that the imposition of a temporary excise tax on
agricultural produce or a land tax on agricultural property, in pursuance of a national incomes policy
designed to share the burden of taxation, is not, in principle, incompatible with Community law. The
common agricultural policy is not intended to shield its beneficiaries from the effects of distinct national
policies of general application (see the judgments in Irish Creamery Milk Suppliers Association [1981]
ECR 735 (para 13) and De Samvirkende Danske Landboforeninger [1983] ECR 3299 (para 8)). The
courts recognition of the member states competence to pursue and protect their own fiscal interests 13
may, indeed, be flanked by recognition of a distinct Community interest in the fiscal efficacy of the
member states, not only because VAT and customs duties contribute to the Communitys own resources,
or because coordination of member state economic policies, including levels of public indebtedness, is a
matter of common concern in a developing economic and monetary union, but, ultimately, because the
proper functioning of the Community depends on the adequacy of the administrative, judicial and other
machinery which is operated and financed by the member states (see arts 3a(3) and 104c of the Treaty).
In my opinion, national rules governing the payment and collection of fiscal debts and all associated
matters, including processes of execution or attachment, priorities between creditors and, therefore, rights
of set-off come within the scope of that principle, provided they are, otherwise, compatible with
Community law.
11
See the judgments in Balkon-Import-Export GmbH v Hauptzollamt Berling-Packhof Case 118/76 [1977] ECR 1177 (para
5), Deutsche Milchkontor GmbH [1983] ECR 2633 (para 2), Italy v EC Commission Case C-34/89 [1990] ECR I-3603
(para 9) and BayWa AG [1982] ECR 1503 (para 29).
12
See the judgments in Rewe-Zentralfinanz [1976] ECR 1989, Comet BV [1976] ECR 2043 and San Giorgio [1983] ECR
3595 (para 12).
13
See also the judgment in Cassis de Dijon [1979] ECR 649 (para 8), Futura Participations SA v Administration des
Contributions Case C-250/95 [1997] ECR I-2471 (para 31) and, in a different context, my opinion in Garage Molenheide
BVBA v Belgium Joined cases C-286/94, C-340/95, C-401/95 and C-47/96 [1998] All ER (EC) 61 (para 43).
42.
In all such cases, the application of national rules is subject to conditions which, generally speaking,
are designed to ensure the effectiveness of Community law. For example, in Deutsche Milchkontor GmbH
[1983] ECR 2633 (paras 2223)14, the court outlined the conditions regarding national rules on recovery
of wrongly paid sums, expressly referred to in art 8(1) of Regulation 729/70:
14
See also the judgments in Balkon-Import-Export GmbH [1977] ECR 1177 (para 5), BayWa AG [1982] ECR 1503 (para
29) and Italy v EC Commission Case C-34/89 [1990] ECR I-3603 (para 9).
In the first place the application of national law must not affect the scope and effectiveness of
Community law. That would be the case in particular if the application of national law made it
impossible in practice to recover sums irregularly granted Secondly, national law must be
applied in a manner which is not discriminatory compared to procedures for deciding similar but
purely national disputes.
524
Where Community law relies implicitly on the supplementary framework of national substantive and
formal rules to secure the exercise of Community law rights, those rules are also subject to the conditions,
which I shall call the San Giorgio rules, that they may not be less favourable than those relating to similar
claims regarding national charges and they may not be so framed as to render virtually impossible the
exercise of rights conferred by Community law (see the judgment in San Giorgio [1983] ECR 3595 (para
12)).
43.
Independent national rules are subject to specific conditions, having regard to the fact that they are not
immediately or directly necessary for the implementation of Community law in the field in question. In the
field of the common organisation of agricultural markets, such national rules would be incompatible with
the Treaty if they interfered with the functioning of the machinery employed by those organizations in
order to achieve their ends (see the judgment in Irish Creamery Milk Suppliers Association [1981] ECR
735 (para 15))15. Such interference could, in the case of a national tax, be manifested by an effect on
price levels, on supplies on the market, or on the structure of agricultural production or of agricultural
holdings (see the judgments in Irish Creamery Milk Suppliers Association [1981] ECR 735 (para 22) and
De Samvirkende Danske Landboforeninger [1983] ECR 3299 (paras 1416)).
15
See also De Samvirkende Danske Landboforeninger [1983] ECR 3299 (para 1). The court has not found that the liability
to pay national taxes of farmers in receipt of Community support is contrary to the requirement in the applicable version
of art 4(2) of Regulation 729/70 that member states use credits made available by the Commission solely for the
purposes laid down.
44.
The setting off, on the basis of national rules, of aids due to farmers under the regulation against fiscal
debts owed by those farmers to a member state belongs, in part, to both situations. Set-off is a procedure
provided for in Danish law which, while securing the payment in full of Community aids, does so in a
particular manner with a view to securing the independent national objective of recovering tax revenue. I
refer to the conditions regarding both types of rules in the analysis which follows. I do not think, however,
that in a hybrid case such as the present, the differently formulated conditions, recited in paras 42 and 43,
above, result in materially different requirements. The key issues are whether the implementation of set-
off renders actually or virtually impossible the enjoyment of rights under the regulation or otherwise affects
the functioning of the system established thereby, and whether set-off gives rise to discrimination relative
to the exercise of similar rights under national law.
45.
The court has already indicated in DEKA [1983] ECR 421 (paras 1314) that, in the case of an
insolvent trader, set-off by the Community of a reciprocal or related claim may be the only practicable way
to recover wrongly paid sums which are owed directly to the Community. Advocate General Mancini had
suggested in his opinion that, in order to ensure uniformity throughout the Community, such a right of set-
off should be deemed to be based on a general principle common to the legal systems of the member
states, and applied to claims having their basis in Community law ([1983] ECR 421 at 439). The same
reasoning clearly underlies the judgment ([1983] ECR 421 (paras 1315)) 16. The court noted that
Community rules on production and export refunds could give rise not only to debts which could be raised
by traders against the administering authorities, but also to claims against traders for the reimbursement
of wrongly paid sums, and that reciprocal and even related claims could result, as between 525
authorities and traders, which are an appropriate subject for set-off (see [1983] ECR 421 (para 13)).
16
Paragraph 15 refers expressly to a general principle against fraudulent assignment of claims.
46.
In Continental Irish Meat Ltd [1985] ECR 3441, the court accepted, without objection, the application of
national set-off rules in respect of monetary compensatory amounts owed, respectively, by and to the
intervention agency of the member state concerned. Two points may be made. First, the operation of set-
off is permitted for certain schemes by art 14(2) of Regulation 3887/92. Wrongly paid aids may be
deducted from aids still to be paid. Article 14(2) of Regulation 3887/92 does not, in my view, exclude, by a
contrario reasoning, the operation of set-off in other contexts. This much is clear, of course, from the
continuing applicability of the courts own case law in the matter, but also from the context of that
provision. Article 14 of Regulation 3887/92 is concerned generally with the recovery of wrongly paid sums,
and set-off is permitted as an alternative to other forms of recovery. It should not, therefore, be read as
prejudging the issue in respect of debts arising outside the particular context with which it is concerned.
Secondly, if Community law permits set-off, either directly in the Communitys own favour, or by the
member states in contexts where both debt and counter-debt arise under a Community scheme, then the
Communitys interest in the effectiveness of member state fiscal control dictates that set-off of aid under
the regulation against fiscal debts due to a member state should be permitted pursuant to national rules,
unless there is compelling evidence of a detrimental impact on the scope and effectiveness of Community
law, including that of the regulation. No distinction of principle should, in my view, be drawn, in the
absence of a clear contrary indication, between a debt owed to a member state authority charged with the
recovery of Community funds and one charged with the collection of taxes, such as would permit the first
but not the second to withhold payment by way of set-off in discharge of a debt admittedly due. To hold
otherwise would invert the San Giorgio rules by requiring national law to give preferential treatment to
Community law debts.
47.
The objectives of the regulation clearly relate to the general functioning of agricultural markets. This
emerges not only from the recitals quoted above, and from the statement in art 13 that expenditure under
the regulation is intended to stabilise agricultural markets, but also from the nature of the scheme
established by the regulation. Thus, while it is sought to compensate farmers for the drop in prices,
compensation is not calculated on the basis of particular farmers entitlements under the pre-existing
regime, but, rather, by reference to regional productivity, which may over or under compensate certain
farmers (art 4(1) and (2)). It is also subject to variation in the light of changes on the markets (art 15(1)),
while an excess of applications relative to the area forming the basis of the compensation calculation will
lead to proportionate aid reductions for all and, eventually, to increased, uncompensated set-aside (art
2(6)). Thus, contrary to the arguments of Mr Jensen and KFK, the regulation is not designed to protect
every individual farmer against any drop in disposable income. Furthermore, no such entitlement arises
from Community law generally (see SpA Eridania-Zuccherifici nazionali v Minister of Agriculture and
Forestry Case 230/78 [1979] ECR 2749). I accept the arguments advanced by the member states that
farmers were both directly and indirectly subject to the vagaries of set-off procedures under the old
regime (see para 25, above). Operators could set off the aid-subsidised prices owed to producers against
debts owed to them. Moreover, the intervention agency of each member state could operate set-off of
price 526 support aid against amounts owed by operators. In a situation of insolvency, this would
inevitably have resulted in a loss to the operators other creditors, possibly including farmers to whom
payment for produce was due17.
17
This could have occurred eg in the circumstances of Continental Irish Meat Ltd [1985] ECR 3441.
48.
In my opinion, the mere fact that direct set-off by the state against aids due to farmers was not
practicable in the past does not exclude its applicability now. The real question is whether the new system
established by the regulation would be so affected by set-off as to undermine its proper functioning.
49.
As I have already pointed out, set-off results in the farmer being credited with the full amount of the aid
in question, although his freedom to dispose of it as he pleases is restricted. In this, he is already at an
advantage relative to other forms of deduction which are, in principle, permitted by Community law, such
as the levying of taxation, which actually reduce the value of the aid to the farmer (see Irish Creamery
Milk Suppliers Association [1981] ECR 735 and De Samvirkende Danske Landboforeninger [1983] ECR
3299). The deduction of aid moneys at source to satisfy existing tax debts, in a fashion which ensures
that the full value of the aid none the less accrues to the farmer, having regard to his liabilities as well as
his disposable income, does not appear any more likely to affect the objectives of the common
organisation of the market than such direct taxation.
50.
Furthermore, not surprisingly, nobody has contested the right of creditors generally to avail of
attachment or other forms of execution or judicial attachment, against the debtor farmers will. The
distinguishing feature is not, however, the degree of protection of the farmer, whose aid may be diverted
in all cases, but that of other creditors, persons not directly addressed by the regulation. There is no
immediate Community interest in disturbing the balance drawn by national law between the rights of
different classes of creditors.
51.
The degree of protection of a farmers private creditors has been linked to the functioning of the
regulation, however, through the invocation of the need for liquidity. The interest of banks or supply
companies in offering credit to farmers is said to be reduced if either their expectation of being able to
attach aid, or their formal entitlement to the aid through the operation of an assignment, is endangered by
the intervention of set-off operated by the state, to the ultimate detriment of farmers. There is nothing to
suggest that the regulation is concerned with farmers liquidity as such. This depends on many structural
factors as well as the level of price or aid they receive factors like seasonality, levels of interest rates, land
values and so on. Putting the matter bluntly, the Community can hardly intend to contribute to farmers
liquidity by enabling them to delay or defeat legitimate tax claims against them.
52.
In any event, a prohibition of state set-off of national fiscal debts against aid on grounds which were
equally applicable to set-off by other parties and to attachment could ultimately have a much more
detrimental effect on farmers creditworthiness and liquidity than continued recourse by the state to one
among a number of forms of recovery provided for in national law.
53.
Set-off is of importance only in situations of actual or impending insolvency. Its application to mutual
running accounts between traders is routine and uncontroversial, because it suits the convenience of both
parties. It is inherently unlikely that the insolvent farmer, or one in financial difficulty, would personally
enjoy the free disposal of the aid moneys. The various forms of set-off and recovery which exist in the
legal systems of the member states are all 527 concerned with managing the risks posed to creditors by
insolvency18. The possibility of set-off grants an advantage to the creditor whose debtors debt to him is
matched, in whole or in part, by a debt he owes to his debtor, of which he can take advantage to alleviate
that risk. It has been asserted that the state should not be permitted to exploit its privileged access to aid
moneys by way of set-off. However, it is in the nature of set-offa practice which the court has not found
objectionable per se, in other contextsthat one creditor has the good fortune to find himself in such a
privileged position, relative to others. It is important not to view that privilege in isolation from others which
may exist. All forms of security are contingent on some kind of privileged access to the means of
recovering the debt in question. Other creditors may have organised their affairs in order to have equally
privileged access to other assets of the farmer. These might include ensuring that they owe him amounts
for produce which match the credit granted, retaining title in equipment supplied or securing a mortgage
on the farmers lands, crops or other property. The argument against such privileged access, by the state
or any other creditor, is essentially an argument based on fairness, relative to other creditors, rather than
one touching on the proper functioning of the regulation. I can only repeat that there is no apparent need
in Community law to disturb the balance drawn by the various national legal systems between the
entitlements of different types of creditor, secured or unsecured. The same is true of the relative status in
national law of the right to set-off and of rights under arrangements with creditors such as that which was
apparently concluded by Mr Jensen.
18
See, once more, the judgment in DEKA [1983] ECR 421 (para 14), as well as the opinion of Advocate General Mancini
([1983] ECR 421 at 439), his opinion in Continental Irish Meat [1985] ECR 3441 at 3447 and the reference to a
shortage of funds in my opinion in Garage Molenheide [1998] All ER (EC) 61 (para 41).
54.
It has also been argued that the farmers ability to secure private credit is reduced if set-off is availed
of by the state, to the detriment of his private creditors: the farmer cannot then use the benefit of the aid to
give security to the creditor of his choice. However, a farmer could never use a future aid payment to
secure credit from the fiscal authorities, who, as has been said, cannot avoid being his creditor, and, thus,
do not have to be enticed to grant credit. Just as public authorities are the only bodies likely to be obliged,
in the general interest, to be the creditors of any given economic actor (for taxes, customs duties, or other
dues), they are the bodies which are responsible, in the general interest, for the payment and distribution
of various types of aid and benefit (economic, social security, and so on) to wide sections of the
population. The fact that the state may have privileged access to various types of public aid, including
Community-funded aid, cannot, therefore, be examined in isolation from the fact that it has the burden of
collecting taxes and other dues which ultimately go to fund such aids, as well as the machinery for
administering them. While their functions are very different, no cogent argument has been advanced to
suggest why the benefits of risk management pursuant to ordinary national debt-recovery rules should be
denied to the state, whose role entails that it be both creditor and debtor, while they can continue to be
granted to creditors who freely accept the risk of advancing credit to freely contracting economic actors
such as farmers.
55.
It also follows from the states necessary role as fiscal creditor that, in the absence of set-off, farmers
in difficulties with their taxes would be able to avail of 528 this involuntary credit while simultaneously
borrowing on the security of their entitlement to aids under the regulation. Such borrowing would
inevitably result in a loss of revenue to the state. The court has already had occasion to condemn
assignments, where they amount to fraud on creditors (in that case, the Community itself) in DEKA [1983]
ECR 421 (paras 1518).
56.
Finally, my response to the argument that permitting set-off in this case will result in widespread
differences in treatment as between the different national legal systems, leading to a disruption in the
functioning of the common organisation of the markets is that, if the disparities prove to be such as to
compromise the equal treatment of producers in different member states or to distort or impair the
functioning of the common market, it is not for the court to exclude the application of all such national
rules on debt recovery, but for the Community legislature to adopt the provisions needed to remedy such
disparities (see the judgment in Deutsche Milchkontor GmbH [1983] ECR 2633 (para 24)).
57.
I shall now turn to Question 2(a) to (d), where the national court draws attention to certain specific
aspects of the national rules.
60.
In its judgment in Unaprol [1994] ECR I-3615, for example, the court noted that Community law did not
regulate the right to retain interest earned on sums held by a national intervention agency pending
disbursement to beneficiaries in the form of aid. The existence of such a right was thus a matter to be
settled by national law, provided that the rules in question did not jeopardise the uniform application or
effectiveness of Community law (see [1994] ECR I-3615 (paras 24 52925, 28)). The court did not need,
therefore, to classify the national agency either as an intermediary or as owner of the sums in question
(see para 12).
61.
I have already stated my opinion that the interests of aid beneficiaries are not prejudiced by set-off in
any way which disturbs the proper functioning or the achievement of the objectives of the regulation, or
which contravenes the provisions of Regulation 729/70. For the same reasons, it cannot be said that the
Community suffers any prejudice thereby.
62.
It may be helpful, none the less, to state my view on the capacity in which the authorities designated
by member states act, as a matter of Community law, when they pay out moneys under the regulation, in
case the court should decide that the capacity in which these agencies act when granting aid moneys is
independently significant, or in case it might be useful to the national court in applying the national rules.
In my opinion, the relationship of the member states and their agencies with the Community 20 in this
context differs little from that which arises when they take steps to comply with any obligation imposed by
Community law, be it the collection of VAT, the enforcement of directly effective Community rules, or the
implementation of directives. They act on their own account, and exercise their own powers, as subjects
both of national and Community law. They do not act as the Communitys agent or intermediary, or on its
behalf, in anything other than the colloquial sense. They apply Community law on their own responsibility
(see the judgments in SA Compagnie Interagra v EC Commission Case 217/81 [1982] ECR 2233 (para 7)
and Sucrimex SA v EC Commission Case 133/79 [1980] ECR 1299). Thus, in a series of cases, the court
has held, with respect to various losses suffered by private individuals as a result of implementation of the
common agricultural policy, that, regardless of the role played by the Commission, it is the intervention
agencies which are responsible, due to their independence from the Community authorities 21. This
conclusion is not in any way undermined by the fact that the Community funds the necessary expenditure
under the regulation (subject, of course, to the financially significant exception of administrative costs).
The fact that the Community provides the necessary funds before or after the corresponding payment of
aid is not, therefore, of any relevance.
20
As I have already pointed out, the relationship of the various branches of the state inter se is determined by national
rules on reciprocity.
21
See the judgments in Eurico Srl [1984] ECR 3581 (para 18), Russo v Azienda di Stato per gli Interventi Sud Mercato
Agricolo (AIMA) Case 60/75 [1976] ECR 45, Granaria BV v Hoofdproduktschap voor Akkerbouwprodukten Case 101/78
[1979] ECR 623, Sucrimex SA [1980] ECR 1299 and Interagra [1982] ECR 2233.
63.
The court has often stated that the common agricultural policy operates on the basis of a division of
powers between the Community and the member states (see the judgments in Unaprol [1994] ECR I-
3615 (para 27) and Balkon-Import-Export GmbH [1977] ECR 1177 (para 5))22. This division is expressed
in the agricultural sector by, inter alia, arts 4 and 8 of Regulation 729/70. Thus, in Italy v EC Commission
Case C-34/89 [1990] ECR I-3603 (para 10), the court distinguished between the relationship, under art 8
of Regulation 729/70, of intervention bodies and economic operators, which is governed by national law,
and that between member states and the Commission, which
22
See also the discussion by Advocate General van Gerven in his opinion in Unaprol [1994] ECR I-3615 (paras 1415).
530
is concerned not with the granting of aid or the recovery of excessive advance payments as
such, but with whether the Member State concerned or the Community has to bear the relevant
financial burden.23
23
This division of powers is also evidenced by the supervisory regime established by art 9 of Regulation 729/70. See the
judgment in France v EC Commission Case C-366/88 [1990] ECR I-3571 (paras 2023).
Question 2(c)
64.
Here the national court raises the question of discrimination and, in particular, that of the significance
of a limitation in practice of set-off of certain national environmental and development subsidies against
their beneficiaries fiscal debts to the state. Any question of discrimination can only be resolved through a
comparison by the national court of the rules applicable to different types of debts, and of the material
characteristics of those debts, though the court is competent to provide guidelines for that process of
comparison. The overriding consideration is that national rules must not allow set-off to be used more
freely against Community law than against national-law debts.
65.
The first possibly discriminatory aspect of the application of the Danish rules relates to the existence of
what is referred to in the order for reference as an exception for general and social considerations. While
the precise nature of this exception is unclear, unlawful discrimination would exist if it were not also
available, in so far as it is applicable, to the process of set-off of fiscal debts against Community
agricultural aids. If, for example, the exception permits, or requires, the personal circumstances of the
debtor to be taken into account, it would be contrary to Community law for a farmer to be deprived of the
full sum of aid, by virtue of his fiscal debts, while another person, in a similar position, or even the same
person, could claim a derogation in respect of all or part of a debt owed by the state under national law. If,
on the other hand, entire categories of payments by the state, such as, for example, salaries, pensions or
social security entitlements, or specified minimum amounts of such payments, are excluded from the
scope of national rules on set-off on social or general grounds, the national court must examine whether
such debts are comparable to aids under the regulation. To that end, the national court should take into
account that, while the regulation is structural in nature, it is still, as the second recital in the preamble
indicates, concerned with farmers incomes, and that art 39(1)(b) of the Treaty lays down that one of the
objectives of the common agricultural policy shall be to ensure a fair standard of living for the agricultural
community. Save in the case of compensatory payments in respect of set-aside, aids paid under the
regulation merely supplement the price received by the farmer for his crop, but this would only be material
if the national law restrictions on set-off of salaries and so on are lifted in the light of additional income
sources.
66.
Secondly, the exceptional treatment of certain national economic subventions must be examined. At
the time when the set-offs at issue in the present case were effected, it appears that at least certain of
such subventions were not, in practice, subject to set-off at all, for fear of giving rise to a disincentive to
implementing the projects in question. Certain of the exempted subventions related to projects in the
agricultural sector, regarding both primary production and secondary processing. It is not necessary, in
my view, for the exempted national aids to be comparable in all respects and in detail with aids granted
under the regulation, in order for a finding of discrimination to be made. As Advocate 531 General Mancini
observed in his opinion in San Giorgio [1983] ECR 3595 at 3634 in the context of a national tax system, to
divide national tax measures (or, as in the present case, national subventions) into a number of sectors,
and then to confine the applicability of the principle of non-discrimination within each of those sectors
would not just amount to a weakening of that principle but would come close to destroying it 24. Thus, the
court spoke in Finsider v EC Commission Case 250/83 [1985] ECR 131 (para 8), of differences in
treatment being justifiable where they were based on objective and substantial differences (my
emphasis). Any aid directed at the support of economic activity which might not otherwise be possible,
given the structure of the market, should be seen as comparable. It is not even necessary for such a
finding that the exemption apply to aid in the agricultural sector, as we are not necessarily concerned with
discrimination as between different types of aid received by the same beneficiary. If compensatory
payments under the regulation are found to be comparable to any of the various types of national
subventions, unlawful discrimination will exist, even if national subventions are, in theory, subject to full
set-off, if; in practice, they are not.
24
See also the judgment in Albert Ruckdeschel & Co v Hauptzollamt Hamburg-St Annen, Diamalt AG v Hauptzollamt
Itzehoe Joined cases 117/76 and 16/77 [1977] ECR 1753 (para 7).
67.
The existence of discretion on the part of the Danish authorities regarding the application of set-off
rules is not necessarily unlawful, in my view, by reason of what the Commission describes as the
permanent risk of discrimination. The decision to avail of set-off is probably always discretionary, in the
sense that it is an option of the creditor, whose resort to it will turn on his perception of the solvency of the
debtor. Derogations in the light of the personal circumstances of tax debtors or of the likelihood of their
being able to remain in business are also inherently discretionary in character. On the one hand, the court
has ruled out the application of national rules which entail the exercise of a discretion as to the
expediency of waiving recovery of sums unduly or irregularly paid from Community funds, particularly in
accordance with economic criteria (see the judgments in BayWa AG [1982] ECR 1503 (para 30),
Deutsche Milchkontor GmbH [1983] ECR 2633 (para 22) and Balkon-Import-Export GmbH [1977] ECR
1177 (para 5)). On the other hand, the court has permitted the waiver of the recovery of such sums on
grounds of personal equity, pursuant to non-discriminatory national rules which do not impair the
objectives of the common organisation of the market in question (see the judgment in Peter v Hauptollamt
Regensburg Case C-290/91 [1993] ECR I-2981 (para 11)) 25. The court has also approved the non-
discriminatory application of national rules which permit, on equitable grounds, the remission after the
normal national time limit of over-paid customs duties, where this does not alter the effect of the relevant
Community-law rules (see the judgment in Otto Reichelt GmbH v Hauptzollamt Berlin-Sd Case 113/81
[1982] ECR 1957 (para 16)). The discretionary grant to a farmer of compensatory payments under the
regulation, on social or equitable grounds, instead of their retention by way of set-off, clearly does not
impair the functioning of the regulation. It is not, in my view, comparable to the waiver of recovery of funds
improperly paid from Community funds. It is much closer to the very different circumstances of the Otto
Reichelt GmbH case, where the exercise of a discretion in accordance with national equitable rules was
permitted to counteract a national rule on limitation periods which restricted an importers ability to 532
recover overpaid duties to which he was, in principle, entitled as a matter of Community law. For that
reason, I also think that the exercise of a discretion regarding the exercise of set-off on broader economic
grounds would also be permissible. However, this remains subject to the rule against discrimination. if
some comparable national subventions are, in practice, never subject to set-off, the mere possibility of a
discretionary waiver of set-off in respect of payments under the regulation will not satisfy the requirement
of equal treatment of Community-law and national-law payments.
25
Advocate General Jacobs distinguishes an equitable discretion from a discretion as to the expediency of waiver of
recovery: see the opinion in Peter [1993] ECR I-2981 (para 22).
Question 2(d)
68.
In the light of the foregoing discussion, I do not think that it is necessary for the application of non-
discriminatory national set-off rules to aids under the regulation that the counter-debt have as its legal
basis Community law, or that part of the counter-debt is required to be passed on to the Community as
part of its own resources. However, in the event of the court disagreeing with my analysis, the fact that
member states are required by Community law to implement a system of value added tax, the tax which
Mr Jensen had failed to pay, would be significant. The member states perform essentially the same
function when collecting VAT as when they distribute Community agricultural aid, that is, as independent
subjects of Community law complying with their duties thereunder26. The facts that, in the former case,
they distribute money provided entirely by the Community, while underwriting administrative costs
themselves, and, in the latter case, they keep the lions share of tax receipts, passing on only a small
fraction to the Community, are immaterial. In that case, the debts could be said to be reciprocal in the
same way as those in DEKA [1983] ECR 421, where, although both of the debts at issue arose under the
common agricultural policy, they did not relate to the same schemeone related to production refunds,
the other to wrongly paid export refunds. If Community law permits set-off by the Community between
debts arising under two different legislative schemes, it should also permit the member states to set off,
pursuant to non-discriminatory national rules, tax debts which they are obliged by Community law to
collect against agricultural aids which they are obliged by Community law to pay out to the tax debtor.
26
For the basic obligation to introduce a system of value added tax, see art 1 of Council Directive (EEC) 67/228 on the
harmonisation of legislation of member states concerning turnover taxesStructure and procedures for application of
the common system of value added tax, (OJ S edn 1970(I), p 16).
Question 4
69.
Article 10(1) of the regulation lays down an eleven-week time period within which aid is to be paid out,
but does not expressly require that payment be made as soon as the designated member state agency
has verified that the applicant farmer is qualified to receive such a compensatory payment. However, it
would, in my view, interfere with the proper functioning of the regulation for payment to be delayed once
an applicants entitlement is established, even if the prescribed time limit is respected. While it is not, in
principle, contrary to Community law for member state authorities to use compensatory payments for the
purposes of set-off, this does not mean that their efforts to check whether a farmer is also a tax debtor
can be permitted to disturb the ordinary functioning of the regulation. Such delays would, presumably,
affect all farmers, and not just 533 those who are found, upon enquiry, to be indebted to the fiscal
authorities. Any delay in payment could be costly to farmers, especially to those who wish to use the aids
to repay debts to third parties on which interest is payable. Article 13 of the regulation refers to Regulation
729/70, the applicable version of art 4(2) of which states that member states shall ensure that credits
supplied by the Commission are used without delay. Although this provision has been deprived of much of
its effect by the fact that the member states have, since 1988, received advances only in respect of
expenditure already incurred out of national resources, it still testifies to the Communitys interest in the
prompt payment of, inter alia, sums intended to stabilise agricultural markets. Furthermore, the delay in
question is probably objectively unnecessary.
VCONCLUSION
70.
In the light of the foregoing, I propose that the Court of Justice answer the questions referred by the
stre Landsret as follows:
(1) It is not contrary to art 15(3) of Council Regulation (EEC) 1765/92 establishing a support
system for producers of certain arable crops for a member state, pursuant to national rules, to set
off, without additional cost, compensatory payments to which a farmer is entitled under that
Regulation against fiscal debts owed by that farmer to the member state;
(2) Community law does not preclude a member state from setting off, pursuant to national
rules, an amount due to the beneficiary of aid under a Community measure against outstanding
debts to a member state, provided that those national rules do not render impossible the enjoyment
of the Community law right in question or hinder the functioning of the system established by the
Community measure, and are not applied in a discriminatory fashion;
(3) The setting off by a member state, pursuant to national rules, of compensatory payments
under Regulation 1765/92 against outstanding fiscal debts to the member state does not render
impossible the enjoyment of rights under that regulation or hinder the functioning of the system
established by it;
(4) The answer given at point (3) is not affected by the fact that the amount of aid is paid in
advance by the member state, which has only a claim to be reimbursed for the aid paid out,
provided that the rules of Community law on payment are satisfied, and which must itself defray the
expenditure involved in the administration of the system established by Regulation 1765/92;
(5) The answer given at point (3) is not affected by the existence of national rules which require,
as a condition for effecting set-off, that there be reciprocity between the debtor under the principal
claim and the creditor under the counterclaim;
(6) The answer given at point (3) is not affected by the legal basis for the outstanding debt to the
state against which set-off is to be effected nor, in particular, by the fact that part of the sum to be
set off constitutes part of the Communitys own resources;
(7) It is for the national court to determine whether national subventions, which are subjected, in
practice, to set-off in an amount not exceeding 20% of the sum involved, are comparable to
compensatory payments under Regulation 1765/92, for the purpose of establishing whether the
national rules on set-off are applied in a discriminatory fashion. It is, equally, for the 534 national
court to determine, for the same purpose, whether compensatory payments under that Regulation
are comparable to certain other types of payment in respect of which set-off is restricted on social
grounds;
(8) It is contrary to Community law for the disbursement of compensatory payments under
Regulation 1765/92 to be delayed in order to permit an investigation of whether the state has
outstanding claims against the beneficiary in respect of which it wishes to effect a set-off.
19 May 1998.
Regulation 729/70
3.
Article 4(1) of Council Regulation (EEC) 729/70 on the financing of the common agricultural policy (OJ
S edn 1970(I) p 218) provides that member states are to designate the authorities and bodies which they
will empower to effect the expenditure referred to in arts 2 and 3. Under art 4(2), the European
Commission is to make available to member states the necessary credits so that the designated
authorities and bodies may, in accordance with Community rules and national legislation, make the
payments referred to in art 4(1). The member states are to ensure that those credits are used without
delay and solely for the purposes laid down.
The regulation
4.
According to the second recital in the preamble to the regulation, the best way of ensuring better
market balances is to approximate the Community prices of certain arable crops to the prices of the world
market and to compensate the loss of income caused by the reduction of the institutional prices by a
compensatory payment for producers who sow such products. According to the 18th recital, it is
necessary to determine certain conditions for applying for compensatory payments and to specify when
producers are to be paid.
5.
Article 2(1) of the regulation provides that Community producers of arable crops may apply for a
compensatory payment under the conditions set out in its first title. In particular, under the second sub-
paragraph of art 2(2), the compensatory payment is to be granted for the area which is down to arable
535 crops or subject to set-aside in accordance with art 7 of the regulation and which does not exceed a
regional base area.
6.
Article 10(1) provides that compensatory payments for cereals and protein crops and the
compensation for the set-aside obligation are to be paid between 16 October and 31 December next
following the harvest.
7.
Under art 15(3), the payments referred to in the regulation are to be paid over to the beneficiaries in
their entirety.
The national provisions
8.
It appears from the order for reference that, under general rules of Danish law, public authorities may
recover fiscal debts owed by the beneficiaries of public aid in three ways.
9.
First, like any creditor, they may apply for attachment of the aid due to their debtor; if the debtor
objects, a decision of the competent court is necessary. The state, like any other creditor, may obtain an
attachment order in respect of entitlement to the aid itself; the aid is then paid directly to it, as it would be
paid to any private creditor who resorted to attachment proceedings. In the event of the aid entitlement
becoming subject to several attachment orders, the general rules concerning priority apply.
10.
Second, public authorities may recover their debts by accepting an assignment by the beneficiary of
aid of his entitlement to it. Where assignments are made to more than one creditor, the rules concerning
priority apply.
11.
Lastly, public authorities may recover their debts by effecting set-off between aid granted by a national
administration and the debt owed to that administration by the person entitled to the aid.
12.
For set-off of that kind between unconnected debts to be available, whether for the benefit of public or
of private creditors, several conditions must be fulfilled. First, there must be reciprocity between the two
debts in that the creditor in one case must be the debtor in the other. Next, the debt payable to the person
seeking set-off must have fallen due. Finally, there must be two debts of sums of money or two
obligations relating to fungibles of the same kind.
13.
Under Justitsministeriets circulreskrivelse No 186 (Circular No 186 of the Ministry of Justice) of 22
November 1983, which was sent to all departments of the central administration, it is not permissible to
effect set-off between claims not arising under the law of property and obligations such as tax debts,
VAT liabilities and fines and debts payable by the state which do fall within that law (in general, debts
originating in contract).
14.
Finally, Lov No 284 om aendring af forsekellige lovbestemmelser om inddrivelse af statskrav (the Law
amending certain provisions of legislation on the recovery of state debts) of 27 April 1994, which entered
into force on 1 July 1994, made set-off available, up to a maximum of 20%, in respect of a number of
specific trade or environmental subsidies granted by the Danish state within the areas of responsibility of
the Ministries of Energy, Industry, Agriculture and the Environment.
Costs
71.
The costs incurred by the Danish, Greek, French, Irish, Finnish, Swedish and UK governments and by
the European Commission, which have submitted observations to the Court of Justice, are not
recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the
proceedings pending before the national court, the decision on costs is a matter for that court.
543
On those grounds, the Court of Justice, in answer to the questions referred to it by the stre Landsret
by order of 10 April 1995, hereby rules: (1) Community law does not preclude a member state from
effecting set-off between an amount due to a beneficiary of aid payable under Community legislation and
an outstanding debt to that member state. The position would be different only if that practice were to
interfere with the proper functioning of the common organisation of the agricultural markets. In that
regard, the capacity in which the member state grants aid under Council Regulation (EEC) 1765/92
establishing a support system for producers of certain arable crops, the fact that the rules of that member
state on set-off require, for set-off to be available, reciprocity of debts as between debtor and creditor, the
practice generally followed by the member state regarding set-off and the legal basis of the debt to the
state involved in the set-off are of no importance, provided that the national authorities ensure that the
effectiveness of Community law is not in any way undermined and that economic operators enjoy equal
treatment. It is for the national court to determine whether that is the case. (2) On a proper construction of
art 15(3) of Regulation 1765/92, member states are not precluded from requiring a national intervention
agency to effect set-off with debts payable to the state in the case of a beneficiary of compensatory
payments. (3) On a proper construction of art 10(1) of Regulation 1765/92, payment of the compensatory
payments to which it refers may be deferred until it has been verified whether the state has any claim
against the beneficiary thereof for which set-off may be available, provided that the payment is made no
later than 31 December in the year in question.
544
In order to test the way in which the Swedish authorities applied their citizens right of access to
information of documents relating to European Union activities, the applicant, a journalists union,
contacted a number of national authorities seeking access to 20 documents relating to the setting up of
the European Police Office. Although access was granted to 18 of the 20 documents, certain passages
had been deleted and the applicant therefore applied to the EU Council for access to the same 20
documents. The Council allowed access to only four of the documents refusing access to the other 16
documents pursuant to art 4 of Council Decision (EC) 93/731 on public access to Council documents, on
the grounds that their release could be harmful to the public interest (public security) and that they were
subject to the principle of confidentiality. The applicant subsequently brought proceedings against the EU
Council seeking an annulment of the decision refusing access, contending principally that the Council had
failed to give sufficient reasons for its decision. Shortly after proceedings were commenced, the applicant
published certain material documents, including an edited version Councils defence and the names and
contact details of the Councils agents in the case, on the internet. Before the Court of First Instance of
the European Communities, which ultimately annulled the contested decision, issues were raised as to: (i)
whether the applicant had locus standi to bring the action; (ii) whether the Court of First Instance had
jurisdiction to entertain the action in view of the fact that the contested decision concerned the
arrangements for access to documents adopted on the basis of Title VI of the Treaty on European Union
(Justice and Home affairs) which fell outside the scope of the EC Treaty and were matters for inter-
governmental co-operation; and (iii) whether the applicants conduct in publishing the Councils defence
on the internet was prejudicial to the proper course of the procedure.
545
Held (1) The addressee of a contested decision and was not obliged to prove that the decision was of
direct and individual concern to it; he need only prove that he had an interest in the annulment of the
decision. Moreover the objective of Decision 93/731 was to give effect to the principle of the largest
possible access for citizens to information with a view to strengthening the democratic character of the
institutions and the trust of the public in the administration and, accordingly, it did not require members of
the public to give reasons for seeking access to requested documents. It followed that a person who was
refused access to a document or to part of a document had, by virtue of that very fact, established an
interest in the annulment of the decision. In the instant case, the contested decision denied access to 16
of the 20 documents requested and, as such, the applicant had proved an interest in the annulment of
that decision (see p 555 j, p 556 b to c, post); Interporc Im- und Export GmbH v European Commission
Case T-124/96 (1998) CFI Transcript, 6 February applied.
(2) In the absence of any provision to the contrary in Decision 93/731 itself, its provisions applied to all
Council documents, irrespective of their content. The fact that the court had, by virtue of art L of the Treaty
on European Union, no jurisdiction to review the legality of measures adopted under Title VI did not curtail
its jurisdiction in the matter of public access to those measures. The assessment of the legality of the
contested decision was based upon its jurisdiction to review the legality of Council decisions taken under
Decision 93/731, on the basis of art 173 of the EC Treaty, and did not in any way bear on the inter-
governmental co-operation in the spheres of Justice and Home Affairs as such. Moreover, the fact that the
documents related to Title VI was only relevant in so far as their contents might possibly come within the
scope of one or more of the exceptions provided for in Decision 93/731 and was thus relevant only to the
examination of the substantive lawfulness of the decision taken by the Council and not to the admissibility
of the application as such (see p 557 h to p 558 c, post).
(3) Under the rules which governed procedure before the Court of First Instance, parties were entitled
to protection against the misuse of pleadings and evidence. Thus, in accordance with the third sub-
paragraph of art 15(3) of the Instructions to the Registrar, no third party, private or public, could have
access to the case file or to the procedural documents without the express authorisation of the President,
after the parties had been heard; and, in accordance with art 116(2) of the Rules of Procedure, the
President could exclude secret or confidential documents from those furnished to an intervener. Those
provisions reflected a general principle in the due administration of justice according to which parties had
the right to defend their interests free from all external influences and particularly from the influence of
members of the public. It followed that a party who was granted access to the procedural documents of
other parties was only entitled to use those documents for the purpose of pursuing his own case and for
no other purpose, including that of inciting criticism on the part of the public in relation to arguments
raised by other parties. In the instant case, it was clear that the publication on the internet by the applicant
of the defence together with an invitation to the public to submit comments to the Council, had as its
purpose to bring pressure to bear upon the Council and to provoke criticism of its agents in the
performance of their duties. Accordingly, the applicants actions involved an abuse of procedure which
would be taken into account in awarding costs (see p 565 h to p 566 c, post).
546
Notes
For the EC Treaty art 173 (as amended by art G.53 of the Treaty on European Union), see 50 Halsburys
Statutes (4th edn), Current Service, 97.
Cases cited
Campus Oil Ltd v Minister for Industry and Energy Case 72/83 [1984] ECR 2727.
Carvel v EU Council Case T-194/94 [1996] All ER (EC) 53, [1995] ECR II-2765, CFI.
Comit International de la Rayonne et des Fibres Synthtiques (CIRFS) v EC Commission Case C-
313/90 [1993] ECR I-1125.
Association des Acieries Europennes Independantes (EISA) v European Commission Case T-239/94
[1997] ECR II-1839.
Eugnio Branco Lda v European Commission Case T-85/94 [1995] ECR II-45.
France v EC Commission Case C-59/91 [1992] ECR I-525.
Fritz Werner Industrie-Ausrstungen GmbH v Germany Case C-70/94 [1995] ECR I-3189.
Interporc Im- und Export GmbH v European Commission Case T-124/96 (1998) Transcript, 6 February,
CFI.
Netherlands v EU Council Case C-58/94 [1996] ECR I-2169.
Socit franaise des Biscuits Delacre v EC Commission Case C-350/88 [1990] ECR I-395.
van der Wal v European Commission Case T-83/96 [1998] All ER (EC) 289, CFI.
WWF UK v European Commission Case T-105/95 [1997] All ER (EC) 300, [1997] ECR II-313, CFI.
Application
By application lodged on 22 September 1995 at the registry of the Court of First Instance of the European
Communities, Svenska Journalistfrbundet, an association governed by Swedish law, applied for the
annulment of the EU Councils decision of 6 July 1995 refusing access to certain documents concerning
the European Police Office, requested under Council Decision (EC) 93/731 on public access to Council
documents (OJ 1993 L340 p 43). By order of 23 April 1996, the Kingdom of Denmark, the Kingdom of the
Netherlands and the Kingdom of Sweden were granted leave to intervene in support of the applicant, and
the French Republic and the United Kingdom were granted leave to intervene in support of the defendant.
Svenska Journalistfrbundet was represented by O W Brouwer, of the Amsterdam Bar, and F P Louis, of
the Brussels Bar, assisted by D Curtin, Professor at the University of Utrecht, with an address for service
in Luxembourg at the Chambers of Loesch and Wolter, 11 Rue Goethe. The Kingdom of Sweden was
represented by L Nordling, Director-General of the Legal Service of the Ministry of Foreign Affairs, acting
as agent; the Kingdom of Denmark was represented by P Biering, Head of Department in the Ministry of
Foreign Affairs, and L Miklsen, Ambassador, acting as agents, with an address for service in
Luxembourg at the Danish Embassy, 4 Boulevard Royal; and the Kingdom of the Netherlands was
represented by M Fierstra and J Steven van den Oosterkamp, Legal Advisers, acting as agents, with an
address for service in Luxembourg at the Embassy of the Netherlands, 5 Rue C M Spoo. The EU Council
was represented by G Maganza and D Canga Fano, Legal Advisers, acting as agents, with an address for
service in Luxembourg at the office of A Morbilli, Manager of the Legal Affairs Directorate of the European
Investment Bank, 100 Boulevard Konrad Adenauer. The French Republic was represented by C de
Salins, Assistant Director in the 547 Legal Department of the Ministry of Foreign Affairs, and D Wibaux,
Secretary for Foreign Affairs in the same ministry, acting as agents, with an address for service in
Luxembourg at the French Embassy, 8B Boulevard Joseph II; and the United Kingdom was represented
by J Collins, of the Treasury Solicitors Department, acting as agent, with an address for service in
Luxembourg at the British Embassy, 14 Boulevard Roosevelt. The language of the case was English. The
facts are set out in the judgment of the court.
17 June 1998.
THE FACTS
11.
Following Swedens accession to the European Union on 1 January 1995, the applicant decided to test
the way in which the Swedish authorities applied Swedish citizens right of access to information in
respect of documents relating to EU activities. For that purpose it contacted 46 Swedish authorities,
among whom were the Swedish Ministry of Justice and the National Police Authority (the
Rikspolisstyrelsen), seeking access to a number of Council documents relating to the setting up of the
European Police Office (Europol), including eight documents held by the National Police Authority and 12
held by the Ministry of Justice. In response to its requests the applicant was granted access to 18 of the
20 documents requested. It was refused access by the Ministry of Justice to two documents on the
ground that they concerned the negotiating positions of the Netherlands and German governments.
Furthermore, certain passages in the documents to which access was granted had been deleted. In some
documents it was difficult to ascertain whether passages had been deleted or not.
12.
On 2 May 1995 the applicant also applied to the Council for access to the same 20 documents.
13.
By letter dated 1 June 1995, the Councils General Secretariat allowed access to two documents only,
those being documents which contained communications by the future French Presidency of its priorities
in the field of 549 asylum and immigration and in the field of justice. Access to the other 18 documents
was refused on the ground that documents 1 to 15 and 18 to 20 are subject to the principle of
confidentiality as laid down in Article 4(1) of Decision 93/731.
14.
On 8 June 1995 the applicant submitted a confirmatory application to the Council in order to obtain re-
examination of the decision refusing access.
15.
The competent department of the Councils General Secretariat, together with the Councils Legal
Service, then prepared a note for the attention of the Information Working Party of the Permanent
Representatives Committee (Coreper) and the Council. A draft reply, together with the exchange of
correspondence that had taken place previously between the applicant and the General Secretariat, was
distributed with a note dated 15 May 1995 prepared by Mr Elsen, Director-General of the Councils
Justice and Home Affairs Directorate (DG H), when the first application was being examined. That note
provided a brief summary of the contents of the documents and a preliminary assessment as to whether
they could be released. It was communicated to the applicant for the first time in the course of the present
proceedings as an annex to the Councils defence. On 3 July 1995 the Information Working Party decided
to release two other documents but to refuse access to the remaining 16. At a meeting on 5 July 1995
Coreper approved the terms of the draft reply proposed by the Working Party.
16.
The Council points out that all the documents concerned were at the disposal of the members of the
Council and that copies of the documents were also available for examination at the Information Working
Party meeting of 3 July.
17.
After the Coreper meeting, the Council replied to the confirmatory application by a letter dated 6 July
1995 (the contested decision), in which it agreed to grant access to two other documents but rejected the
application for the remaining 16 documents.
18.
It explained that:
[i]n the Councils opinion access to those documents cannot be granted because their release
could be harmful to the public interest (public security) and because they relate to the Councils
proceedings, including the positions taken by the members of the Council, and are therefore
covered by the duty of confidentiality. Lastly, I would like to draw your attention to the provisions of
Articles 138e and 173 of the EC Treaty concerning, respectively, the conditions governing the
lodging of a complaint with the Ombudsman and the institution of proceedings before the Court of
Justice by a natural person against acts of the Council.
PROCEDURE
19.
By application lodged at the registry of the Court of First Instance of the European Communities on 22
September 1995 the applicant instituted this action.
20.
By a letter lodged on 9 February 1996, the European Parliament sought leave to intervene in the case
in support of the applicant. It subsequently withdrew its intervention.
21.
By order of the President of the Fourth Chamber of the Court of First Instance of 23 April 1996, the
Kingdom of Denmark, the Kingdom of the Netherlands and the Kingdom of Sweden were granted leave to
intervene in 550 support of the applicant, and the French Republic and the United Kingdom were granted
leave to intervene in support of the defendant.
22.
By letter received on 3 April 1996 the Council drew the attention of the Court of First Instance to the
fact that certain material documents, including the Councils defence, had been published on the Internet.
The Council considered that the applicants conduct was prejudicial to the proper course of the procedure.
It requested the court to take appropriate measures in order to avoid further such action on the part of the
applicant.
23.
The court decided to treat this incident as a preliminary issue within the meaning of art 114(1) of the
Rules of Procedure, and accordingly invited the parties to submit observations on the matter. The written
procedure was suspended in the meantime. Observations were received from the applicant and from the
Danish, French, Netherlands, Swedish and UK governments.
24.
In the light of those observations the court decided that the proceedings would be resumed, without
prejudice to the consequences it would attach to that preliminary issue (see paras 135 to 139, below).
25.
By decision of 4 June 1996, the court referred the case to the Fourth Chamber, Extended
Composition. It did not accede to a request by the Council of 20 June 1996 that the case be referred to
the court sitting in plenary session.
26.
The written procedure was concluded on 7 April 1997.
ADMISSIBILITY
32.
The Council claims that the application is inadmissible on several grounds, relating to the identity of
the applicant, non-compliance with the time limit for bringing an action, the applicants lack of interest in
bringing the action and the courts lack of jurisdiction. Each of those grounds will be examined in turn.
SUBSTANCE
88.
The applicant puts forward five pleas in law in support of its application for the annulment of the
contested decision, namely: breach of the fundamental principle of Community law that citizens of the
European Union should be granted the widest and fullest possible access to Community institutions
documents; breach of the principle of protection of legitimate expectations; infringement of art 4(1) of
Decision 93/731; infringement of art 4(2) of Decision 93/731; and infringement of art 190 of the EC Treaty.
89.
The court will first examine the third and fifth pleas together.
Third and fifth pleas in law: infringement of art 4(1) of Decision 93/731 and infringement of
art 190 of the EC Treaty
Arguments of the parties
(i) Infringement of art 4(1) of Decision 93/731
90.
The applicant claims that the Council did not make a real assessment of the likely impact that granting
access to the documents requested might have on public security in the European Union. On the
contrary, the fact that a confirmatory application was necessary before the Council agreed to release one
of the documents which had already been handed over to the European Parliament and was thus fully in
the public domain is particularly disturbing in that respect.
91.
In the absence of a definition of public security in Decision 93/731, the applicant suggests the following
definition:
documents or passages of documents whose access by the public would expose Community
citizens, Community institutions or Member States authorities to terrorism, crime, espionage,
insurrection, destabilisation and revolution, or would directly hinder the authorities in their efforts to
prevent such activities, shall not be accessible by virtue of the public security exception.
558
92.
The applicant then gives a precise description of the contents of all the documents requested that are
in its possession, in support of its argument that the public security exception was applied in an unlawful
manner by the Council.
93.
It rejects the Councils assertion that it would not be in the interest of public security to allow those
involved in illicit activities to obtain detailed knowledge of the structures and means available to police co-
operation in the EU. That assertion simply bears no relation to the actual content of the documents in
question. The applicant points out that the two documents to which the Swedish authorities refused
access concerned not public security but the negotiating positions of the Kingdom of the Netherlands and
the Federal Republic of Germany.
94.
The Council denies that it considered all the documents relating to Europol to be covered by the public
security exception. The fact that four documents were disclosed shows that a real assessment was
carried out, the outcome of which was that some of the requested documents could be released, whilst
others could not.
95.
The Council, supported by the French and UK governments, contends that there is in any case no
need to adopt a restrictive definition of public security for the purposes of the application of Decision
93/731. Public security must be defined in a flexible way in order to meet changing circumstances. In any
event, an assessment as to whether the release of a specific document could undermine the protection of
the public interest (public security) can only be made by the Council itself.
96.
That applies particularly as regards documents dealing exclusively with issues which fall under Titles V
and VI of the TEU. The Council trusts that, should the court consider that it has jurisdiction in matters
concerning access to documents dealing exclusively with matters falling under Title VI, it would
nevertheless refrain from substituting its assessment for that of the Council in this regard.
97.
The Council considers that the applicants summary of the documents in question is neither objective
nor precise.
98.
The Swedish government takes issue with the description given by the Council of the way in which the
Information Working Party and Coreper dealt with the request for access to the documents in question.
99.
In particular the documents requested were not made available to the Swedish representative in the
Information Working Party before its meeting. The matter could not be dealt with satisfactorily in the short
time available.
100.
As far as Coreper was concerned, the only matter addressed by it was whether a decision concerning
the request for disclosure could be taken by written procedure. When Coreper voted on 5 July 1995, the
Swedish government and four other member States abstained. The Swedish government made a
statement expressing its dissatisfaction at the way the case had been handled.
101.
The Danish government shares to a large extent the Swedish governments criticism of the way the
case was handled. It considers that the Councils assessment of the various documents was purely
formalistic. In the Council Secretariat the possibilities of derogation in art 4(1) of Decision 93/731 were
first examined and it was thought that considerations of public security could justify withholding of
documents relating to Europol in general. When the confirmatory application was being examined, doubts
arose as to whether public security considerations could really be applied generally as a ground for 559
withholding Europol documents. Accordingly, it was then decided to retreat to a statement of reasons
based on the very general considerations of art 4(2) of Decision 93/731. The discussion in the Council
Secretariat did not focus on whether publication would entail a risk of real adverse consequences either
for public security or the requirement of confidentiality.
102.
The Netherlands government, having examined the documents in question, considers that the refusal
to grant access to the documents cannot under any circumstances be justified by the requirements of
public security. However, it reserves its opinion as far as a document which is not in its possession is
concerned. In its view, in order to establish whether the Council was justified in refusing access to the
documents in question on the ground of public security, it is necessary to examine, document by
document, whether access to them would undermine the fundamental interests of the Community or of
the member states to the extent that their existence would be jeopardised. It points out that the Council
later agreed to make available at least four of those documents to a journalist, Mr T, and that the refusal
to grant the applicant access to those documents therefore constitutes arbitrary discrimination.
103.
The Council insists that the content of the documents was in fact examined. It considers that there is
no evidence that the other members of the Council who abstained did so for the same reasons as the
Swedish government. No member state voted against the confirmatory decision or associated itself with
the Swedish governments statement.
(ii) Infringement of art 190 of the EC Treaty
104.
The applicant claims that the refusal, expressed in a single sentence, to grant access to 16 of the 20
documents does not satisfy the requirements of art 190 of the EC Treaty or art 7(3) of Decision 93/731. It
was impossible for it to assess whether the refusal should be challenged before the court, and equally
impossible for the court to assess whether the Council had made proper use of the exceptions referred to
above. It was only because the applicant had in its possession most of the documents concerned, in full
or in part, that it was able to show that the Council had applied those exceptions unlawfully in the present
case. It asks the court to examine the documents concerned in order to assess whether the Council was
justified in availing itself of the exceptions cited.
105.
The Council, supported by the French and UK governments, contends that the statement of reasons
for the contested decision discloses the essential objective pursued by the Council and its decision is
therefore duly reasoned. It would be excessive to require a specific statement of reasons for each of the
technical choices made by the institution. If it were necessary to provide a very detailed statement of
reasons in the case of negative responses to requests for access, the underlying objectives of art 4(1)
would be compromised. Decision 93/731 lays down very tight time limits for replying to applications.
Consequently, when applications cover many documents involving large numbers of pages, the statement
of reasons which can be provided will inevitably be rather briefer than the statement of reasons given in
reply to applications of a more limited scope. Furthermore, the requested documents clearly had an
essentially common subject matter.
106.
The Swedish government maintains that the balancing of the Councils interest in maintaining the
confidentiality of its proceedings and the publics interest in having access to documents should be
undertaken in relation to each separate document and that the decision does not state sufficient reasons.
It 560 claims that the Council does not indicate whether both the reasons given for maintaining
confidentiality are applicable to all the documents or, if that is not the case, which reason or reasons for
maintaining confidentiality are applicable to each particular document. The public is entitled to know, from
the particular circumstances surrounding each separate action or matter, why a specific document is to be
kept confidential.
107.
The Danish government states that it is not sufficient to refer in general to the possibilities of
derogation and to reproduce the terms of Decision 93/731. Refusal under art 4(1) of that decision cannot
lawfully be explained by indicating that a particular interest which is included therein can be regarded
generally as affected, just as the option of derogation with regard to the duty of confidentiality in art 4(2)
cannot form the basis of a refusal in general terms. The principle of assessment on the facts is applicable
and in certain cases the Council might be required to produce a document with any information requiring
protection under art 4 deleted.
108.
The Netherlands government also states that the Councils reason for refusing access to the various
documents is obscure. The contested decision confines itself to repeating the criteria in art 4 of Decision
93/731 and does not reveal which documents were withheld on the basis of art 4(1) and which withheld
on the basis of art 4(2). As regards the documents to which access was refused on the ground of
confidentiality of the Councils proceedings, it does not appear, moreover, from the contested decision,
that the requisite balancing of interests took place.
Findings of the court
109.
Decision 93/731 is a measure which confers on citizens rights of access to documents held by the
Council. It is clear from the scheme of the decision that it applies generally to requests for access to
documents and that any person is entitled to ask for access to any Council document without being
obliged to put forward reasons for the request (see para 65, above).
110.
There are two categories of exception to the principle of general access for citizens to Council
documents set out in art 4 of Decision 93/731. These exceptions must be construed and applied
restrictively so as not to defeat the general principle enshrined in the decision (see, in relation to the
analogous provisions of Decision 94/90, WWF UK v European Commission Case T-105/95 [1997] All ER
(EC) 300, [1997] ECR II-313 (para 56)).
111.
The wording of the first category of exceptions, drafted in mandatory terms, provides that access to a
Council document cannot be granted if its disclosure could undermine the protection of the public interest
(public security, international relations, monetary stability, court proceedings, inspections and
investigations) (see para 7, above). Accordingly, the Council is obliged to refuse access to documents
which come within any one of the exceptions in this category once the relevant circumstances are shown
to exist (see Carvel [1996] All ER (EC) 53, [1995] ECR II-2765 (para 64)).
112.
Nevertheless, it follows from the use of the verb could, in the present conditional, that in order to
demonstrate that the disclosure of particular documents could undermine the protection of the public
interest, the Council is obliged to consider in respect of each requested document whether, in the light of
the information available to it, disclosure is in fact likely to undermine one of the facets of public interest
protected by this first category of exceptions. If that is the case, the Council is obliged to refuse access to
the documents in question 561(see Interporc (1998) CFI Transcript, 6 February (para 52) and van der
Wal v European Commission Case T-83/96 [1998] All ER (EC) 289 (para 43)).
113.
By way of contrast, the wording of the second category, drafted in enabling terms, provides that the
Council may also refuse access in order to protect the confidentiality of its proceedings (see above, para
8). It follows that the Council enjoys a margin of discretion which enables it, if need be, to refuse access
to documents which touch upon its deliberations. It must, nevertheless, exercise this discretion by striking
a genuine balance between on the one hand, the interest of the citizen in obtaining access to the
documents and, on the other, any interest of its own in maintaining the confidentiality of its deliberations
(see Carvel [1996] All ER (EC) 53, [1995] ECR II-2765 (paras 6465)).
114.
The Council is also entitled to rely jointly on an exception derived from the first category and one
relating to the second category in order to refuse to grant access to documents which it holds, there being
no provision in Decision 93/731 which precludes it from so doing. The possibility cannot be ruled out that
the disclosure of particular documents by the Council could cause damage both to the interest protected
by the first category of exception and to the Councils interest in maintaining the confidentiality of its
deliberations (see WWF UK [1997] All ER (EC) 300, [1997] ECR II-313 (para 61)).
115.
In the light of these considerations, it is necessary to consider whether the contested decision satisfies
the criteria laid down by art 190 of the Treaty regarding the statement of reasons.
116.
The duty to state reasons in individual decisions has the double purpose of permitting, on the one
hand, interested parties to know the reasons for the adoption of the measure so that they can protect their
own interests and, on the other hand, enabling the Community court to exercise its jurisdiction to review
the validity of the decision (see esp Socit franaise des Biscuits Delacre v EC Commission Case C-
350/88 [1990] ECR I-395 (para 15) and Eugnio Branco Lda v European Commission Case T-85/94
[1995] ECR II-45 (para 32)).
117.
The statement of reasons for a decision refusing access to a document must therefore containat
least for each category of documents concernedthe particular reasons for which the Commission
considers that disclosure of the requested documents comes within the scope of one of the exceptions
provided for in Decision 93/731 (see WWF UK [1997] All ER (EC) 300, [1997] ECR II-313 (paras 64, 74)
and Interporc (1998) CFI Transcript, 6 February (para 54)).
118.
In the contested decision the Council indicated only that the disclosure of the 16 documents in
question would prejudice the protection of the public interest (public security) and that the documents
related to the proceedings of the Council, particularly the views expressed by members of the Council,
and for that reason fell within the scope of the duty of confidentiality (see para 18, above).
119.
Although the Council was at once invoking both the mandatory exception based upon the protection of
the public interest (public security) and also the discretionary exception based upon protection of the
confidentiality of its proceedings, it did not specify whether it was invoking both exceptions in respect of all
of the documents refused or whether it considered that some documents were covered by the first
exception while others were covered by the second.
120.
In that respect, the court notes that although the initial refusal contained in the letter of 1 June 1995
was based only upon the principle of confidentiality as set out in Article 4(1) of Decision 93/731 the
Council was nevertheless able to grant access to two further documents in the course of its consideration
of the confirmatory request, namely a report on the activities of the Europol Drugs Unit 562(document No
4533/95) and a provisional agenda for a meeting of Committee K.4 (document No 4135/95), documents
clearly relating to the activities of the Council within the scope of Title VI of the TEU. If the fact that such
documents related to Title VI meant that they were automatically covered by the exception based upon
the protection of the public interest (public security), the Council had no entitlement to grant access to the
documents. Moreover, given that the Council considered that it was entitled to grant access to these two
documents, having first balanced the interests involved, it follows that the Council must necessarily have
considered that all of the documents relating to Title VI did not automatically fall within the scope of the
first exception based upon the protection of the public interest (public security). Furthermore, the Council
itself admitted that it had not considered that all of the documents connected with Europol were covered
by the exception relating to public security.
121.
The case law of the Court of Justice shows that the concept of public security does not have a single
and specific meaning. Thus, the concept covers both the internal security of a member state and its
external security (see the judgment in Fritz Werner Industrie-Ausrstungen GmbH v Germany Case C-
70/94 [1995] ECR I-3189 (para 25)), as well as the interruption of supplies of essential commodities such
as petroleum products which may threaten the very existence of a country (see the judgment in Campus
Oil Ltd v Minister for Industry and Energy Case 72/83 [1984] ECR 2727 (para 34)). The concept could
equally well encompass situations in which public access to particular documents could obstruct the
attempts of authorities to prevent criminal activities, as the applicant has argued.
122.
Mr Elsens note demonstrates that most of the documents to which access was refused were
concerned only with negotiations on the adoption of the Europol Convention, in particular the proposals of
the Presidency and of other delegations with regard to those negotiations, and not with operational
matters of Europol itself (see para 15, above). Thus, in the absence of any explanation on the part of the
Council as to why the disclosure of these documents would in fact be liable to prejudice a particular
aspect of public security, it was not possible for the applicant to know the reasons for the adoption of the
measures and therefore to defend its interests. It follows that it is also impossible for the court to assess
why the documents to which access was refused fall within the exception based upon the protection of
the public interest (public security) and not within the exception based upon the protection of the
confidentiality of the Councils proceedings.
123.
Nor can the Council claim that, in this instance, it was unable to explain why the exception applied
without undermining the essential purpose of the exception, given the very nature of the interest to be
protected and the mandatory character of the exception. In fact, Mr Elsens note clearly shows that it was
possible to give an indication of the reasons why certain documents could not be disclosed to the
applicant without at the same time disclosing their contents.
124.
Finally, so far as concerns the exception in favour of the protection of the confidentiality of its
proceedings, the Council did not specifically indicate in the contested decision that all of the documents
included in the applicants request were covered by the exception based upon the protection of the public
interest (see para 119, above). The applicant could not therefore rule out the possibility that access to
some of the documents in question was being refused because they 563 were covered only by the
exception based upon the protection of the confidentiality of its proceedings.
125.
The terms of the contested decision do not, however, permit the applicant and, therefore, the court to
check whether the Council has complied with its duty to carry out a genuine balancing of the interests
concerned as the application of art 4(2) of Decision 93/731 requires. In fact, the contested decision
mentions only the fact that the requested documents related to proceedings of the Council, including the
views expressed by members of the Council, without saying whether it had made any comparative
analysis which sought to balance, on the one hand, the interest of the citizens seeking the information
and, on the other hand, the criteria for confidentiality of the proceedings of the Council (see Carvel [1996]
All ER (EC) 53, [1995] ECR II-2765 (para 74)).
126.
Moreover, the first reply from the Councilsent to the applicant in French although the applicant had
written the initial request in Germanconfined itself to citing the provisions of art 4(1) of Decision 93/731,
in support of its view that the documents were subject to the principle of confidentiality. It did not
therefore permit the applicant or the court to confirm that the Council had genuinely balanced the interests
involved at the stage of its consideration of the applicants first request.
127.
It follows from all of the foregoing that the contested decision does not comply with the requirements
for reasoning as laid down in art 190 of the EC Treaty and must therefore be annulled without there being
any need to consider the other grounds raised by the applicant or to look at the contents of the
documents themselves.
The request of the Netherlands government that the Court of First Instance invite the Court
of Justice to produce a note drafted by its services
128.
The Netherlands government requests that the Court of First Instance invite the Court of Justice to
produce a note drafted by the Research and Documentation service of the court for the purposes of that
courts judgment in Netherlands v EU Council Case C-58/94 [1996] ECR I-2169.
129.
As the present judgment is not based upon that note, there is no need to rule on this request.
COSTS
140.
Under art 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if
they have been applied for in the successful partys pleadings. In this case the applicant asked that the
Council be ordered to pay the costs. However, under art 87(3) of the rules, the court may, where the
circumstances are exceptional, order that the costs be shared or that each party bear its own costs. In
view of the abuse of procedure found to have been committed by the applicant, the Council will be
ordered to pay only two-thirds of the applicants costs.
141.
f)Pursuant to art 87(4) of the Rules of Procedure, the interveners will be ordered to pay their own
costs.
On those grounds, the Court of First Instance (Fourth Chamber, Extended Composition) hereby: (1)
annuls the Councils decision of 6 July 1995 refusing the applicant access to certain documents relating to
the European Police Office (Europol); (2) orders the Council to pay two-thirds of the applicants costs as
well as its own costs; (3) orders the Kingdom of Denmark, the French Republic, the Kingdom of the
Netherlands, the Kingdom of Sweden and the United Kingdom to bear their own costs.
566
Under a German law transposing art 13B(f)1 of Council Directive (EEC) 77/388 on the harmonisation of
the laws of the member states relating to turnover taxescommon system of value added tax: uniform
basis of assessment, the turnover of licensed public casinos was exempted from value added tax. F,
without having the relevant permit, organised games of chance which resembled the game of roulette as
played in licensed casinos, and was assessed to value added tax on the basis of the estimated takings. In
proceedings in which F contested the assessment, the Finanzgericht Baden-Wrttemberg, Freiburg,
referred to the Court of Justice of the European Communities for a preliminary ruling, inter alia, the
questions whether (i) the unlawful operation of games of chance constituted supplies of services within
the scope of art 2(1)2 of the Sixth Directive, and (ii) such an activity could be charged to value added tax
when a corresponding activity carried on lawfully was exempted.
1
Article 13B, so far as material, is set out at p 581 b, post
2
Article 2(1), so far as material, is set out at p 580 j, post
Held (1) The only unlawful activities which did not give rise to any liability to value added tax were ones
relating to products such as illegally imported or supplied narcotic drugs or counterfeit currency which had
special characteristics such that their release into the economic and commercial channels of the
Community was by definition precluded and could give rise only to penalties under the criminal law. It
followed that betting and gambling transcations, which were lawful in a number of member states, fell
within the scope of the Sixth Directive (see p 583 b to f and p 584 g h, post); Witzemann v Hauptzollamt
Mnchen-Mitte Case 343/89 [1993] STC 108, [1990] ECR I-4477 and Lange v Finanzamt
Frstenfeldbruck Case C-111/92 [1997] STC 564, [1993] ECR I-4677 applied.
(2) Outside those cases where all competition between a lawful and unlawful economic sector was
ruled out, the principle of fiscal neutrality precluded a generalised distinction from being drawn in the
levying of value added tax between lawful and unlawful transactions. Moreover, games of chance, and in
particular roulette, were lawfully played in a number of member states, and since 567 unlawful games
were in competition with lawful ones, the principle of fiscal neutrality precluded their being treated
differently for value added tax purposes. Furthermore, any exemption under art 13B(f) had to be applied
in accordance with that principle, even where member states had exercised their power under the
directive to lay down conditions and limitations to the exemption. It followed that member states could not
reserve the exemption solely to lawful games of chance (see p 583 j to p 584 b g h, post); EC
Commission v Italy Case C-45/95 [1997] STC 1062, [1997] ECR I-3605 applied.
Notes
For supply of goods and services and exemptions in relation to Community value added tax rules, see 52
Halsburys Laws (4th edn) paras 2017, 2028.
Cases cited
Boots Co plc v Customs and Excise Comrs Case C-126/88 [1990] STC 387, [1990] ECR I-1235, ECJ.
EC Commission v Italy Case C-45/95 [1997] STC 1062, [1997] ECR I-3605, ECJ.
Einberger v Hauptzollamt Freiburg Case 240/81 [1982] ECR 3699.
Einberger v Hauptzollamt Freiburg Case 294/82 [1984] ECR 1177.
Glawe (H J) Spiel-und Unterhaltungsgerte Aufstellungsgesellschaft mbH & Co KG v Finanzamt
Hamburg-Barmbek-Uhlenhorst Case C-38/93 [1994] STC 543, [1994] ECR I-1679, ECJ.
Horvath v Hauptzollamt Hamburg-Jonas Case 50/80 [1981] ECR 385.
Lange v Finanzamt Frstenfeldbruck Case C-111/92 [1997] STC 564, [1993] ECR I-4677, ECJ.
Mol v Inspecteur der Invoerrechten en Accijnzen Case 269/86 [1988] ECR 3627.
Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR
6365, ECJ.
Vereniging Happy Family Rustenburgerstraat v Inspecteur der Omzetbelasting Case 289/86 [1988] ECR
3655.
Witzemann v Hauptzollamt Mnchen-Mitte Case 343/89 [1993] STC 108, [1990] ECR I-4477, ECJ.
Wolf v Hauptzollamt Dsseldorf Case 221/81 [1982] ECR 3681.
Reference
By order of 21 August 1995 the Finanzgericht Baden-Wrttemberg, Freiburg, referred to the Court of
Justice of the European Communities for a preliminary ruling three questions (set out at p 582 g, post) on
the interpretation of Council Directive (EEC) 77/388 on the harmonisation of the laws of the member
states relating to turnover taxescommon system of value added tax: uniform basis of assessment.
Those questions were raised in proceedings between Karlheinz Fischer and the Finanzamt
Donaueschingen concerning the payment of turnover tax on unlawful and punishable games of chance.
Written observations were submitted on behalf of: the German government, by E Rder, Ministerialrat in
the Federal Ministry of Economic Affairs, and B Kloke, Oberregierungsrat in that ministry, acting as
agents; the United Kingdom government, by S Braviner, of the Treasury Solicitors Department, acting as
agent, and P Mantle, Barrister; and the European Commission, by J Grunwald, Legal Adviser, acting as
agent. Oral observations were submitted on behalf of: the German government, represented by E Rder;
the UK government, represented by J E Collins, Assistant Treasury Solicitor, acting as agent, and K
Parker QC; and the Commission, represented by 568 J Grunwald. The language of the case was
German. The facts are set out in the opinion of the Advocate General.
20 March 1997.
Question 2
32.
By its second question the national court asks whether, in the case of the transactions in issue in the
main proceedings, the taxable amount is the amount retained by the operator during a tax period. This
question arises only if the view is taken that Germany is entitled to tax the transactions although it
exempts equivalent transactions effected by licensed public casinos.
33.
The purpose of the national courts question is to determine whether the courts ruling in Glawe
concerning slot machine transactions applies to the roulette transactions in issue here. The slot machines
in question in that case were located in bars and restaurants. Players activated a machine by inserting
coins which either entered its winnings reserve in order to be subsequently paid out as winnings or, if the
reserve was full, entered the machines cash box, which was periodically emptied by the operator. The
machines were required by law to pay out at least 60% of the stakes inserted into the machines as
winnings. The German government argued that the taxable amount consisted of the total stakes inserted
into the machines by players, including those stakes which were subsequently paid out as winnings.
34.
The court, following my opinion, held that the taxable amount for the purposes of art 11A(1)(a) of the
Sixth Directive did not include the statutorily prescribed proportion of the total stakes inserted
corresponding to the winnings paid out. Referring to its judgments in Boots Co plc v Customs and Excise
Comrs Case C-126/88 [1990] STC 387, [1990] ECR I-1235 and Naturally Yours Cosmetics Ltd v Customs
and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR 6365, the court reasoned that the taxable
amount for VAT purposes was the consideration actually received by a taxable person. The consideration
actually received by an operator of slot machines was limited to the proportion of the stakes which he
could actually take for himself, ie the coins which entered the machines cash box.
35.
In the present proceedings the German government asks the court to reconsider its ruling in Glawe. In
order to explain its criticisms of the ruling it may be helpful to set out a short passage from my opinion in
the case (see [1994] STC 543, [1994] ECR I-1679 (paras 1921)):
(19) In my view the consideration which the operator obtains for his services for the purposes of
art 11A(1)(a) is limited to the amounts which he empties from the machine. That is apparent from
an analysis of the transactions in issue and of other forms of gambling.
(20) Whilst gambling for money entails expenditure by gamblers, it does not in its simplest form
give rise to consumption of goods or services. Suppose, for example, that A enters into a private
bet with B, both placing their respective bets on the table. A wins the bet and collects the money on
575 the table. In such a case it would be absurd to suggest that A and B provide services to each
other for a consideration equal to the amount of their respective bets. The placing of the bets and
collection of the winnings is simply part of the gambling transaction. The placing of the bets,
although it involves the outlay of money, does not constitute the consumption of goods or services
which is the taxable event under the VAT system.
(21) Commercial gambling is different in so far as the person organising the gambling arranges
matters in such a way that on average his winnings are sufficient to meet his costs in organising the
gambling and to provide him with a reasonable profit. For example, a bookmaker will set the odds
for bets on horse races at a level intended to ensure that he makes an overall profit on bets placed.
To that extent the person organising the gambling may perhaps be regarded as not only taking part
in the gambling himself but also providing a service to the other gamblers consisting in organising
the gambling. On that view his reward for that service would not, however, be the total amount of
the bets placed by gamblers. As already stated, the placing of bets and payment of winnings form
the nucleus of the gambling activity. The service provided by the organiser consists in providing the
framework within which that activity can take place, his reward for that service being the surplus of
winnings which he arranges for himself, together with any specific commission which he may
charge.
36.
In the present proceedings the German government rejects the premise that the nucleus of the
gambling activity does not involve consumption of goods or services. It considers that the gambling
activity itself involves an exchange of services. An organiser of commercial gambling does not merely
provide the framework for the gambling activity but also participates in the game himself. The player does
not, according to the German government, furnish consideration to the organiser with the mere aim of
participating in the game; otherwise it would suffice for the organiser to charge an entrance fee. What is
important to the player is the provision of the chance of winning.
37.
The German government points out that the fact that art 13B(f) provides for the possibility of
exemption necessarily implies that games of chance may be subject to the tax. According to the ruling in
Glawe, the taxable amount is nil, effectively removing gambling from the scope of the tax: unless the
organiser makes a net gain.
38.
The German government adds that its analysis is consistent with the principle underlying the Sixth
Directive that VAT is imposed on individual transactions. Under the ruling in Glawe, according to which the
taxable amount consists of the total of net receipts less winnings paid out over a period, the reference to
specific transactions is lost. Moreover, under the ruling in Glawe the consideration for the provision of the
framework for a game is the operators gross margin, which is inconsistent with the principle that VAT is
payable on a taxable persons turnover.
39.
In the alternative the German government contends that the transactions in Glawe are distinguishable
from those in the present case. It points out that, in contrast to the situation in Glawe, players winnings do
not correspond to a fixed percentage laid down by law. Nor do the stakes to be retained by the organiser
enter a separate cash box. The chips placed on the table cannot therefore be divided into two separate
categories, namely winnings and the organisers turnover.
576
40.
While not asking the court to reconsider its ruling in Glawe, the Commission does not think the same
analysis can be applied to roulette. It contends that the taxable amount consists of the chips purchased
by players. By purchasing chips a player gains access to the casino, its infrastructure, its particular
atmosphere and the tables. The range of possibilities offered by a casino is infinitely greater and more
varied than that offered by a gaming machine fixed on the wall of a restaurant.
41.
The United Kingdom, on the other hand, takes the view that the courts ruling in Glawe was correct
and should be extended to roulette. It emphasises however that gambling is a special case and that the
ruling is not applicable to other categories of transaction.
42.
In considering this issue it is important above all to have regard to the basic principles underlying the
common VAT system, as set out in particular in art 2 of Council Directive (EEC) 67/227 on the
harmonisation of legislation of member states concerning turnover taxes (see OJ S edn 1967 p 4) (the
First Directive). That provision states that the principle of the common VAT system
involves the application to goods and services of a general tax on consumption exactly
proportional to the price of goods and services, whatever the number of transactions which take
place in the production and distribution process before the stage at which tax is charged.
43.
The normal functioning of the VAT system in conformity with that provision may be illustrated by the
following example. Suppose that during a particular period a manufacturer sells goods for DM 3m, plus
DM 420,000 VAT (calculated at the rate of 14% applicable in Germany at the material time). The
manufacturers VAT-inclusive takings are therefore DM 3,420,000, of which he is obliged to pay DM
420,000 (less any VAT already paid on his purchases) to the tax authorities. The remaining DM 3m is
available to cover his profit margin, the cost components of his supplies and any other taxes for which he
may be liable (eg profits tax). The proportion of the price of his goods, ie of his total takings, represented
by VAT corresponds to the 14% VAT rate applicable in Germany (DM 420,000/DM 3m). The tax is
therefore exactly proportional to the price of [his] goods as required by art 2 of the First Directive 3.
3
For the purpose of this example I shall ignore the small amounts of hidden VAT which may have been passed on to him
in exempt purchases of goods or services (eg insurances).
44.
The application of VAT to gambling transactions is admittedly less straightforward. Indeed the reason
for the exemption in art 13B(f) is that such transactions are better suited to other forms of taxation.
Nevertheless, despite the inherent difficulties, the ruling in Glawe provides in my view the basis for
applying VAT to such transactions in a manner which is consistent with the basic principles of the VAT
system as set out and illustrated above. It seems to me that the ruling is equally applicable to roulette
transactions.
45.
If the ruling in Glawe is applied to the present case, the effect will be that VAT is payable on the
organisers net takings (after payment of all winnings) over a given period. That analysis produces results
most closely resembling those applicable in the case of more typical transactions as in the example given
above. It is ultimately only the amount retained by the organiser after payment of winnings which is
available to cover his profit margin, the costs of running the gambling establishment, the VAT and other
taxes which may be payable on his activities. It is that amount which may therefore be equated with the
577 manufacturers (VAT-inclusive) turnover from the sale of his goods. By calculating the tax by
reference to that amount the tax remains exactly proportional to the organisers turnover.
46.
The German governments argument that such an analysis removes gambling from the scope of the
tax ignores the fact that organisers of commercial gambling of the type in issue arrange the odds in such
a way as to ensure that they make a profit in the long run. Nor do I share the German governments view
that the ruling in Glawe conflicts with the principle that VAT is imposed on individual transactions. In my
opinion in Glawe [1994] STC 543, [1994] ECR I-1679 (para 29) I noted:
each stake must be regarded as consisting of two components. One component is the price
paid for the services provided by the operator (including the VAT payable on that amount). The
remainder of the stake may be regarded as an amount contributed to the common pool available to
be paid out as winnings. Over a given period, those components will correspond to the amounts
collected respectively by the cash box and the reserve of the machine.
47.
The same applies to the present case. As a matter of legal analysis each chip placed on the table
comprises two components: (a) the wager; and (b) the consideration for the organisers service, ie the
price paid by players for the right to participate in the game and obtain the chance of winning. That price,
consisting in the advantage which the house reserves to itself by virtue of the odds being in its favour, can
be calculated precisely and is a standard percentage varying according to the version of roulette played. It
is paid by each player each time he places a chip on the table. It would be perfectly possible for an
organiser to separate the two components by eliminating the advantage for the house and replacing it
with a separate charge to cover his costs and provide him with a profit.
48.
For similar reasons the German governments argument that the ruling in Glawe entails taxation of a
taxable persons gross margin rather than his turnover contrary to the basic principles of the Sixth
Directive is also misconceived. The organisers turnover is limited to that proportion of each chip
representing the price of the organisers service.
49.
In practice individual calculations based on each chip placed on the table are unnecessary. The total of
the amounts received by way of consideration for individual transactions corresponds to the organisers
net takings (after payment of winnings) during a given period. Over a period the organisers net takings
necessarily correspond to the advantage which he reserves to himself. The fact that there is in practice an
easier method of determining the taxable amount does not however mean that tax is not levied on
individual transactions. I therefore do not accept the Commissions view that such an analysis is
theoretically unsound. On the contrary it seems to me that it is an illustration of how a theoretically sound
solution is often easier to apply in practice.
50.
It is, I think, instructive to examine by way of contrast the consequences of the other interpretations
which have been suggested in these proceedings. It appears from the order for reference that the
Finanzamts analysis is based on a judgment of the Finanzgericht Dsseldorf of 29 January 1986. The
Finanzgericht reasoned that, if a player lost DM 50 during a session, the price which he paid for the
chance of winning was DM 50. If, on the other hand, he won DM 100 during a session, he paid nothing for
the chance of winning. Since the operator had no 578 record of players net winnings or losses at each
session, it was necessary for the Finanzgericht to lay down a method for estimating his taxable turnover.
After undertaking a calculation of probabilities the Finanzgericht concluded that the estimate was to be
arrived at by multiplying the operators net takings by six.
51.
At the hearing the German government explained that it did not share the Finanzamts analysis of the
transaction. In keeping with its analysis in Glawe, the German government considers that the taxable
amount consists of the total chips placed on the table by a player in each game, no account being taken
of his winnings.
52.
The Commission on the other hand takes the view that the taxable amount consists of the chips
purchased, again no account being taken of winnings.
53.
The basic flaw in all those analyses is that they produce a tax burden which is not proportional to the
organisers real turnover. The essential reason for that is that a large part of the amount staked is repaid
to players as winnings yet is treated as the organisers turnover for VAT purposes. The result is an
artificial inflation of his turnover. Such analyses ignore the fact that the nucleus of a gambling activity,
although involving the use of money, does not involve the consumption of goods or services.
54.
The effect of the Finanzamts method may be seen from the figures given in the order for reference; for
example, on the basis of Mr Fischers actual takings of DM 344,880 for 1987 the Finanzamt calculated a
taxable amount of DM 2,069,280, on which it assessed VAT of DM 289,69920 at the rate of 14%. The
result of that method, however, is to impose an effective rate of tax on Mr Fischers actual takings of no
less than 84% (DM 289,69920/DM 344,880).
55.
The German governments analysis would undoubtedly lead to an even higher tax burden. Suppose
that a player purchases ten chips for DM 5 each. He stakes two chips in each of the first five games. In
the first four games he loses. In the fifth game he wins, restoring his total chips to ten. He then plays
another five games, again staking two chips in each game. He loses the sixth to ninth games but then
wins the tenth game, restoring the number of his chips to eight. On the German governments view tax
would be payable on the total chips staked, ie DM 100 (20 chips of DM 5 each). Yet the organisers actual
takings from the series of games would be only DM 10 (two chips of DM 5 each). That amount alone is
the (VAT-inclusive) turnover available to cover his costs, his profit margin, the VAT and any other taxes
which may be payable. Yet on the German governments analysis his VAT liability alone would amount to
DM 1228 (DM 100 x 14/114). His actual takings would therefore be insufficient even to meet his VAT
liability.
56.
Moreover, on both the German governments and the Finanzamts view the taxable amount can only
be estimated since it would plainly be impracticable for operators to keep a record of every chip staked or
the results of each session at the table. The correct multiplication factor to be applied has evidently been
the subject of some debate in Germany. From the taxable persons viewpoint the factor of six adopted by
the Finanzgericht Dsseldorf compares very favourably with the factor of 25 which had been suggested
by the tax authorities in the proceedings before that court. At the hearing in the present proceedings the
German government was unable to state the method which it would use to arrive at an estimate of Mr
Fischers turnover.
57.
The Commissions analysis would probably result in a taxable amount somewhat lower than that
resulting from the German governments analysis 579 since the taxable amount would not include chips
won by players and placed as stakes in further games. Moreover, taxable persons could perhaps
reasonably be required to keep a record of chips sold, making the use of estimates unnecessary.
However, there is no reason to suppose that the method proposed by the Commission, which takes no
account of winnings paid to players, would result in the imposition of a tax burden which was proportional
to the organisers actual takings from his activities.
58.
I consider therefore that, on the assumption that the national courts second question calls for a reply,
the court should uphold its ruling in Glawe and rule that it also applies to roulette transactions such as
those in issue in the main proceedings. I do not think the particular workings of the slot machines in
question in Glawe or the fact that the minimum winnings paid out were fixed by law were critical to the
courts ruling. The courts essential concern was to provide an interpretation which would ensure that a
taxable persons VAT liability was proportional to his actual turnover.
59.
I should, however, finally emphasise that, for reasons already mentioned, gambling transactions of the
kind in issue which involve betting with money are something of a special case, and it must not be thought
that the foregoing analysis can necessarily be extended to other transactions.
60.
In view of the answer which I propose to the second question, the national courts third question does
not arise.
Conclusion
61.
Accordingly, I am of the opinion that the Court of Justice should reply as follows to the questions put by
the Finanzgericht Baden-Wrttemberg:
Article 2(1) of the Sixth Directive is to be interpreted as subjecting to VAT the unlawful provision
of roulette games. A member state is not entitled to limit the scope of the exemption provided for in
art 13B(f) of the Sixth Directive to the lawful provision of such games.
11 June 1998.
Relevant provisions
3.
Article 2 of the Sixth Directive states:
The following shall be subject to value added tax: (1) the supply of goods or services effected
for consideration within the territory of the country by a taxable person acting as such
580
4.
Under art 11A(1)(a), the taxable amount in respect of supplies of goods and services is generally
everything which constitutes the consideration which has been or is to be obtained by the supplier from
the purchaser, the customer or a third party for such supplies including subsidies directly linked to the
price of such supplies.
5.
Article 13B provides:
Without prejudice to other Community provisions, Member States shall exempt the following
under conditions which they shall lay down for the purpose of ensuring the correct and
straightforward application of the exemptions and of preventing any possible evasion, avoidance or
abuse (f) betting, lotteries and other forms of gambling, subject to conditions and limitations laid
down by each Member State
6.
Article 33, in the version in force at the material time, stated that, without prejudice to other Community
provisions, the provisions of the Sixth Directive were not to prevent a member state from maintaining or
introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and,
more generally, any taxes, duties or charges which could not be characterised as turnover taxes.
7.
In German law, under para 1(1) of the Umsatzsteuergesetz (the UStG) (the Law on Turnover Tax,
Bundesgesetzblatt) turnover tax is payable on supplies of goods and services effected for consideration in
the relevant tax area by a trader in the course of his business.
8.
Paragraph 4(9)(b) of the UStG exempts from the tax turnover covered by the Law on Betting and
Lotteries and gaming turnover of licensed public casinos.
9.
Under para 284 of the German Criminal Code, any person who organises games of chance open to
the public without official authorisation is to be liable to a fine or a term of imprisonment not exceeding two
years. Games of chance organised in clubs or private societies where games of chance are routinely
organised are also to be treated as open to the public.
10.
In accordance with para 40 of the Abgabenordnung (the 1977 tax code), it is irrelevant for taxation
purposes whether an act which wholly or partly meets the criteria for liability to tax under tax legislation is
contrary to a statutory requirement or prohibition or to public morality.
Question 1
17.
For the purpose of providing the national court with a helpful answer, the first question must be
understood as seeking to determine whether the unlawful operation of a game of chance, in this case
roulette, falls within the scope of the Sixth Directive and whether a member state may impose value
added tax (VAT) on that activity when the corresponding activity carried on by a licensed public casino is
exempted.
18.
It should first be noted that the Sixth Directive expressly refers to forms of gambling in art 13B(f),
where it provides for their exemption, and in art 33, where it states that its provisions are not to prevent
the member states from maintaining 582 or introducing taxes on betting and gambling. It is thus clear that
such transactions do not, as such, fall outside the Sixth Directive.
19.
It is appropriate, next, to consider the doubts expressed by the national court concerning the possibility
of imposing VAT on unlawful activities. In Einberger v Hauptzollamt Freiburg Case 294/82 [1984] ECR
1177 (paras 1920), Mol [1988] ECR 3627 (para 15), Happy Family [1988] ECR 3655 (para 17) and
Witzemann v Hauptzollamt Mnchen-Mitte Case 343/89 [1993] STC 108, [1990] ECR I-4477 (para 19),
the court held that illegal imports or supplies of narcotic drugs or counterfeit currency, whose release into
the economic and commercial channels of the Community was by definition precluded and which could
give rise only to penalties under the criminal law, were wholly alien to the provisions of the Sixth Directive
and did not give rise to any VAT debt.
20.
As the court pointed out in Lange v Finanzamt Frstenfeldbruck Case C-111/92 [1997] STC 564,
[1993] ECR I-4677 (para 12), that principle relates only to products which, because of their special
characteristics, may not be marketed or incorporated into economic channels.
21.
By contrast, outside those cases where all competition between a lawful economic sector and an
unlawful sector is ruled out, the principle of fiscal neutrality precludes a generalised distinction from being
drawn in the levying of VAT between unlawful and lawful transactions. The court has accordingly held that
a ban on the export of certain products to specific destinations because they might be used for strategic
purposes cannot in itself be sufficient to remove such exports from the scope of the Sixth Directive (see
Lange [1997] STC 564, [1993] ECR I-4677 (paras 1617)).
22.
The foregoing considerations relating to the import or supply of goods apply equally to the supply of
services such as the organisation of games of chance. Those games, and roulette in particular, are
lawfully played in a number of member states. Since the unlawful transactions at issue in the main
proceedings are in competition with lawful activities, the principle of fiscal neutrality precludes their being
treated differently as regards VAT.
23.
The unlawful operation of games of chance therefore falls within the scope of the Sixth Directive.
24.
It must, finally, be ascertained whether, as the UK government asserted in its written observations, art
13B(f) of the Sixth Directive prohibits the member states from imposing VAT on unlawful games of chance
when the corresponding activity lawfully carried on in duly licensed public casinos is exempted.
25.
It is clear from the very wording of that provision that gambling is in principle to be exempted from VAT.
The member states retain the power to lay down the conditions and limitations of that exemption.
26.
The Commission has maintained, however, that art 13B(f) does not involve an absolute prohibition on
the taxation of games of chance. At the hearing, the UK government departed from the view which it had
taken in its written observations and maintained that when the member states lay down the conditions
and limitations of the exemption they are entitled to require that the transactions in question take place in
duly licensed public casinos.
27.
In that regard, it must be pointed out that the exemptions provided for by art 13B are to be applied in
accordance with the principle of fiscal neutrality inherent in the common system of VAT (see, to that effect,
EC Commission v Italy Case C-45/95 [1997] STC 1062, [1997] ECR I-3605 (para 15)). That requirement
also applies when the member states exercise their power under art 13B(f) to lay down the conditions and
limitations of the exemption. In according that power 583 to the member states, the Community legislature
did not authorise them to undermine the principle of fiscal neutrality which underlies the Sixth Directive.
28.
As pointed out in para 21 of this judgment, it is clear from the judgment in Lange that the principle of
fiscal neutrality precludes a generalised distinction from being drawn in the levying of VAT between
unlawful and lawful transactions. It follows that member states cannot reserve the exemption solely to
lawful games of chance.
29.
It cannot be contended, as the German government has done, that the conditions in which lawful
games take place are not comparable to those pertaining in the case of unlawful games on the ground
that licensed casinos are subject to a levy calculated on the basis of their profits.
30.
First, the common system of VAT would be distorted if member states could adjust its application on
the basis that there are other, unharmonised, taxes. Secondly, as the German government itself
acknowledged at the hearing, there is nothing to prevent levies of the same kind as those payable by
licensed casinos from also being imposed on organisers of unlawful games of chance.
31.
The answer to the first question must therefore be that the unlawful operation of a game of chance, in
the event roulette, falls within the scope of the Sixth Directive. Article 13B(f) of that directive must be
interpreted as meaning that a member state may not impose VAT on that activity when the corresponding
activity carried on by a licensed public casino is exempted.
Questions 2 and 3
32.
In view of the answer given to the first question, there is no need to reply to the second and third
questions asked by the national court.
Costs
33.
The costs incurred by the German and UK governments and by the European Commission, which
have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are,
for the parties to the main proceedings, a step in the action pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the questions referred to it by
the Finanzgericht Baden-Wrttemberg, Freiburg, hereby rules: the unlawful operation of a game of
chance, in the event roulette, falls within the scope of the Council Directive (EEC) 77/388 on the
harmonisation of the laws of the member states relating to turnover taxescommon system of value
added tax: uniform basis of assessment. Article 13B(f) of that directive must be interpreted as meaning
that a member state may not impose VAT on that activity when the corresponding activity carried on by a
licensed public casino is exempted.
584
ICI was one of a consortium of companies which owned a holding company, H Ltd. H Ltd held shares in
23 trading companies, four of which were established in the United Kingdom, six in other member states
and thirteen in non-member states. ICI sought to set a proportion of the losses of one of the UK trading
companies against its own chargeable profits for the corresponding periods by way of tax relief, pursuant
to ss 258 to 2641 of the Income and Corporation Taxes Act 1970. The Inland Revenue refused ICIs
application for tax relief on the ground that H Ltd did not constitute a holding company within the
meaning of s 258(5)(b) of the 1970 Act, since the majority of its subsidiaries (19 out of 23) were not
bodies corporate resident in the United Kingdom as required by s 258(7). ICI contested the refusal,
contending, principally, that the residence requirement amounted to a restriction, in the form of a
discriminatory tax regime, on the freedom of establishment for companies and firms and therefore
infringed arts 52 and 582 of the EC Treaty. After a series of appeals, the House of Lords stayed the
proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling the
questions: (i) whether art 52 precluded member states from making a particular form of tax relief subject
to a residence requirement; and (ii) whether, in the event that such legislation was incompatible with
Community law, the national court was obliged, under art 53, to disapply that legislation or to construe it in
a way conforming with Community law, where the holding 585 company controlled mainly subsidiaries
having their seat in non-member countries.
1
Sections 258 to 264, so far as material are set out at p 597 j to p 598 f, post
2
Articles 52 and 58, so far as material, provide: (52) restrictions on freedom of establishment of nationals of a
Member State in the territory of another Member State shall be abolished Such abolition shall also apply to
restrictions on the setting-up of agencies, branches or subsidiaries (58) Companies or firms shall, for the
purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States.
3
Article 5, so far as material, provided: Member States shall take all appropriate measures to ensure fulfilment of the
obligations arising out of action taken by the institutions of the Community.
Held (1) Article 52 of the Treaty precluded legislation of a member state which, as in the instant case,
made a particular form of tax relief subject to the requirement that the holding companys business
consisted wholly or mainly in the holding of shares in subsidiaries that were established in the member
states concerned. Moreover, the need to maintain the cohesion of tax systems did not, in the instant case,
provide sufficient justification for maintaining rules restricting fundamental freedoms, since there was no
direct link between the consortium relief granted for losses incurred by a resident subsidiary and the
taxation of profits made by non-resident subsidiaries (see p 602 f to h and p 603 h, post); Bachmann v
Belgium Case C-204/90 [1992] ECR I-249 distinguished.
(2) The difference of treatment applied according to whether or not the business of the holding
company consisted wholly or mainly in holding shares in subsidiaries having their seat in non-member
countries lay outside the scope of Community law. Accordingly, art 5 of the Treaty did not require the
national court to interpret its legislation in conformity with Community law, or to disapply the legislation in
a situation falling outside the scope of Community law. However, where a particular provision had to be
disapplied in a situation covered by Community law, but that same provision could remain applicable to a
situation not so covered, it was for the competent body of the state concerned to remove that legal
uncertainty in so far as it might affect rights deriving from Community rules (see p 603 c to e j, post).
Notes
For the EC Treaty, arts 5, 52 and 58, see 50 Halsburys Statutes (4th edn) 267, 285 and 287.
Cases cited
Asscher v Staatssecretaris van Financin Case C-107/94 [1996] All ER (EC) 757, [1996] ECR I-3089,
ECJ.
Bachmann v Belgium Case C-204/90 [1992] ECR I-249.
Bond van Adverteerders v Netherlands Case 352/85 [1988] ECR 2085.
BP Supergas Anonimos Etaira Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece Case C-62/93
[1995] All ER (EC) 684, [1995] ECR I-1883, ECJ.
Decker v Caisse de Maladie des Employs Privs Case C-120/95 (1997) Transcript (opinion), 16
September, ECJ.
EC Commission v Belgium Case C-300/90 [1992] ECR I-305.
EC Commission v France Case 270/83 [1986] ECR 273.
EC Commission v UK Case C-246/89 [1991] ECR I-4585.
Enderby v Frenchay Health Authority Case C-127/92 [1994] 1 All ER 495, [1994] ICR 112, [1993] ECR I-
5535, ECJ.
Eurico Italia Srl v Ente Nazionale Risi Joined cases C-332333/92 and C-335/92 [1994] ECR I-711.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Furlanis Costruzioni General SpA v Azienda Nazionale Autonoma Strade (ANAS) C-143/94 [1995] ECR I-
3633.
Futura Participations SA v Administration des Contributions Case C-250/95 [1997] ECR I-2471.
586
Gebhard v Consiglio dellOrdine degli Avvocati e Procuratori di Milano Case C-55/94 [1996] All ER (EC)
189, [1995] ECR I-4165, ECJ.
Grado Case C-291/97 (1997) Transcript, 9 October, ECJ.
Kohl v Union des Caisses de Maladie Case C-158/95 (1997) Transcript (opinion), 16 September, ECJ.
MacLachlan v Caisse Nationale dAssurance Vieillesse des Travailleurs Salaris de la Rgion dIle-de-
France (CNAVTS) Case C-146/93 [1994] ECR I-3229.
Monin AutomobilesMaison du Deux-Roues Case C-428/93 [1994] ECR I-1707.
Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347.
R v HM Treasury, ex p Daily Mail Case 81/87 [1989] 1 All ER 328, [1989] 1 QB 446. [1989] 2 WLR 908,
[1988] ECR 5483, ECJ.
R v IRC, ex p Commerzbank AG Case C-330/91 [1993] ECR I-4017.
Safir v Skattemyndigheten i Darlarnas Ln (formerly Skattemyndigheten i Kopparbergs Ln) Case C-
118/96 (1997) Transcript (opinion), 23 September, ECJ.
Stichting Collectieve Antennevoorziening Gouda v Commissariaat voor de Media Case C-288/89 [1991]
ECR I-4007.
Svensson v Ministre du Logement et de lUrbanisme Case C-484/93 [1995] ECR I-3955.
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER
(EC) 97, [1995] ECR I-4921, ECJ.
Unit Socio-Sanitarua Locale No 47 di Biella (USSL) v Istituto Nazionale per LAssicurazione Contro gli
Infortuni sul Lavaro (INAIL) Case C-134/95 [1997] ECR I-195.
Wielockx v Inspecteur der Directe Belastingen Case C-80/94 [1995] All ER (EC) 769, [1995] ECR I-2493,
ECJ.
Reference
By order of 24 July 1996, the House of Lords referred to the Court of Justice of the European
Communities for a preliminary ruling under art 177 of the EC Treaty two questions (set out at p 599 f to j,
post) on the interpretation of arts 5 and 52 of the Treaty. Those questions were raised in proceedings
between Imperial Chemical Industries plc (ICI) and the Inland Revenue concerning the latters refusal to
grant to ICI tax relief in respect of trading losses incurred by a subsidiary of the holding company
beneficially owned by ICI through a consortium. Written observations were submitted on behalf of: ICI, by
P Whiteman QC and C Vajda, Barrister, instructed by Hammond Suddards, Solicitors; the United
Kingdom government, by J E Collins, Assistant Treasury Solicitor, acting as agent, with D Wyatt QC and
R Singh, Barrister; and the European Commission, by P Oliver and H Michard, of its Legal Service, acting
as agents. Oral observations were made by ICI, the UK government and the Commission. The language
of the case was English. The facts are set out in the opinion of the Advocate General.
16 December 1997.
3.
Specifically, pursuant to s 258(1) of the 1970 Act, relief to which companies are entitled for trading
losses may be surrendered by a company which is a member of a group of companies (the surrendering
company) to another company in the same group (the claimant company). Under s 258(2), group relief is
also available in situations involving consortia. For instance, it is available where one of the companies
involved is a member of a consortium and the other is a company controlled by a holding company which
is in turn owned by a consortium5. In accordance with s 259(1) and (8)(a) of the Act, in cases where the
claimant company is a member of a consortium, only a fraction of the losses incurred by the surrendering
company may be set off, that fraction being equal to the claimant companys share in the consortium.
5
Pursuant to s 258(8), a company is owned by a consortium if three-quarters or more of the ordinary share capital of the
company is beneficially owned between them by companies of which none beneficially owns less than one-twentieth of
that capital, and those companies are called the members of the consortium.
The availability of consortium relief is also conditional on the company owned by the consortium
being a holding company as defined in s 258(5)(b) of the Act, namely a company the business of which
consists wholly or mainly in the holding of shares or securities of companies which are its 90 per cent
subsidiaries, and which are trading companies.
4.
Lastly, s 258(7) provides that references in this and the following sections of this Chapter to a
company apply only to bodies corporate resident in the United Kingdom. This is the provision whose
interpretation and application have given rise to these proceedings.
QUESTION 1
10.
By its first question, the House of Lords asks the Court of Justice whether art 52 of the Treaty
precludes application of legislation such as that described above. In particular, on the assumption that the
interpretation advocated by the Inland Revenue is correct, the House of Lords asks whether the pre-
condition for tax reliefthat most of the subsidiaries controlled by the holding company must be resident
in the United Kingdomentails an unjustified restriction on the freedom of establishment guaranteed by
art 52.
Relevance
11.
First of all, I should point out that doubts have been expressed in the course of the proceedings as to
whether this question has any bearing on adjudication of the dispute in the main proceedings.
Specifically, the UK government maintained that even if the legislation at issue were found to entail a
restriction on freedom of establishment, incompatible with a proper interpretation of art 52, that would
have no relevance for the purposes of resolving the dispute in the main proceedings. ICI would in any
event be denied the tax relief provided for by the Act, since the majority of the companies controlled by
Holdings (as many as 13 out of 23) are resident, not in other member states of the Community, but
elsewhere.
12.
The European Commission has taken a different view. Given that the Court of Justice declines only in
exceptional circumstances to give a ruling on questions referred under art 177 of the Treaty, the
Commission has pointed out that, in the light of s 258(5), the House of Lords itself acknowledged that the
quantitative criterion is not the only test which can be applied in order to 590 evaluate the business of a
holding company; other yardsticks may be used, such as the turnover of the companies controlled.
According to the Commission, the reference in s 258(5)(b), read in conjunction with s 258(7), to business
consisting wholly or mainly in the holding of shares or securities of trading companies resident in the
United Kingdom is not open to only one interpretation. In any event, it is for the national court to decide
which test to apply, while the court must provide any guidance which would be of assistance in resolving
the dispute.
13.
The first point I would make in that connection is that, according to established case law, it is for the
national court to assess the relevance of and the need for a preliminary ruling. Given its direct knowledge
of the facts of the case and the relevant points of law, that court is in the best position to gauge the
relevance of any questions concerning Community law raised in the dispute (see the judgments in Pigs
Marketing Board v Redmond Case 83/78 [1978] ECR 2347 (para 25) and MacLachlan v Caisse Nationale
dAssurance Vieillesse des Travailleurs Salaris de la Rgion dIle-de-France (CNAVTS) Case C-146/93
[1994] ECR I-3229 (para 20)). In principle, therefore, the Court of Justice considers itself bound to
answer, except in cases where the questions referred are purely hypothetical or where it is quite obvious
that the requested interpretation or ruling on the validity of a provision of Community law has no bearing
on the facts or purpose of the main action6.
6
See the order in Monin AutomobilesMaison du Deux-Roues Case C-428/93 [1994] ECR I-1707 and the judgments in
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER (EC) 97,
[1995] ECR I-4921 (para 61), Unit Socio-Sanitarua Locale No 47 di Biella (USSL) v Istituto Nazionale per
LAssicurazione Contro gli Infortuni sul Lavaro (INAIL) Case C-134/95 [1997] ECR I-195 (para 12) and Grado Case C-
291/97 (1997) ECJ Transcript, 9 October (para 12).
14.
However, although I am somewhat sceptical as to whether an interpretation of art 52 is really
necessary in order to resolve the dispute before the House of Lords, it must be said that the present case
does not fall within one of the admittedly exceptional situations described above. In particular, this case
does not to my mind exhibit the characteristics which have hitherto led the Court of Justice to regard a
reference as manifestly irrelevant to a decision on the dispute in the main proceedings. It is apparent from
the order for reference that the proper construction of s 258(5) of the Act remains an open question.
Indeed, it is only if the availability of tax relief is based on a quantitative criterion related to the residence
of subsidiaries that it could appear fruitless to seek an interpretation of art 52 since the majority of the
companies in question are established outside the Community. The position would be different if, as
contemplated in the order for reference itself, the national court were to use turnover as a criterion or
apply some other test. In that case, appraisal of the compatibility of the legislation in question with art 52
of the Treaty could well have a bearing on the decision as to whether or not ICI is entitled to the relief
sought, if it transpired, for example, on the basis of the information available, that the turnover of the
companies controlled were essentially attributable to those resident in the Community.
Accordingly, in so far as, for the purpose of evaluating the business of a holding company, factors
other than the quantitative criterion may be taken into account when interpreting the domestic legislation, I
consider it useful to provide the House of Lords with an answer to the first question.
591
Substance
15.
That said, I would first of all observe that, as the Court of Justice itself has stated on several
occasions:
although, as Community law stands at present, direct taxation does not as such fall within
the purview of the Community, the powers retained by the Member States must nevertheless be
exercised consistently with Community law.7
7
See also EC Commission v UK Case C-246/89 [1991] ECR I-4585 (para 12), Finanzamt Kln-Altstadt v Schumacker
Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225 (para 21), Asscher v Staatssecretaris van Financin
Case C-107/94 [1996] All ER (EC) 757, [1996] ECR I-3089 (para 36) and Futura Participations SA v Administration
des Contributions Case C-250/95 [1997] ECR I-2471 (para 19). See also, however, Council Directive (EEC) 90/435 on
the common system of taxation applicable in the case of parent companies and subsidiaries in different member states
(OJ 1990 L225 p 6).
In the field of direct taxation, therefore, member states may not adopt measures which would have the
effect of unjustifiably impeding freedom of movement for natural or legal persons carrying on an activity in
a self-employed capacity (see the opinion of Advocate General Lger in Asscher v Staatssecretaris van
Financin Case C-107/94 [1996] All ER (EC) 757, [1996] ECR I-3089 (para 55)). It scarcely needs to be
mentioned that taxation which is discriminatory or which somehow impedes or limits the exercise of the
right of establishment is undoubtedly caught by art 52 (see the judgment in R v IRC, ex p Commerzbank
AG Case C-330/91 [1993] ECR I-4017 (para 20)).
It is therefore necessary to determine, in relation to the present case, whether art 52 of the Treaty
precludes the legislation at issue from making consortium relief conditional on the holding companys
business consisting, wholly or mainly, in the holding of shares of subsidiaries resident in the United
Kingdom.
16.
The requirement that most of the subsidiaries must be resident in the United Kingdom appears prima
facie to be a restriction on freedom of establishment, prohibited by the first paragraph of art 52. Relief is
thereby precluded in all cases where the holding companys business consists, wholly or mainly, in the
holding of shares of companies resident outside the United Kingdom, and thus even where such
companies are established in other member states. It is the latter aspect which is of significance for
Community law, since in those circumstances the legislation at issue limits, or at least discourages, the
exercise by British companies of the right to create corporate structures in other member states.
17.
To my mind there can be no doubt that such legislation is restrictive. On that point, suffice it to recall
the judgment in R v HM Treasury, ex p Daily Mail Case 81/87 [1989] 1 All ER 328, [1988] ECR 5483 (para
15) in which the court reaffirmed that freedom of establishment constitutes one of the fundamental
principles of the Community and that the provisions of the Treaty guaranteeing that freedom have been
directly applicable since the end of the transitional period, before going on to explain that
even though those provisions are directed mainly to ensuring that foreign nationals and
companies are treated in the host member state in the same way as nationals of that state, they
also prohibit the member state of origin from hindering the establishment in another member state
of one of its nationals or of a company incorporated under its legislation which comes within the
592 definition contained in art 58. (See [1989] 1 All ER 328, [1988] ECR 5483 (para 16).)
18.
This is typical of restrictions on exits. Tax disincentives undoubtedly make the creation of cross-
border corporate structures a less attractive prospect for companies established in the United Kingdom. In
so far as such a restriction applies to subsidiaries resident in other member states, the UK legislation
entailsI repeatan obstacle to the freedom of establishment guaranteed by art 52 of the Treaty.
Furthermore, the legislation at issue appears particularly unfavourable to companies which belong to a
consortium as opposed to a group, since in the latter case the setting-off of losses against profits would
still be possible (a point made by the Commission and not disputed).
Nor is it a valid objection to argueas does the UK governmentthat a distinction based on the
residence of a companys subsidiaries does not amount to discrimination since the situations involved are
not comparable. The legislation at issue concerns companies which are liable to tax in the United
Kingdom and makes tax relief conditional on the manner in which the right of establishment is exercised
in other member states of the Community as well.
19.
In those circumstances, it only remains to determine whether the restriction in question may be
justified in the light of Community law.
In that connection, both ICI and the Commission have ruled out that possibility. According to the United
Kingdom, on the other hand, it is a measure justified in terms of its objective, which is to prevent the
creation of foreign subsidiaries from being used as an easy means of depriving the United Kingdom
Treasury of tax revenue.
20.
The first difficulty which arises in this connection is whether or not to class the restriction at issue as
giving rise to discrimination based on the place of establishment. The implications in respect of a possible
justification will vary according to the solution adopted. The court has consistently held that a
discriminatory measure is compatible with Community law only if it falls within the scope of one of the
derogations expressly provided by the Treaty8. Where, however, the measure in question applies without
distinction to all persons including foreigners, the measures restricting freedom of establishment are
compatible if they are in furtherance of imperative requirements in the general interest, if they are suitable
for securing the attainment of the objective pursued and if they do not go beyond what is necessary to
attain it9.
8
See the judgment in Bond van Adverteerders v Netherlands Case 352/85 [1988] ECR 2085 (para 32), in which the court
stated that [discriminatory] national rules are compatible with Community law only if they can be brought within the
scope of an express derogation.
9
See, most recently, the judgment in Gebhard v Consiglio dellOrdine degli Avvocati e Procuratori di Milano Case C-55/94
[1996] All ER (EC) 189, [1995] ECR I-4165 (para 37), in which the court referred without distinction to all the
fundamental freedoms guaranteed by Community law.
21.
Once again, the answer to the question referred depends on where emphasis is placed. It is apparent,
for example, that the legislation at issue discriminates between companies resident in the United
Kingdom, according to whether or not they have exercised their freedom of establishment in other
member states, through a holding company, for instance. In other words, the distinction affects companies
whose registered office is in the same member state and is linked to their decision whether or not to avail
themselves of the possibility, guaranteed by art 52 of the Treaty, of setting up branches or subsidiaries in
other countries, even if they are member states of the Community.
593
22.
Admittedly, even if art 52 ensured that all subsidiaries resident in the Community were placed on an
equal footing with those resident in the United Kingdom, a further level of discrimination evidently cannot
be ruled out. That is to say, there would still be discrimination between the companies which exercise the
right of establishment, depending on the precise form this takes: tax relief would be granted where the
holding companys business consisted, wholly or mainly, in holding shares of companies established in
the territory of member states, but denied where only a minority of the companies were resident in the
territory concerned.
That detail is especially significant in the present case, where some of the companies controlled by
Holdings are resident in member states other than the United Kingdom. However, that form of
discrimination clearly cannot be challenged on the basis of art 52 of the Treaty, since there is no
restriction on freedom of establishment in the Community. Although discrimination based on the place of
establishment might have been eliminated in compliance with art 52 in respect of the United Kingdom or
other member states of the Community, the UK legislation discourages, if anything, the creation of
subsidiaries in countries outside the Community. That is why, as we shall have occasion to verify when
examining the second question, ICI seeks to rely on art 5 of the Treaty with a view to securing in any
event the tax relief provided by the Act.
23.
The domestic legislation, in so far as it gives rise to discrimination, may clearly be justified only in the
exceptional circumstances envisaged by the Treaty. This is the approach taken by the Commission, which
has made a short study of the problem of justificatory grounds, from which it concludes that none of the
derogations provided for in art 56 (public policy, public security or public health) applies in the present
case. Considerations of a purely economic nature, such as loss of tax revenue, cannot justify restrictions
of a discriminatory character which fall within the scope of art 52 of the Treaty 10.
10
See the judgments in Bond van Adverteerders [1988] ECR 2085 and Stichting Collectieve Antennevoorziening Gouda v
Commissariaat voor de Media Case C-288/89 [1991] ECR I-4007 (para 11). In the judgment in Svensson v Ministre du
Logement et de lUrbanisme Case C-484/93 [1995] ECR I-3955 (para 15), given that the Luxembourgish legislation on
interest rate subsidies in respect of loans for the construction of housing entailed discrimination based on the place of
establishment, the court added that such discrimination can only be justified on the general interest grounds referred to
in Article 56(1) of the Treaty which do not include economic aims. It should be noted, however, that on the same
occasion the court also considered whether the legislation at issue, albeit classed as discriminatory, was necessary in
order to safeguard the cohesion of the tax system. In so doing, however, the court also determined whether the
measure in question could be justified in terms of requirements which may be taken into account only in the case of
measures which apply without distinction. In my joint opinion in Decker v Caisse de Maladie des Employs Privs Case
C-120/95 and Kohl v Union des Caisses de Maladie Case C-158/95, I have already explained the difficulties in regard to
consistency, raised by the courts recent case law (see esp (1997) ECJ Transcript (opinion), 16 September (paras 49
50)).
24.
However, even if the measure at issue were to be regarded as applying without distinction, in view of
the fact that the requirement is imposed on companies which are in any event liable to taxation in the
United Kingdom, it would still be incompatible with the rules regarding freedom of establishment. I have
no hesitation in stating that the arguments put forward in this case to justify the legislation at issue are
devoid of substance.
25.
Admittedly, on a number of occasions the court has acknowledged that the need for cohesion in the
application of tax systems can constitute sufficient justification, linked to mandatory requirements in the
general interest, for 594 imposing a restriction on freedom of establishment11. It is also true, however, that
the problem in question has in general arisen in respect of domestic legislation which distinguished
between legal or natural persons on grounds of their being resident or having their registered office in the
territory of another member state.
11
See the judgments in Bachmann v Belgium Case C-204/90 [1992] ECR I-249 (para 21), Schumacker [1995] All ER
(EC) 319, [1995] ECR I-225 (para 47), Wielockx v Inspecteur der Directe Belastingen Case C-80/94 [1995] All ER
(EC) 769, [1995] ECR I-2493 (para 25) and Asscher [1996] All ER (EC) 757, [1996] ECR I-3089 (para 59). See
also my opinion in Safir v Skattemyndigheten i Darlarnas Ln (formerly Skattemyndigheten i Kopparbergs Ln) Case C-
118/96 (1997) Transcript (opinion), 23 September, ECJ (paras 20ff).
In Bachmann v Belgium Case C-204/90 [1992] ECR I-249, which concerned the application to
residents of domestic legislation making the deduction of certain contributions from taxable income
conditional on those contributions having been paid in that member state, the court stated that the aim of
the Belgian legislation was to enable the loss of tax revenue resulting from the deduction of life assurance
contributions to be offset by the taxation of pensions, annuities or capital sums payable by the insurers.
The cohesion of the tax system would thus have been undermined if the Belgian state had been
compelled to offer the same tax advantages to persons insured with companies established abroad, in
view of the difficulty of collecting tax on earnings paid abroad (see [1992] ECR I-249 (paras 2223)).
Given that the domestic legislation was expressly stated to be non-discriminatory, the court therefore
concluded that it could not be regarded as incompatible with art 59 since it was justified by requirements
in the general interest.
26.
Returning to the instant case, it therefore remains to be determined whether the objective of
preventing the creation of subsidiaries outside the United Kingdom, and thus in other member states as
well, depriving the United Kingdom Treasury of tax revenue is capable of justifying the restriction on
freedom of establishment resulting from the legislation on consortium relief.
27.
According to the United Kingdom, that question should be answered in the affirmative. Obviously,
there is no UK tax charge on a non-resident subsidiary. Accordingly, relief on losses incurred by a
subsidiary resident in the United Kingdom would not be compensated by taxation of the profits made by
other subsidiaries, resident in other states. In the United Kingdoms view, that is incompatible with the
rationale underlying consortium relief, which is to extend the same tax treatment to a company when it is
a member of a consortium as it would receive if it participated directly in the business undertaken by the
joint venture.
28.
I have serious reservations regarding that argument. The objective is not so much that of preserving
the cohesion of the tax system as, quite simply, of preventing a fall in tax revenue. If that is indeed the
position, I do not believe that it can justify a derogation from a fundamental principle guaranteed by the
Treaty.
That is not all, however. Even if the objective pursued were deemed to be valid under Community law,
it would still have to pass the proportionality test. Here, too, I have misgivings. It is highly doubtful whether
the restrictive measure in question is suited to attaining the objective pursued. Indeed, in circumstances
where tax relief is denied solely on account of Holdings exercise of freedom of establishment in other
member states, I do not believe it can seriously be maintained that the legislation at issue is an effective
means of ensuring the cohesion of the tax system.
29.
I find it difficult to reconcile the need to prevent tax evasion in order to preserve the cohesion of the tax
system with the fact that consortium relief is 595 granted whenever only a minority of companies is
resident outside the United Kingdom, and denied whenever such companies are in the majority. To my
mind the risk of evasion, if indeed it exists, is also present in the former set of circumstances, albeit
according to the proportion of non-resident companiesto a lesser degree.
30.
Furthermore, it remains to be demonstrated that no other measures, equally effective but less
restrictive of freedom of establishment, are available. On that point, I would suggest that neither the
Inland Revenue nor the UK government in its observations has established that the measures at issue
are the only ones available and that the objective could not be effectively pursued by other means.
31.
It seems to me that all the foregoing observations adequately support the conclusion that domestic
legislation which makes consortium relief available to companies only if the business of the holding
company controlled by the company seeking relief consists, wholly or mainly, in holding shares of
subsidiaries resident in the member state concerned constitutes a restriction on freedom of
establishment, which is prohibited by the Treaty and cannot otherwise be justified.
QUESTION 2
32.
Once again I would refer to the particular features of the present case and its implications for
Community law. Article 52 of the Treaty is relevant in so far as a requirement imposed by domestic
legislation in respect of tax relief also affects companies availing themselves of the right of establishment
in other member states of the Community. What this means in practice is that, in the present case, the
domestic legislation is contrary to art 52 in so far as it restricts freedom of establishment in other member
states of the Community.
As regards the further difficulty, namely discrimination against companies which choose to set up
subsidiaries mostly in non-member countries, art 52 is of no avail, since the matter falls outside the scope
of Community law.
If that is indeed the position, as I believe it undoubtedly is, not even the interpretation of art 5 of the
Treaty sought by the House of Lords can be of any assistance. In the first place, in so far as one aspect of
the present case is covered by art 52, which has direct effect, the national courts duty to interpret
domestic legislation consistently with Community law is irrelevant. The result sought by harmonisation of
national and Community law is already achieved by virtue of the fact that individuals may rely on
Community law in proceedings before the national courts.
Secondly, nor can the duty of consistent interpretation laid down by art 5 of the Treaty be relied on in
relation to the aspect of the present case which is not covered by art 52. The discrimination against
companies which choose to hold shares in subsidiaries, the majority of which are resident in non-member
countries, by comparison with those whose subsidiaries are all resident in the United Kingdom (or in the
Community) or which have only a minority of subsidiaries resident outside the United Kingdom (or the
Community), is not relevant for the purposes of Community law. It follows that neither art 52 nor art 5
applies. Accordingly, the national court is under no obligation pursuant to art 5 of the Treaty to adopt an
interpretation consistent with Community law in respect of a situation, or, as in the present case, aspects
of a situation to which Community law does not apply.
596
33.
In the light of the foregoing, I therefore propose that the Court of Justice should reply as follows to the
questions referred by the House of Lords:
(1) Article 52 of the Treaty is to be interpreted as precluding the application of legislation of a
member state which prevents a company established in the territory of that state from obtaining tax
relief in respect of losses incurred by another company, established in the same state and
controlled by the first company through a holding company, in cases where the holding companys
business consists, wholly or mainly, in holding shares of subsidiaries resident outside that state, in
so far as such legislation constitutes a restriction on the exercise of the right of establishment in
other member states of the European Union.
(2) Article 5 of the Treaty does not require the national courts to interpret domestic legislation
consistently with Community law in respect of a situation, or aspects of a situation, falling outside
the scope of Community law.
16 July 1998.
ADMISSIBILITY
14.
The UK government has expressed doubts as to the relevance of the first question in determining the
issue in the main proceedings. It argues that, even if the Act were found to entail a restriction on freedom
of establishment, incompatible with art 52 of the Treaty, this would have no bearing on the determination
of the proceedings. ICI would in any event be denied the tax relief provided for under the Act, since the
majority of the companies controlled by Holdings (13 out of 23) are resident, not in other member states,
but in non-member countries.
15.
According to established case law, it is solely for the national courts before which proceedings are
pending, and which must assume responsibility for the judgment to be given, to determine in the light of
the particular circumstances of each case both the need for a preliminary ruling to enable them to give
judgment and the relevance of the questions which they submit to the Court of Justice (see, inter alia, the
judgments in Enderby v Frenchay Health Authority Case C-127/92 [1994] 1 All ER 495, [1994] ICR 112,
[1993] ECR I-5535 (para 10), Eurico Italia Srl v Ente Nazionale Risi Joined cases C-332333/92 and C-
335/92 [1994] ECR I-711 (para 17) and MacLachlan v Caisse Nationale dAssurance Vieillesse des
Travailleurs Salaris de la Rgion dIle-de-France (CNAVTS) Case C-146/93 [1994] ECR I-3229 (para
20)). A request for a preliminary ruling from a national court may be rejected only if it is manifest that the
interpretation of Community law or the examination of the validity of a rule of Community law sought by
that court bears no relation to the true facts or the subject matter of the main proceedings (see the
judgments in BP Supergas Anonimos Etaira Geniki Emporiki-Viomichaniki kai Antiprossopeion v Greece
Case C-62/93 [1995] All ER (EC) 684, [1995] ECR I-1883 (para 10) and Furlanis Costruzioni General SpA
v Azienda Nazionale Autonoma Strade (ANAS) C-143/94 [1995] ECR I-3633 (para 12)).
16.
However, that is not the situation in the present case. The House of Lords observes that opinion differs
as to the proper construction of s 258(5), in terms of which, in order to qualify as a holding company
within the meaning of the Act, it is necessary to hold shares wholly or mainly in companies which are
resident in the United Kingdom, and, more specifically, as to the notion of control of a majority of
subsidiaries resident in the United Kingdom, one interpretation of which makes it necessary to determine
whether the Act is compatible with art 52 of the Treaty.
17.
In those circumstances, it is necessary to consider the questions referred by the House of Lords.
SUBSTANCE
COSTS
36.
The costs incurred by the UK government and by the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the proceedings pending before the national court, the decision on costs
is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the House of Lords
by order of 24 July 1996, hereby rules: (1) Article 52 of the EC Treaty precludes legislation of a member
state which, in the case of companies established in that state belonging to a consortium through which
they control a holding company, by means of which they exercise their right to freedom of establishment
in order to set up subsidiaries in other member states, makes a particular form of tax relief subject to the
requirement that the holding companys business consist wholly or mainly in the holding of shares in
subsidiaries that are established in the member state concerned. (2) In circumstances such as those in
point in the main proceedings, art 5 of the Treaty does not require the national court to interpret its
legislation in conformity with Community law or to disapply the legislation in a situation falling outside the
scope of Community law.
603
L was charged in the Netherlands with driving a vehicle while under the influence of alcohol. By virtue of
domestic provisions on the conduct of breathalyser tests, the breath-analysis apparatus used had to
comply with certain standards of quality, performance and test methods. Before the
Arrondissementsrechtbank, Maastricht, L drew attention to the fact that the technical regulation in which
those requirements were set out had not been properly notified to the European Commission in
accordance with Council Directive (EEC) 83/189 laying down a procedure for the provision of information
in the field of technical standards and regulations. Articles 8 and 9 of the directive required member states
to communicate to the Commission any draft technical regulation falling within the scope of the directive
and to postpone the adoption of such draft regulations for three months. Since the Court of Justice of the
European Communities had already ruled that a breach of the obligation to notify rendered technical
regulations inapplicable and therefore unenforceable against individuals, the national court stayed the
proceedings and referred to the Court of Justice for a preliminary ruling the principal question whether an
infringement of the obligation under art 8 to notify a technical regulation on breath-analysis apparatus
made it impossible for evidence obtained by means of such apparatus, authorised in accordance with that
regulation, to be relied on against an individual charged with driving while under the influence of alcohol.
Before the Court of Justice the Netherlands and French governments contended respectively (i) that since
the technical regulation at issue applied in the field of criminal law, it fell outside the sphere of Community
law and (ii) that the directive did not apply to products which were intended to be used in connection with
the exercise of a public authority and a fortiori in criminal proceedings instituted by member states.
Held Although in principle criminal legislation and the rules of criminal procedure were matters for which
the member states were responsible, it did not follow that that branch of the law could not be affected by
Community law. There was nothing in Directive 83/189 to exclude technical regulations from the
notification requirements because they fell within the scope of criminal law, or to limit the scope of the
directive to regulations which were intended to be used otherwise than in connection with the exercise of
public authority. The regulation 604 at issue therefore constituted a technical regulation which should,
prior to its adoption, have been notified to the Commission in accordance with art 8 of the directive.
Moreover, although failure to notify technical regulations rendered them inapplicable inasmuch as they
hindered the use or marketing of a product which did not conform with its provisions, it did not have the
effect of rendering unlawful any use of a product which conformed with unnotified regulations. It followed
that breach of the obligation imposed by art 8 to notify a technical regulation on breath-analysis apparatus
did not make it impossible for evidence obtained by means of such apparatus, authorised in accordance
with that regulation, to be relied on against an individual charged with driving while under the influence of
alcohol (see p 617 e f, p 618 b c j and p 619 b d e, post)
Criminal proceedings against Casati Case 203/80 [1981] ECR 2595, Cowan v Trsor public Case
186/87 [1989] ECR 195 and Bic Benelux SA v Belgium Case C-13/96 [1997] ECR I-1753 applied; CIA
Security International SA v Signalson SA Case C-194/94 [1996] All ER (EC) 557, [1996] ECR I-2201
distinguished.
Cases cited
Bic Benelux SA v Belgium Case C-13/96 [1997] ECR I-1753.
Casati (Criminal proceedings against) Case 203/80 [1981] ECR 2595.
Clean Car Autoservice GesmbH v Landeshauptman von Wien Case C-350/96 [1998] All ER (EC) 434,
ECJ.
CIA Security International SA v Signalson SA Case C-194/94 [1996] All ER (EC) 557, [1996] ECR I-2201,
ECJ.
Cowan v Trsor public Case 186/87 [1989] ECR 195.
European Commission v Netherlands Case C-273/94 [1996] ECR I-31.
Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325, ECJ.
Gallotti (Criminal proceedings against) Joined cases 58/95, C-75/95, C-112/95, C-119/95, C-123/95, C-
135/95, C-140/95, C-141/95, C-154/95 and C-157/95 [1996] ECR I-4345.
Holdijk Joined cases 141143/81 [1982] ECR 1299.
Leur-Bloem v Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2 Case C-28/95 [1997] All ER
(EC) 738, [1997] ECR I-4161, ECJ.
Ministre Public v Stoeckel Case C-345/89 [1991] ECR I-4047.
Sunino (Criminal proceedings against) Case C-2/96 [1996] ECR I-1543.
Telemarsicabruzzo SpA v Circostel Joined cases C-320322/90 [1993] ECR I-393.
Van de Haar, Kaveka de Meern BV (Criminal proceedings against) Joined cases 177178/82 [1984] ECR
1797.
Vaneetveld v Le Foyer SA Case C-316/93 [1994] ECR I-763.
Verholen v Sociale Verzekeringsbank Amsterdam Joined cases C-8789/90 [1991] ECR I-3757.
Reference
By order of 13 June 1997, the Arrondissementsrechtbank, Maastricht, referred to the Court of Justice of
the European Communities for a preliminary ruling under art 177 of the EC Treaty two questions (set out
at p 616 e f, post) concerning the interpretation of Council Directive (EEC) 83/189 laying down a
procedure for the provision of information in the field of technical standards and regulations. Those
questions were raised in criminal proceedings instituted against Mr Lemmens, who was charged with
driving a vehicle while under the influence of alcohol. Written observations were submitted on behalf of:
the Netherlands government, by J G Lammers, Deputy Legal Adviser at the Ministry of Foreign Affairs,
acting as 605 agent; the United Kingdom government, by J E Collins, Assistant Treasury Solicitor, acting
as agent, and N Green, Barrister; and the European Commission, by B J Drijber, of its Legal Service, and
M Schotter, a national civil servant seconded to the Legal Service, acting as agents. Oral observations
were made by: the Netherlands government, represented by M Fierstra, Deputy Legal Adviser at the
Ministry of Foreign Affairs, acting as agent; the French government, represented by R Loosli-Surrans,
Charg de Mission in the Directorate for Legal Affairs, Ministry of Foreign Affairs, acting as agent; and the
Commission, represented by B J Drijber. The language of the case was Dutch. The facts are set out in the
opinion of the Advocate General.
12 February 1998.
IINTRODUCTION
1.
What happens if the breathalyser is not notified to Brussels? The present proceedings raise the
question of whether a defendant in criminal proceedings before a national court can rely upon the fact that
national provisions governing the use of breath-testing apparatus, which prima facie constitute technical
regulations for the purposes of Council Directive (EEC) 83/189 laying down a procedure for the provision
of information in the field of technical standards and regulations (OJ 1983 L109 p 8) 1, have not been
notified to the European Commission.
1
The directive has subsequently been amended by Council Directive (EEC) 88/182 (OJ 1988 L81 p 75 (the 1988
directive), and by Council Directive (EC) 94/10 (OJ 1994 L100 p 30) (the 1994 directive); the question of which version
of the directive applies in principle to the present proceedings is examined in paras 11 and 12, below.
IIIOPINION
(a) Admissibility
8.
The factual and legal background set out in the order for reference is rather short on detail. None of
the member states which have submitted observations on the request has suggested that this should be
declared inadmissible on the ground that the information supplied is so defective as to prevent the court
interpreting the relevant provisions of Community law in the light of the situation at issue, as in
Telemarsicabruzzo SpA v Circostel Joined cases C-320322/90 [1993] ECR I-393, nor has the lack of
detail prevented their submitting pertinent observations on the main questions of Community law which
arise (see the judgments in Holdijk Joined cases 141143/81 [1982] ECR 1299 (para 6) and Criminal
proceedings against Sunino Case C-2/96 [1996] ECR I-1543 (para 5)). The Commission has suggested
that, while the court could declare the present request inadmissible, it should not do so in the present
case, as there is a Community interest in clarifying the scope of the judgment in CIA Security.
9.
It seems to me that, although the order for reference is extremely terse, the court has at its disposal
sufficient information on the factual and legal situation in the main proceedings to provide a useful
answer. The order records the fact that the defendant is charged with an offence of driving with excess
alcohol in his breath and specifies, in the questions, the national provisions whose non-notification is at
issue. To that extent this case bears comparison with Criminal proceedings against Gallotti Joined cases
58/95, C-75/95, C-112/95, C-119/95, C-123/95, C-135/95, C-140/95, C-141/95, C-154/95 and C-157/95
[1996] ECR I-4345. In that case the several orders for reference merely stated that the various
defendants were charged with offences under Italian legislation on waste and described the issue of
Community law whose interpretation was sought. The court held that
having regard to the very general nature of the questions submitted and the detailed
interpretation of Directive 91/156 set out by the national court in the grounds of the orders, the
Court has sufficient information to provide a helpful answer to those questions. (See [1996] ECR I-
4345 (para 9).)
Similarly, in Vaneetveld v Le Foyer SA Case C-316/93 [1994] ECR I-763 (para 13), the court held that the
information requirement was
less pressing where the questions relate to specific technical points and enable the court to
give a useful reply even where the national court has not given an exhaustive description of the
legal and factual situation.
10.
In my view, the sufficiency of the information supplied by the national court must be judged in the light
of the questions of Community law posed. Since the court in the present proceedings has raised an issue
of interpretation of Community law and adequately, if briefly, recited the relevant facts, the court is bound
to provide a ruling (see eg Leur-Bloem v Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2
Case C-28/95 [1997] All ER (EC) 738, [1997] ECR I-4161 (paras 2527) and the cases cited).
17.
There is little doubt that the 1987 regulation contains technical specifications; Annex 1 lays down in
detail the characteristics required of breath-testing apparatus, particularly as regards quality,
performance, testing and test methods and conformity-assessment procedures. There is also little doubt
that observance of the regulation is compulsory de jure, in the sense that the police must use approved
apparatus in order to prove the essence of the offence. There remains the question of whether it could be
said to be capable of hindering trade within the Bic Benelux test.
18.
It may be true, as the Netherlands has observed, that the 1987 regulation sets out to ensure the
reliability of breath-analysis apparatus, rather than to establish rules regarding the marketing or use of
such apparatus. It is in my view clear from the courts case law, however, that it is the potential effects on
trade of a national regulation which give rise to the obligation to notify, rather than the objective these
provisions seek to attain. In European Commission v Netherlands Case C-273/94 [1996] ECR I-31 (paras
1415), the court held that an order defining the conditions under which substitute products could be
marketed as margarine was a technical regulation:
(14) [that] assessment cannot be undermined by the Netherlands Governments argument that
the effect of the disputed order is to encourage the marketing of margarine
(15) [the] obligation [to notify] cannot be subject to the unilateral assessment by the Member
State which drafted the regulation of the effects which it may have on trade between Member
States.
More generally, in Bic Benelux [1997] ECR I-1753 (paras 1920), the court held that hindrances to trade
may arise from the adoption of national technical regulations irrespective of the grounds on which they
were adopted, and continued:
(20) the fact that a national measure was adopted in order to protect the environment or that
it does not implement a technical standard which may itself constitute a barrier to free movement
does not mean that the measure in question cannot be a technical regulation within the meaning of
Directive 83/189.
19.
The Netherlands has also pointed out that the 1987 regulation does not apply globally to the market in
breath-testing apparatus, but only to a single purchaser, the police, and that apparatus which is not in
conformity with the regulation may be fully marketed and used. It cites the example of retailers of
intoxicating beverages who may wish to make such apparatus available to their customers.
20.
It may be the case that there exists, or could exist, a secondary market in breath-testing apparatus;
this does not, in my opinion, suffice to exclude the possibility that the 1987 regulation is capable of
hindering trade between the member states in such goods. As the court held in Criminal proceedings
against Van de Haar Joined cases 177178/82 [1984] ECR 1797 (para 13):
Article 30 of the Treaty does not distinguish between measures having an effect equivalent to
quantitative restrictions according to the degree to which trade between Member States is affected.
If a national measure is capable of 610 hindering imports it must be regarded as a measure having
an effect equivalent to a quantitative restriction, even though the hindrance is slight and even
though it is possible for imported products to be marketed in other ways.
As the directive embraces all potential obstacles to trade, the obligation to notify must, in my view,
include measures such as the 1987 regulation, even if it were to be shown that other breath-testing
apparatus could be marketed in the Netherlands. I am therefore of the opinion that the 1987 regulation
constitutes a technical regulation for the purposes of the directive.
21.
The next and more difficult issue which arises is whether an individual in a legal situation such as that
of the defendant in national criminal proceedings can, as a matter of Community law, rely on the
Netherlands failure to notify the 1987 regulation. The question raises the delicate problem of ascertaining
who may rely on Community law before a national court and the extent of the direct effect of provisions of
directives (see the opinion of Advocate General Darmon in Verholen v Sociale Verzekeringsbank
Amsterdam Joined cases C-8789/90 [1991] ECR I-3757 (para 32)).
22.
In this context, it is perhaps useful to recall that, in accordance with the third para of art 189 of the
Treaty, [a] directive shall be binding, as to the result to be achieved, upon each member state to which it
is addressed. It therefore follows that results which could arise as a consequence of the application of a
directive but which are not those it seeks to achieve are in principle not binding, as a matter of Community
law, on the member state.
23.
The results the directive at issue in the present proceedings seeks to achieve were identified by the
court in CIA Security [1996] All ER (EC) 557, [1996] ECR I-2201 (para 40) in the following terms:
Directive 83/189 is designed to protect, by means of preventive control, freedom of movement
for goods, which is one of the foundations of the Community. This control serves a useful purpose
in that technical regulations covered by the directive may constitute obstacles to trade in goods
between member states, such obstacles being permissible only if they are necessary to satisfy
compelling public interest requirements.
24.
After holding that arts 8 and 9 of the directive were unconditional and sufficiently precise to be relied
upon against conflicting national provisions, the court went on to establish ([1996] All ER (EC) 557, [1996]
ECR I-2201 (para 45)):
the legal consequences to be drawn from a breach by the member states of their obligation to
notify and, more precisely, whether Directive 83/189 is to be interpreted as meaning that a breach
of the obligation to notify, constituting a procedural defect in the adoption of the technical
regulations concerned, renders such technical regulations inapplicable so that they may not be
enforced against individuals.
This same formulation is repeated in the courts conclusion on this point (see [1996] All ER (EC) 557,
[1996] ECR I-2201 (para 54)).
25.
For the purposes of the directive, the consequence of the non-notification of a technical regulation is
that a member state authority may not enforce this against individuals. It does not follow that non-notified
technical regulations are inapplicable for all purposes, and hence in effect null and void; such a
consequence would only arise if the Community had a power to annul provisions of national 611 law.
Such a power has never been claimed by the court. The qualification by the court of the obligation to
notify as procedural does not imply that it is in principle any different from the general obligation properly
to transpose, implement and enforce substantive provisions of directives. Nor does it imply that the failure
to respect such a procedural obligation has legal effects any different from those which arise from the
failure to respect substantive obligations.
26.
The inapplicability of national provisions which are on their face incompatible with Community
provisions is not universal in its effects, but depends on the result the directive seeks to achieve. The
conflicting national provisions are, therefore, only inapplicable in so far as this is required for the purposes
of [facilitating] the free movement of goods by preventing the creation of new barriers to trade, as the
objective of the directive is described in the second recital in the preamble to the 1988 Directive. In the
circumstances of the present case, I cannot see how the non-application of the 1987 regulation in the
criminal proceedings against the defendant would contribute to facilitating the free movement of goods.
Such a consequence is therefore not encompassed within the result to be achieved by the directive.
27.
The direct effect of provisions of directives may be limited ratione personae in accordance with art 189
of the Treaty. In Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325 (para
22), for example, the court noted that
the case law on the possibility of relying on directives against state entities is based on the fact
that under art 189 a directive is binding only in relation to each Member State to which it is
addressed. That case law seeks to prevent the state from taking advantage of its own failure to
comply with Community law.
In such cases, a provision of national law may be ruled inapplicable for some purposes, but remain fully
applicable to situations outside the reach of Community law.
28.
The provisions of a directive which have direct effect may be relied upon by persons other than those
for whose primary benefit it was adopted, where this is justified to achieve the result intended. Thus, in
Ministre Public v Stoeckel Case C-345/89 [1991] ECR I-40473, an employer was entitled to rely upon the
injunction that member states ensure that any laws, regulations and administrative provisions contrary
to the principle of equal treatment shall be abolished laid down in art 5(2)(a) of Directive (EEC) 76/207 on
the implementation of the principle of equal treatment for men and women as regards access to
employment, vocational training and promotions, and working conditions (OJ 1976 L39 p 40). In this case,
the objective of the directive was defined in art 5(1) primarily in terms of workers rights: [application] of
the principle of equal treatment means that men and women shall be guaranteed the same conditions
without discrimination on grounds of sex. Admittedly, this decision may be explained on the basis that the
useful effect of a prohibition of discrimination against workers inescapably involves their employers, at
least. That is undoubtedly so, in so far as it imposes obligations. But Stoeckel is an example of an
employer claiming the benefit of it.
3
See also my opinion in Clean Car Autoservice GesmbH v Landeshauptman von Wien Case C-350/96 [1998] All ER
(EC) 434.
612
29.
In Verholen [1991] ECR I-3757 (para 23), on the other hand, a case which has been cited by a number
of the parties to these proceedings, the court held that
the right to rely on the provisions of Directive 79/7 is not confined to individuals coming within
the scope ratione personae of the directive, in so far as the possibility cannot be ruled out that other
persons may have a direct interest in ensuring that the principle of non-discrimination is respected
as regards persons who are protected.
This judgment has been interpreted in some quarters as meaning that not only those within the personal
scope of a directive, but also those having a direct interest in the application of a directives provision
must be able to rely on it (see Prechal Directives in European Community Law (1995) Proefschrift
Universiteit Amsterdam, SLSN, p 167).
30.
It can, of course, be argued that the defendant in the main proceedings has an interest in a literal
sense in the application of the directive. He would benefit from a declaration by the national court that the
1987 regulation is inapplicable in his case because this might lead to the exclusion of the proof on which
the criminal charges laid against him are based. It seems to me, however, that the expression direct
interest used by the court in Verholen does not cover such merely consequential effects but refers to an
interest which arises by virtue of Community law. Article 4(1) of Directive 79/7 defines its scope ratione
materiae as covering the calculation of benefits including increases due in respect of a spouse and for
dependants and the conditions governing the duration and retention of entitlement of benefits. In the
main proceedings in that case, the amount of the pension to which the applicant before the national court,
Mr Heiderijk, was entitled depended directly on the periods for which his wife was an insured person;
under the relevant national provisions, a pension representing rights acquired by and on behalf of each of
the two spouses was paid to the husband alone (as noted by Advocate General Darmon in his opinion in
Verholen [1991] ECR I-3757 (para 35)). The court held that an individual who bears the effects of a
discriminatory national provision may be allowed to rely on Directive 79/7 only if his wife, who is the victim
of the discrimination, herself comes within the scope of that directive (see the judgment in Verholen
[1991] ECR I-3757 (para 25)).
31.
Although the calculation of the increase of benefits for spouses was within the material scope of
Directive 79/7, Mr Heiderijks interest in its application was held to depend on his spouses coming within
its terms; if Mrs Heiderijk were found not to come within the personal scope of the directive, then her
husbands reliance on art 4(1) would not contribute to the implementation of the principle of equal
treatment, and he therefore had no Community-law interest in ensuring the application of this provision. It
appears to me that the defendant in the present proceedings is in a position analogous to that of Mr
Heiderijk, assuming that the latters wife was outside the personal scope of Directive 79/7; though each
may have an interest in the application of the relevant provisions of the directive, this interest arises
exclusively as a matter of national law, and they may not therefore rely upon the directive in that context.
Contrariwise, both the employer in Stoeckel, and Mr Heiderijk if his wife was within the personal scope of
Directive 79/7, had an interest arising from Community law in the proper application of the relevant
provision of the directive.
32.
In the case of Directive 83/189, it seems to me that those who would be able to rely on the Treaty rules
guaranteeing the free movement of goods have an interest as against the member state in the application
of the directive, and may 613 therefore rely upon it in the national court. Such, for example, was clearly
the case of the applicant in CIA Security, whose alarm system comprised goods manufactured in two
other member states as well as Belgium (see the opinion of Advocate General Elmer: [1996] All ER (EC)
557, [1996] ECR I-2201 (para 29)). Once an interest which was cognisable in Community law had been
established, the fact that the applicants interest arose in proceedings under national law against
commercial competitors was essentially irrelevant. Equally clearly, in my view, the defendant in the
present case has no such interest; no element of his legal situation could be said to concern the free
movement of goods within the Community.
33.
In the present case, it has not been suggested that the national provision which the Netherlands is
enforcing against the defendant, to wit, art 8(2)(a) of the Wegenverkeerswet, is a technical regulation for
the purposes of the directive.
Contrariwise, while the 1987 regulation may be a technical regulation, its enforcement against the
defendant in circumstances such as the present is not a matter of which he is entitled to complain as a
matter of Community law. He is not affected by provisions defining the technical characteristics of such
apparatus by reason of any personal or professional characteristic or activity which comes within the
ambit of Community law. If the defendant is not so affected by the 1987 regulation considered alone, the
fact that he may be concerned by the application of this regulation by virtue of national provisions of
criminal law defining the methods of proving a road traffic offence does not change his position under
Community law.
34.
It follows from the above that the first question should be answered in the negative, in which case no
answer to the second question is necessary.
IV CONCLUSION
35.
In the light of the foregoing, I recommend to the Court of Justice that it answer the questions referred
by the Arrondissementsrechtbank Maastricht on 13 June 1997 as follows:
Council Directive (EEC) 83/189 laying down a procedure for the provision of information in the
field of technical standards and regulations should be interpreted as not requiring a member state
to abstain from applying national provisions such as the Regeling Ademanalyse, which have not
been notified to the Commission in accordance with art 8 of the directive, in criminal proceedings
instituted for an offence contrary to art 8(2)(a) of the Wegenverkeerswet 1994.
16 June 1998.
Costs
39.
The costs incurred by the Netherlands, French and UK governments, and by the European
Commission, which have submitted observations to the Court of Justice, are not recoverable. Since these
proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the
national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the
Arrondissementsrechtbank, Maastricht, by order of 13 June 1997, hereby rules: Council Directive (EEC)
83/189 laying down a procedure for the provision of information in the field of technical standards and
regulations is to be interpreted as meaning that breach of the obligation imposed by art 8 thereof to notify
a technical regulation on breath-analysis apparatus does not have the effect of making it impossible for
evidence obtained by means of such apparatus, authorised in accordance with regulations which have
not been notified, to be relied upon against an individual charged with driving while under the influence of
alcohol.
619
[1998] All ER (EC) 620
The European Commission granted financial assistance to Spain for the building of two power stations by
a company, Unelco, on the Canary Islands. Several private individuals subsequently informed the
Commission that Unelco had started work before the planning and environmental authorities had issued a
declaration of environmental impact required under national legislation and had itself failed to undertake
an environmental impact assessment in accordance with Council Directive (EEC) 85/337 on the
assessment of the effects of certain public and private projects on the environment. When those
authorities did publish the required declarations of environmental impact, they were challenged in the
administrative courts by a local environmental protection organisation, and the validity of authorisations
issued to Unelco by the regional Ministry of Industry Commerce and Consumption were challenged by the
Spanish branch of the international nature conservancy foundation, Greenpeace. Following a meeting
between Greenpeace and the Commission at which the Commission confirmed the total amount of
money released to the power station project so far, Greenpeace and others brought an action before the
Court of First Instance of the European Communities seeking annulment of a decision allegedly taken by
the Commission to release a further tranche of aid to Spain in relation to the project. The Commission
raised an objection of inadmissibility concerning, inter alia, Greenpeaces locus standi, which was upheld
by the Court of First Instance on the basis that Greenpeace was not directly or individually concerned by
the measure for the purposes of art 1731 of the EC Treaty. Greenpeace appealed to the Court of Justice.
1
Article 173, so far as material, is set out at p 629 c, post
Held For the purposes of art 173 of the Treaty, a natural person was not directly or individually
concerned by a contested act where his specific situation was not taken into consideration in the adoption
of that act. The same applied to associations which claimed to have locus standi on the basis of the fact
that the persons they represented were individually concerned by the contested decision. Moreover,
since, in the instant case, it was the building of the two power stations which was 620 liable to affect the
environmental rights ensuing under Directive 85/337, the contested decision could affect those rights only
indirectly. Further, although the subject matter of the proceedings Greenpeace had brought before the
national courts challenging the administrative authorisations issued to Unelco concerning the construction
of the power stations differed from the subject matter of the action brought before the Court of First
Instance, both actions were based on rights afforded to individuals by Directive 85/337. Accordingly, the
rights derived from Directive 85/337 were fully protected by the national courts which could, if necessary,
refer a question to the Court of Justice for a preliminary ruling under art 177. It followed that Greenpeace
did not have locus standi and that the Court of First Instance had not erred in law. The appeal would
therefore be dismissed (see p 672 a to j, post).
Associazione Tecnico Economica del Cemento v European Commission Joined cases T-447449/93
[1995] ECR II-1971, Kwekerij Gebroeders Van der Kooy BV v EC Commission Joined cases 67/85, 68/85
and 70/85 [1988] ECR 219 and Comit International de la Rayonne et des Fibres Synthtiques (CIRFS) v
EC Commission Case C-313/90 [1993] ECR I-1125 applied.
Notes
For locus standi in relation to actions for annulment, see 51 Halsburys Statutes (4th edn) paras 239
242.
For the EC Treaty art 173 (as amended by art G.53 of the Treaty on European Union), see 50
Halsburys Statutes (4th edn), Current Service, 97.
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Appeal
Stichting Greenpeace Council (Greenpeace International) and others appealed against the order of the
Court of First Instance of the European Communities ([1995] ECR II-2205) dismissing the action brought
by them for annulment of the Commission Decision to pay to the Spanish government, in addition to
amounts initially granted, ECU 12m to cover expenditure incurred in the construction of two electricity
power stations in the Canary Islands. Greenpeace and others were represented by P Sands and M
Hoskins, Barristers, instructed by Leigh, Day & Co, 623Solicitors, with an address for service in
Luxembourg at the Chambers of Jean-Paul Noesen, 18 Rue des Glacis. The European Commission was
represented by P Oliver, of its Legal Service, acting as agent, with an address for service in Luxembourg
at the office of Carlos Gmez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg. The Kingdom of
Spain was represented by A J Navarro Gonzlez, Director-General for Legal and Institutional
Coordination in Community Matters, and G Calvo Daz, Abogado del Estado, of the State Legal Service
for matters before the Court of Justice of the European Communities, acting as agents, with an address
for service in Luxembourg at the Spanish Embassy, 46 Boulevard Emmanuel Servais. The language of
the case was English. The facts are set out in the opinion of the Advocate General.
23 September 1997.
IINTRODUCTORY OBSERVATIONS
1.
In the present case the Court of Justice of the European Communities is called upon to adjudicate on
the appeal brought under art 49 of the EC Statute of the Court of Justice against the order of 9 August
1995 of the Court of First Instance of the European Communities (Case T-585/93 [1995] ECR II-2205).
The order appealed against dismissed the action brought by certain environmental associations and
individuals, pursuant to the fourth paragraph of art 173 of the EC Treaty, for annulment of the
Commissions decision to pay to the Spanish government, in addition to amounts initially granted, ECU
12m to cover expenditure incurred in the construction of two electricity power stations in the Canary
Islands. That decision, according to the applicants, was taken between 7 March 1991, the date of
adoption of Commission Decision C(91)440 granting financial assistance for the works in question, and
29 October 1993, when the Commission confirmed that the above mentioned amounts had already been
disbursed to the Spanish government.
2.
At the outset, it is worth noting that the court will be required in this case to form a view on the manner
and terms of application of the fourth paragraph of art 173 of the EC Treaty in circumstances in which the
applicants found the legal interest on which they rely on the consequences for the environment alleged to
flow from the act at issue adopted by the Community institution (sic) 2.
2
Paragraph 2 of this opinion is subject to revision by the Court of Justices translation service.
6.
At the same time, Greenpeace initiated a series of contacts with the Commission. In particular, by
letter dated 17 March 1993, Greenpeace asked the Commission to confirm whether Community structural
funds had been disbursed for the construction of the two power stations in the Canary Islands and to
inform it of the date of release of those funds. In its reply of 13 April 1993, the Director General of
Directorate-General XVI of the Commission recommended Greenpeace to read Decision C(91) 440
which gave details of the conditions of the grant of Community support and of the financing plan. By a
further letter of 17 May 1993, Greenpeace asked the Commission for full disclosure of measures which it
had taken in regard to the construction of the two power stations in the Canary Islands, in accordance
with art 7 of Council Regulation (EEC) 2052/88 on the tasks of the Structural Funds and their
effectiveness and on coordination of their activities between themselves and with the operations of the
European Investment Bank and the other existing financial instruments (OJ 1988 L185 p 9), which
provides:
Measures financed by the Funds shall be in keeping with the provisions of the Treaties, with
the instruments adopted pursuant thereto and with Community policies, including those concerning
environmental protection.
By letter dated 23 June 1993, the Director General of DG XVI replied to Greenpeace that it was unable to
provide the information requested since it concerned the Commissions internal decision-making
procedures, but gave the assurance that its decision was taken only after full consultation between the
various services concerned. On 29 October 1993, a meeting took place in Brussels between Greenpeace
and the competent officials of Directorate-General XVI of the 625 Commission, specifically concerning the
financing by the ERDF of the construction of the power stations on Gran Canaria and Tenerife.
7.
On 21 December 1993, the appellants brought an action before the Court of First Instance for
annulment of the above mentioned Commission decision to continue financing of the works. The Kingdom
of Spain intervened in the proceedings before the Court of First Instance. In its above mentioned order of
9 August 1995 the Court of First Instance upheld the objection of inadmissibility raised by the Commission
and on that ground dismissed the action.
8.
The unsuccessful parties at first instance appealed against that order, requesting the court to set aside
the order, to declare admissible the action brought before the Court of First Instance and to order the
Commission to pay the costs. The Commission requests the court to dismiss the appeal or, in the
alternative, to dismiss the original application as inadmissible on one of the other grounds advanced by
the Commission at first instance and, finally, to order the appellants to bear the costs. For its part, the
Kingdom of Spain seeks the dismissal of the appeal, affirmation of the correctness of the order at first
instance, and an order for costs against the appellants.
4
See the judgments in Plaumann & Co v EEC Commission Case 25/62 [1963] ECR 95, Spijker Kwasten BV v EC
Commission Case 231/82 [1983] ECR 2559, Union Deutsche Lebensmittelwerke GmbH v EC Commission Case 97/85
[1987] ECR 2265, William Cook plc v EC Commission Case C-198/91 [1993] ECR I-2487, Matra SA v EC Commission
Case C-225/91 [1993] ECR I-3203, Socit Anonyme Participation Ouvrire Cie Air France v European Commission
Case T-2/93 [1994] ECR II-323 and Consorzio Gruppo di Azione Locale Murgia Messapica v EC Commission Case T-
465/93 [1994] ECR II-361.
In so doing, it did not follow the interpretative approach to the fourth paragraph of art 173, contended for
on behalf of the applicants to the effect that the hitherto restrictive case law cannot be transposed to
situations in which the legal interests affected by the contested decision are not economic in nature but
arise from the negative environmental impact of the unlawful conduct by the Community institutions. The
Court of First Instance held in that connection that the essential criterion applied by the Court of Justice in
its settled case law, namely
in substance, a combination of circumstances sufficient for the third-party applicant to be able to
claim that he is affected by the contested decision in a manner which differentiates him from all
other personsremains applicable whatever the nature, economic or otherwise, of those of the
applicants interests which are affected. (See [1995] ECR II-2205 (para 50).)
626
Reliance solely on the harm likely to be suffered, generally and in the abstract, by individuals who
cannot be determined in advance in a way which distinguishes them individually in the same way as the
addressee of a decision cannot suffice to confer locus standi (see [1995] ECR II-2205 (para 51)). The
Court of First Instance further considers that that case law constitutes the only correct interpretation of the
fourth paragraph of art 173 of the Treaty. In its order it expressly states that the contested decision must
directly and individually affect the applicant. That view of the matter cannot be affected either by the
finding that there has been a tendency in recent years by the competent national courts to make locus
standi solely dependent on the existence of a sufficient interest on the part of the applicants 5. For the
above reasons, the Court of First Instance held that it had to be examined whether, in the case pending
before it, the contested decision was of individual concern to the applicants. The court held that it was not,
in light of two matters of relevance in its view, enlarged upon in the order appealed against, which read as
follows ([1995] ECR II-2205 (paras 5456):
5
That argument based on comparative law was developed at some length by the applicants.
11.
(54) The applicants are 16 private individuals who rely either on their objective status as local
resident, fisherman or farmer or on their position as persons concerned by the consequences
which the building of two power stations might have on local tourism, on the health of Canary Island
residents and on the environment. They do not, therefore, rely on any attribute substantially distinct
from those of all the people who live or pursue an activity in the areas concerned and so for them
the contested decision, in so far as it grants financial assistance for the construction of two power
stations on Gran Canaria and Tenerife, is a measure whose effects are likely to impinge on,
objectively, generally and in the abstract, various categories of person and in fact any person
residing or staying temporarily in the areas concerned.
12.
(55) The applicants thus cannot be affected by the contested decision other than in the same
manner as any other local resident, fisherman, farmer or tourist who is, or might be in the future, in
the same situation [see the judgment in Spijker Kwasten BV v EC Commission Case 231/82 [1983]
ECR 2559 (para 9) and the order in Associazione Agricoltori della Provincia di Rovigo v European
Commission Case T-117/94 [1995] ECR II-455 (para 25)].
13.
(56) Nor can the fact that the second, fifth and sixth applicants have submitted a complaint to
the Commission constitute a special circumstance distinguishing them individually from all other
persons and thereby giving them locus standi to bring an action under Article 173 of the Treaty. No
specific procedures are provided for whereby individuals may be associated with the adoption,
implementation and monitoring of decisions taken in the field of financial assistance granted by the
ERDF. Merely submitting a complaint and subsequently exchanging correspondence with the
Commission cannot therefore give a complainant locus standi to bring an action under Article 173.
As the Court of Justice has held, although a person who asks an institution, not to take a decision
in respect of him, but to open an inquiry with regard to third parties, may be considered to have an
indirect interest, he is nevertheless not in 627 the precise legal position of the actual or potential
addressee of a measure which may be annulled under Article 173 of the Treaty [see the judgment
in William v EC Commission Case 246/81 [1982] ECR 2277].
14.
(b) As regards locus standi of the applicant associations, the Court of First Instance followed settled
case law according to which an association formed to further the collective interests of a category of
persons does not have locus standi to challenge a measure adopted by a Community institution affecting
the general interests of that category where the members of that association do not have standing to do
so individually6, unless that association had played a role in a procedure which led to the adoption of an
act within the meaning of art 173 of the Treaty, subject to the proviso, certainly, that the particular role is of
such a nature as to justify admissibility of the action brought by the association, even though its members
are not directly and individually affected by the act in question (see the judgments in Kwekerij Gebroeders
Van der Kooy BV v EC Commission Joined cases 67/85, 68/85 and 70/85 [1988] ECR 219 and Comit
International de la Rayonne et des Fibres Synthtiques (CIRFS) v EC Commission Case C-313/90 [1993]
ECR I-1125).
6
The Court of First Instance relied (a) on: the judgments of the Court of Justice in Fdration nationale de la boucherie
en gros et du commerce en gros des viandes v EEC Council Joined cases 1922/62 [1962] ECR 491 and Union
syndicale-Service public europen v EC Council Case 72/74 [1975] ECR 401; the order of the Court of Justice in
Fdration Nationale des Producteurs de Vins de Table et Vins de Pays v EC Commission Case 60/79 [1979] ECR
2429; the judgment in Comit de dveloppement et de promotion du textile et de lhabillement (DEFI) v EC Commission
Case 282/85 [1986] ECR 2469; the order in Union de Federaciones Agrarias de Espaa (UFADE) v EC Council Case
117/86 [1986] ECR 3255 (para 12) and (b) on the judgment of the Court of First Instance in Associazione Tecnico
Economica del Cemento v European Commission Joined cases T-447449/93 [1995] ECR II-1971 (paras 5859).
15.
In that context it is stated in the order appealed against that the applicant associations did not adduce
any special circumstances to demonstrate the individual interest of their members as opposed to that of
any other person residing in the areas of Gran Canaria and Tenerife. The possible effect on the legal
position of the members of the applicant associations cannot, therefore, be any different from that alleged
here by the applicants who are private individuals (see [1995] ECR II-2205 (para 60)). Consequently, in
so far as the applicants in the present case could not be considered to be individually concerned by the
contested decision, nor in logic, according to the court, could the members of the applicant associations.
16.
The Court of First Instance went on to examine whether the existence of contacts between one of
those associations, Greenpeace, and the Commission was sufficient to confer locus standi on
Greenpeace. The reply given to that question was in the negative since it was considered, in the first
place, that
(62) the Commission did not, prior to the adoption of the contested decision, initiate any
procedure in which Greenpeace participated; nor was Greenpeace in any way the interlocutor of
the Commission with regard to the adoption of the basic Decision C(91)440 and/or of the contested
decision
and, secondly, that
(63) the correspondence which took place between Greenpeace and the Commission and its
subsequent meeting with members of the Commissions staff were for purposes of information only,
since the Commission was under no duty either to consult or to hear the applicants in the context of
the implementation of Decision C(91)440. (See [1995] ECR II-2205 (paras 6263).)
628
17.
On those grounds the Court of First Instance, in its above mentioned order, dismissed the action in its
entirety as inadmissible, on the ground that the applicants were not individually concerned by the
contested decision, without further examination of the remaining pleas of inadmissibility raised by the
Commission.
IVLEGAL FRAMEWORK
18.
As mentioned above, the legal discussion turns on the interpretation of the fourth paragraph of art 173
of the EC Treaty, which reads as follows:
Any natural or legal person may, under the same conditions, institute proceedings against a
decision addressed to that person or against a decision which, although in the form of a regulation
or a decision addressed to another person, is of direct and individual concern to the former.
22.
In summary form, the reasoning on which the appellants claim for judicial protection is based is as
follows. The Commission was under a specific obligation not to disburse payments and to withhold
financing of the relevant works if it found that they were being carried out in contravention of Community
law. In fact, the works were commenced without a prior environmental impact assessment in
contravention of the provisions of Directive 85/337 which, in its turn, confers rights on a certain category
of Community nationals. Consequently, by not withholding the additional financing, even though it had
been informed in due time of the above mentioned infringement, the Commission violated its obligations
under Community law which consist, at least in part, in the defence of the appellants right to protection of
the environment arising in general out of Community law and, in particular, out of the above mentioned
provisions of Directive 85/337.
23.
(b) The appellants contend that the Court of First Instance erred in its interpretation and application of
art 173 of the EC Treaty because it did not apply the proper criteria for assessing whether the applicants
before it were individually affected, within the meaning of art 173, by the contested decision adopted by
the Commission. In particular, the Court of First Instance followed the case law of the Court of Justice
developed solely in the context of economic issues to the effect that an individual must belong to a closed
class in order to be individually concerned by a Community act. For that reason, the appellants assert,
the Court of First Instance did not take account of the specific nature and character of the environmental
legal interest, since indeed the Court of Justice has not hitherto adjudicated on the question of locus
standi of individuals, where they allege that the legal interest affected is that of environmental protection.
24.
The appellants consider that the interpretative approach followed by the Court of First Instance creates
a vacuum in the judicial protection afforded by the Community legal order, whenever it is a question of
reviewing compliance by Community institutions with Community environmental legislation. Since the
interest in environmental protection is common to and is shared by all Community citizens, there cannot,
in the event of environmental harm, be a closed class of persons affected by harm to the environment, at
least not in the sense attributed to the notion of a closed class by the Court of First Instance. It may be
clearly inferred from the order appealed against, the appellants assert, that the application, in cases
concerning the environment, of the traditional case law to the effect that an act must be of individual
concern to the applicant will have the practical effect of never allowing individuals to challenge
Community measures which affect their environmental interests. The legal vacuum becomes more
apparent from the finding that, in cases such as the present dispute, privileged applicants under art 173,
that is to say member states, Council and Commission) are not interested in availing themselves of the
possibility afforded them by the second paragraph of art 173.
25.
Nor, moreover, can it be maintained, in the appellants view, that that vacuum may be filled by the
possibility afforded to individuals not having locus standi of bringing proceedings before a national court in
order to vindicate their rights, having recourse to the legal remedies available under national law. In the
present case, the proceedings brought before the Spanish courts can only concern the legality of national
acts and non-compliance by the Spanish authorities with their 630 obligations under Directive 85/337.
Conversely, the legality of the Commission decision challenged before the court cannot be called in
question in the context of national proceedings, since the Spanish courts do not have jurisdiction to
review the legality under Community law of payment by the Commission of certain funds for the financing
of works8.
8
The appellants cite the judgment of the Court of First Instance in Air France [1994] ECR II-121 (para 69), in which it is
expressly stated that the existence of a remedy before the national courts cannot preclude the possibility of contesting
the legality of a decision adopted by a Community institution directly before the Community judicature under art 173 of
the Treaty.
26.
The appellants go on to stress that the solution adopted by the Court of First Instance in the order
appealed against directly contrasts with that of courts of the member states, and with recent
developments in international law. In that connection the appellants cite a series of comparative studies
from which it may be inferred that the legal systems of the member states have all developed in the
direction of a widening of the procedural right of citizens to seek judicial protection in cases in which their
legal interests in environmental protection are infringed. Indeed, the appellants observe that, if they had
been required to bring proceedings before a court of a member state, actions brought by some or all of
them would have been adjudged admissible.
27.
Moreover, it is contended that the restrictive interpretation adopted by the Court of First Instance in the
order appealed against runs counter to developments in Community and international law in relation to
environmental protection. Reliance is placed on case law of the Court of Justice in which environmental
protection has been proclaimed as one of the Communitys essential objectives 9 and in which EC
environmental legislation has been held to be capable of creating rights and obligations for individuals 10.
Reference is also made to the Fifth Environmental Action Programme approved by the Council and by the
representatives of the member states11, to Principle 10 of the Rio Declaration on Environment and
Development (1992 United Nations Conference on Environment and Development), to Agenda 21, to the
Council of Europe Convention on Civil Liability for Damage Resulting from Activities Dangerous to the
Environment (Lugano, 21 June 1993; ETS No 150), to recent judgments of the European Court of Human
Rights in Strasbourg, and to the system of administrative review introduced by the World Bank as from
1993 in the case of activities which pose a threat to the environment.
9
See the judgments in Procureur de la Rpublique v Association de dfense des brleurs dhuiles usages Case 240/83
[1985] ECR 531 (para 13) and EC Commission v Denmark Case 302/86 [1988] ECR 4607 (para 8).
10
See the judgments in EC Commission v Germany Case C-131/88 [1991] ECR I-825 (para 7) and EC Commission v
Germany Case C-361/88 [1991] ECR I-2567 (paras 1516).
11
Resolution of the Council and the Representatives of the governments of the member states, meeting within the Council
of 1 February 1993, on a Community programme of policy and action in relation to the environment and sustainable
development (OJ 1993 C138 p 1).
28.
In light of the foregoing, the appellants propose a different interpretation of the fourth paragraph of art
173 of the Treaty. In order to ascertain whether an individual is affected individually by a Community act
when that person pleads damage to the environment caused by an infringement by the Community
institutions of their obligations under Community law, the Community judicature should, according to the
appellants reasoning, require the applicant to demonstrate that:
29.
(a) he/she has personally suffered (or is likely to suffer) some actual or threatened detriment as a
result of the allegedly illegal conduct of the Community 631 institution concerned, such as a violation of
his or her environmental rights or interference with his or her environmental interests; (b) the detriment
can be traced to the act challenged; and (c) the detriment is capable of being redressed by a favourable
judgment.
30.
It is contended on behalf of the appellants that they satisfy these three criteria. As to the first criterion,
they reiterate the evidence relied on before the Court of First Instance in which they described the nature
and extent of the detriment suffered as a result of the Commissions acts. As to the second criterion, they
point out that the above mentioned harm can be traced to the Commissions acts because the national
(Spanish) authorities have no discretion as to the use to which the funds advanced pursuant to Decision
C(91)440 are to be put. In other words, in disbursing the necessary funds to Spain to continue the
construction of projects being carried out in a manner contrary to provisions of Community environmental
law and, in particular, to Directive 85/337, the Commission directly contributed to the detriment suffered
by the appellants as a result of the harm to the environment. As to the third criterion, it is submitted that
the above mentioned detriment would be capable of being redressed if a court judgment were to annul
the Commission decision to continue financing the works. For, if the necessary funding for the
continuation of the projects were not available, it is to be expected, the appellants maintain, that work on
the power stations would be suspended.
31.
Specifically in relation to the appellant environmental associations, it is stated in the notice of appeal
that those associations should be recognised as having standing because one or more of their members
belong to the category of persons who, under the fourth paragraph of art 173, are entitled to bring an
action before the Court of First Instance, and also because they can rely in their own right, in order to
have their standing recognised, on the fact that their primordial objective is the protection of the
environment and that specifically included in their objects, moreover, is protection of the environment in
the geographical area in which the works in question are being carried out. Specifically concerning the
role of the representative organisations or associations and the need to recognise their procedural right of
action before the Community judicature, whenever a Community act affects the interests and objectives
for whose protection and furtherance they were formed, the appellant organisations and associations
refer to the judgment of the Court of First Instance in Associazione Tecnico Economica del Cemento v
European Commission Joined cases T-447449/93 [1995] ECR II-1971 (paras 5362) and to the opinion
of Advocate General Lenz in Confederazione italiana dirigenti di azienda (CIDA) v EC Council Case
297/86 [1988] ECR 353112.
12
See [1988] ECR 3531 (para 15): Nor should it be overlooked that, unlike Cases 282/85 and 117/86, this case is not
concerned with a measure which primarily affects the interests of the members of an association and not the
associations own interests. The question under discussion is the appropriate degree of participation of economic and
social categories in the Economic and Social Committee, which the Council must assess under Article 195 of the EEC
Treaty. In such a situation, nothing could be more natural than to leave the defence of the interests of the various
categories referred to in Article 195 to organized groups, that is to say associations, especially since the individual
members of the group, since they are not individually affected, are generally not entitled to bring an action before the
Court.
32.
In conclusion, the appellants consider that the solution proposed by them is the most apposite, and
refer to the courts judgment in Plaumann & Co v EEC Commission Case 25/62 [1963] ECR 95 from
which they infer that the procedural criteria of art 173 are not to be narrowly construed.
632
34.
The Commission goes on to point out that, in its view, the appellants cannot validly argue that the
solution adopted by the Court of First Instance in the order appealed against creates a legal vacuum in
judicial protection and review of conformity by the Community institutions with Community environmental
legislation. In particular, it stresses that the appellants are entitled, in so far as the environmental
dimension of the works subject to financing is concerned, to bring proceedings before the Spanish courts,
and that certain of them had availed themselves of that right. Nevertheless, neither the financing, as such,
of the works nor the role of the Commission in monitoring whether Spain is observing the relevant
Community provisions concerns the appellants. Consequently, they do not have a legal interest in
obtaining a judicial determination in relation to those 633 questions. The absence of a legal interest
cannot be remedied by the elements of comparative law relied on by the appellants in their pleadings.
35.
As to the rights which the appellants maintain may be inferred from Directive 85/337, the Commission
makes the following observations: even though that directive, as regards certain at least of its provisions,
may produce direct effects, reliance on it cannot avail the appellants in the context of the present
proceedings. Even if it is acknowledged that the appellants, or certain of them, derive certain individual
rights at the level of national law from the directive, those rights do not go so far as to afford them the
possibility of contesting the legality of an act, such as Decision C(91)440, before the Court of First
Instance or to differentiate them, for the purposes of the fourth paragraph of art 173, in relation to the
contested act.
36.
The Commission also rebuts the submission contained in the appeal to the effect that the appellant
environmental associations have locus standi because, on the one hand, one or more of their members
are individually affected by the contested measure and, on the other, as representative organisations
whose object is the protection of the environment in the Canary Islands, they automatically have a legal
interest in matters concerning the environment15.
15
The Commission points out that that criterion is unsupported by authority, save for the opinion of Advocate General Lenz
in CIDA [1988] ECR 3531, which was not followed by the court.
37.
Furthermore, the Commission observes that the notice of appeal does not repeat the submission put
forward at first instance to the effect that two at least of the appellants have standing by virtue of the fact
that they had lodged complaints with the Commission concerning the conditions under which the relevant
construction works were being carried out. It infers from this that the appellants have tacitly abandoned
that submission. Finally, the Commission requests the court, should it decide to set aside the order of the
Court of First Instance, to adjudicate on the two other objections of inadmissibility raised at first instance.
For it has come to the conclusion that the legal redress sought by the appellants before the Court of First
Instance could be granted only in the event of an amendment of the fourth paragraph of art 173 of the
Treaty.
38.
At the hearing, the Commission further pointed out that construction of one of the electricity power
generating plants had already been started in 1990, that is to say before the issue of Community
financing of the works arose. The appellants ought therefore to have taken steps, as at that moment in
time, to oppose the carrying out of the works or, at least, the financing of them, by challenging the original
Commission Decision C(91)440. However, they failed to show due diligence and, for that reason, brought
proceedings at a later date against the decision to continue the financing. The Commissions
representative also stated that the decision to continue financing of the works was taken after there had
been found to be no infringement of the provisions of Directive 85/337. Thus, the Commission carried out
the review which it had bound itself to do under the original Decision C(91)440.
39.
It further pointed out that the Community legal order also affords legal protection to persons which
goes beyond the strict confines of the fourth paragraph of art 173 of the Treaty. It recalled in that
connection recent legislative developments concerning access by citizens to the archives of the
Community institutions, the right of petition to the European Parliament and the possibility of bringing a
matter before the Ombudsman. Conversely, no easing of the procedural restrictions laid down in the
fourth paragraph of art 173 can be expected, nor has there been any such proposal in the context of the
Intergovernmental Conference.
634
41.
As a logical consequence, the appellants, who were not the addressees of the act which they are
contesting and cannot be equated with the addressee of that act, namely Spain, do not have locus standi
and the Court of First Instance was right to dismiss their action. For that reason, the appellant
environmental associations do not have locus standi. Also, it would be contrary to the principle of legality
for the actions of the environmental associations to be adjudged to be admissible and at the same time
for the actions brought by natural persons to be dismissed, that is to say for a wider legal interest to be
conferred on representative associations than on individuals. As to the latter, the Kingdom of Spain
observes that they also lack locus standi to challenge the decision of the Commission to continue the
financing. For one thing, they do not invoke circumstances or attributes peculiar to them which distinguish
them individually in the same manner as the addressee of the contested decision 17.
17
In accordance with the reasoning adopted by the Kingdom of Spain, if the interpretative approach advocated by the
appellants were accepted, then a legal interest would have to be recognised in the case of any person invoking the
impact of an interference with the environment in connection with fishing, farming, public health, tourism, quality of life,
childrens education, damage to the interests of taxi-drivers, local workers, tourists, windsurfers, and those concerned
with the protection of bird-life. Consequently, the appellants are affected by the contested act just as much as any other
individual carrying on any kind of activity in the area.
42.
Consequently, they do not belong to any closed class of persons, ascertained or ascertainable at the
time of adoption of the act, nor are they in a position analogous to that of the addressee thereof. Again, as
regards those appellants who had submitted complaints to the Commission, that fact does not suffice to
distinguish them, because the Commission is not under any obligation to initiate proceedings under art
169 of the Treaty, whenever it receives a complaint in that connection (see the judgment in Star Fruit
Company SA v EC Commission Case 247/87 [1989] ECR 291). For all the above mentioned reasons, the
Kingdom of Spain agrees 635 with the solution adopted by the Court of First Instance in the order
appealed against.
43.
The Kingdom of Spain goes on to counter the appellants argument concerning the creation of a legal
vacuum in judicial protection caused by an inability to review infringements by the Commission in matters
of environmental protection. It stresses that, in keeping with the system established by the Treaties,
individuals enjoy the legal protection ensured by national courts which are the ordinary courts under the
Community judicial system. Accordingly, only the
Member states and Community institutions have a legal interest in seeking the annulment of measures
of a general nature, as is clearly indicated by art 173 of the Treaty and laid down by the relevant case law
of the court. Moreover, in light of the characteristics of the present case, the Kingdom of Spain considers
that, in actual fact, the appellants are attempting to fabricate a dispute before the Community judicature.
Under the guise of a challenge to the legality of a Community act, they are in fact seeking to prompt the
Community judicature to adjudicate on the legality of an act of a national authority and, indirectly, to annul
it. Specifically, the appellants rely on no financial interest in connection with the mode of operation of the
ERDF but, in a general and undefined manner, on their interest in environmental protection which can be
affected only by the act of a national authority.
44.
Thus, even if it were accepted that the competent Spanish authorities infringed the provisions of
Community law on environmental protection which, in so far as they have been transposed into the
national legal order, constitute provisions of national law, there would then be an infringement of a
national rule of law by a national public authority, in which case the dispute arising would fall within the
exclusive competence of the national courts which, in a proper case, would be able to request the Court
of Justice for a preliminary ruling on the interpretation of the relevant provisions of Community law 18.
Finally, Spain submits, since the Commission decision at issue merely gives effect to Decision C(91)440,
it neither affects nor can affect the environment or, in any event, the rights which the appellants might
derive from the protection thereof. For that reason, Spain submits, there can be no question of an
infringement of the rights of the citizen deriving from the protection of the environment.
18
Spain refers to the judgment in Oleificio Borelli SpA v EC Commission Case C-97/91 [1992] ECR I-6313 in which it was
held that the court is not competent to decide on the legality of an act adopted by a national authority even though that
act was adopted in the context of a procedure for the adoption of a Community decision.
45.
Spain goes on to stress that, in its view, apart from having no individual interest, the appellants also
have no direct interest in challenging the Commission decision to continue the financing. It points out in
that connection that Decision C(91)440, and acts adopted in implementation thereof, are of a financial
nature and relate only indirectly to the environment, in the same way as any area of human activity.
46.
Finally, the representative of Spain maintained at the hearing before the court that the change in case
law advocated by the appellants could not be regarded as expedient since it would result in the
enshrinement of an actio popularis for environmental questions. Protection of the environment, moreover,
was but one legal concern among so many others within a legal system and there was no justification
whatever for according it any different procedural treatment.
636
48.
First, can the contested Commission decision concern the appellants in the sense that they are able
to derive a judicially protected right or legal interest from the interest, within the Community legal order, in
conservation of the environment? Secondly, if the first question is answered in the affirmative, was the
Court of First Instance right to hold that that decision did not individually concern the persons challenging
it? Thirdly, if the second question is answered in the negative, was there any other obstacle to
admissibility of the originating application?
50.
I believe that that issue must be examined at the outset, precisely on account of the particular features
of the present case. Moreover, the Community judicature has not hitherto adjudicated upon the existence
of an environmental legal interest. For that reason, it is useful to clarify the position occupied by the issue
of environmental protection in the Community legal order and to analyse the courts case law on that
question.
(a) Public dimension of environmental protection
51.
In the first place, there can be no doubt that ensuring the quality of the environment is directly linked to
what might be termed the Community public interest. The Community judicature has proclaimed in its
judgments that environmental protection is one of the fundamental objectives of the Community 23.
Support for that view is, moreover, to be found in the letter of the Treaty. Following the revision of 7
February 1992, art 2 of the Treaty states that the Community shall have as its task to promote
growth respecting the environment. For those purposes the activity of the Community is to comprise,
pursuant to art 3(k) of the Treaty, a policy in the sphere of the environment. The general outlines of that
policy are elaborated in Title XVI of the Treaty. That policy is to contribute, under art 130r of the Treaty,
inter alia, to preserving, protecting and improving the quality of the environment, protecting human
health, and prudent and rational utilisation of natural resources. Paragraph 2 of art 130r further provides
that environmental protection requirements must be integrated into the definition and implementation of
other Community policies24. Secondary Community legislation has been enacted in order to give effect to
the objectives of art 130r of the Treaty25; it is the task of the Community judicature to ensure the correct
application of that legislation.
23
See eg judgments in Procureur de la Rpublique v Association de dfense des brleurs dhuiles usages Case 240/83
[1985] ECR 531, EC Commission v Denmark Case 302/86 [1988] ECR 4607 and EC Commission v Germany Case C-
195/90 [1992] ECR I-3141 (para 29) and my opinion in Diego Cal & Figli Srl v Servici Ecologici Porto di Genova Spa
(SEPG) Case C-343/95 [1997] ECR I-1547 (paras 5564).
24
Eg in EC Commission v Belgium Case C-2/90 [1992] ECR I-4431 (para 22ff), the court seeks to reconcile the
fundamental Community freedom of movement of goods enshrined in art 30 of the Treaty with the requirement of
environmental protection, as described in art 130r of the Treaty. Thus, although I consider that waste products may be
classified as goods within the meaning of art 30 of the Treaty, in the final analysis, the imposition of restrictions on their
circulation is accepted on the following grounds ([1992] ECR I-4431 (para 34)): The principle that environmental
damage should as a matter of priority be remedied at source, laid down by Article 130r(2) of the Treaty as a basis for
action by the Community relating to the environment, entails that it is for each region, municipality or other local
authority to take appropriate steps to ensure that its own waste is collected, treated and disposed of; it must accordingly
be disposed of as close as possible to the place where it is produced, in order to limit as far as possible the transport of
waste. See also the judgment in EC Commission v EC Council Case C-155/91 [1993] ECR I-939.
25
By means of secondary Community legislation a number of significant obligations have been imposed on the member
states requiring them to ensure protection of the environment. The number of directives concerning the safeguarding of
the environment is particularly considerable. An act or omission on the part of national authorities affecting the
environment may cumulatively infringe not one but several directives. For example, following complaints by individuals
against Greece concerning water quality in Lake Veyoritidas, the River Soulos and Payasitikos Bay, the Commission
brought an action against Greece under art 169 of the Treaty for the alleged infringement of Council Directive (EEC)
76/464 on pollution caused by certain dangerous substances discharged into the aquatic environment of the Community
(OJ 1976 L129 p 23). Nevertheless, in its allegations in the reasoned opinion it also referred to Council Directive (EEC)
76/160 concerning the quality of bathing water (OJ 1975 L31 p 1), as regards Payasitikos Bay, and to the following
directives, as regards the particular situation of Lake Veyoritidas and the River Soulos: Council Directive (EEC) 75/440
concerning the quality required of surface water intended for the abstraction of drinking water in the member states (OJ
1975 L194 p 26), Council Directive (EEC) 79/869 concerning the methods of measurement and frequencies of sampling
and analysis of surface water intended for the abstraction of drinking water in the member states (OJ 1979 L271 p 44),
Council Directive (EEC) 80/778 relating to the quality of water intended for human consumption (OJ 1980 L229 p 1),
Council Directive (EEC) 78/659 on the quality of fresh water needing protection or improvement in order to support fish
life (OJ 1978 L222 p 1), Council Directive (EEC) 75/442 on waste (OJ 1975 L194 p 39) and Council Directive (EEC)
78/319 on toxic and dangerous waste (OJ 1978 L84 p 43). On that case, see the opinion of Advocate General Tesauro
in European Commission v Greece Joined cases C-232233/95 (1997) Transcript, 11 June, ECJ.
638
52.
From the foregoing illustration it may be inferred that the environment has a public dimension which
constitutes a general Community interest whose protection is the responsibility of the member states and
the Community institutions, in accordance with the equilibrium established by the Treaty 26. Thus,
protection of the environment, as enshrined in primary Community law and as a matter of principle
affirmed by the case law of the court, constitutes a fundamental obligation on the part of the public
authoritie27if Community institutions and national authorities may be subsumed under one and the same
term. And it is in the implementation of that obligation that obligations on the part of individuals may
arise.28
26
An interesting example of the manner in which environmental protection may be secured as a result of a procedure
between Community institutions and member states may be found in the judgment in EC Commission v Germany Case
C-431/92 [1995] ECR I-2189. In that case the Commission had brought an action under art 169 of the Treaty for a
declaration that Germany, by granting authorisation for the construction of a new section of the Grosskrotzenburg power
station without a prior environmental impact assessment, had failed to fulfil its obligations under arts 5 and 189 of the
Treaty in conjunction with Directive 85/337. It is worth noting that the Commission did not proceed against Germany on
the ground of an incorrect transposition of the directive in general but confined itself to the issue of the construction of
the thermal power station. The court acknowledged that the Commission may bring an action against a member state
under art 169 on the sole basis of an actual interference with the environment contrary to secondary Community law.
Indeed it considers it to be part of the Commissions task in the general interest of the Community, to ensure that the
member states give effect to the Treaty and the provisions adopted by the institutions thereunder and to obtain a
declaration of any failure to fulfil the obligations deriving therefrom. The court also clearly distinguished between the
need for environmental protection in the public interest and the existence or otherwise of rights conferred by Community
law on individuals in connection with such protection. It stated ([1995] ECR I-2189 (para 26)): In its application, the
Commission complains that Germany has not observed, in a specific case, the obligation flowing directly from the
directive to assess the environmental impact of the project concerned. The question which arises is thus whether the
directive is to be construed as imposing that obligation. That question is quite separate from the question whether
individuals may rely as against the state on provisions of an unimplemented directive which are unconditional and
sufficiently clear and precise, a right which has been recognized by the Court of Justice.
27
On this point Community law is analogous to the national constitutional systems of Germany, Greece and the
Netherlands. In those countries protection of the environment is expressly recognised as a fundamental obligation of the
state, not necessarily corresponding to a general individual right of the citizen to require observance of that obligation.
28
That does not, of course, mean that horizontal direct effect is conferred on directives with an environmental content (see
footnote 37, below). See eg the judgment in Criminal proceedings against Peralta Case C-379/92 [1994] ECR I-3453
(para 59) on prohibition of dumping into the sea of noxious chemical substances and the judgment in Criminal
proceedings against Tombesi Joined cases C-304/94, C-330/94, C-342/94 and C-224/95 [1997] All ER (EC) 639,
[1997] ECR I-3561 concerning the application of Directives 41/156 and 91/689 on waste.
53.
However, the fact that legality must be observed per se within the Community, including the obligation
to protect the environment, does not automatically confer on a natural or legal person a right or legal
interest enforceable by an action under the fourth paragraph of art 173 of the Treaty. The Community
legal order does not recognise an actio popularis29 in environmental matters either. It is not, therefore,
possible to rely, as the sole ground for claiming locus standi, on the legal vacuum which would be likely to
be created by the fact that certain infringements by the Commission cannot with certainty be remedied if
the task of submitting them for judicial review is entrusted exclusively to the member states and the
Community institutions, which do not in practice have an interest in that regard.
29
Contrary to the situation prevailing, at least to some extent, in Spain and Portugal. The reason why the procedural
criteria are so generous in those countries must be sought in the fact that the Constitutions in those states expressly
enshrine a general constitutional right to the environment on the part of citizens (art 45 of the Spanish Constitution and
art 46 of the Portuguese Constitution).
seeks to protect the Communitys groundwater in an effective manner by laying down specific
and detailed provisions requiring the Member States to adopt a series of prohibitions, authorization
schemes and monitoring procedures in order to prevent or limit discharges of certain substances.
The purpose of those provisions of the directive is thus to create rights and obligations for
individuals.
Advocate General Van Gerven observed in his opinion in that case that the
clear and precise implementation of the directives provisions may also be important for third
parties (for instance environmental groups or neighbourhood residents) seeking to have the
prohibitions and restrictions contained in the directive enforced as against the authorities or other
individuals. (See [1991] ECR I-825 (para 7).)
55.
The tendency of the case law in favour of conferral on individuals of rights in connection with
environmental protection or, at least, of the possibility of relying before national courts on the obligations
imposed by secondary Community law on national authorities, is also confirmed by the recent judgment of
the court in its judgment in Associazione Italiana per il World Wildlife Fund v Regione Veneto Case C-
118/94 [1996] ECR I-1223 (see also the judgment in R v Secretary of State for the Environment, ex p
Royal Society for the Protection of Birds Case C-44/95 [1996] ECR I-3805). That case concerned a
preliminary question which arose in the context of an action brought before the Italian courts by certain
associations for nature 640 protection, against a national decision determining the hunting calendar.
Those associations maintained, inter alia, that there had been a breach of the principles contained in
Council Directive (EEC) 79/409 on the conservation of wild birds (OJ 1979 L103 p 1). The question raised
concerned the conditions under which art 9 of the directive permits member states to derogate from the
general prohibition on hunting protected species. In the final analysis, the court conferred direct effect on
that article, relying on its settled case law according to which
where by means of a directive the Community authorities have placed member states under a
duty to adopt a certain course of action, the effectiveness of such a measure would be diminished if
persons were prevented from relying on it in proceedings before the courts, and national courts
were prevented from taking it into consideration as an element of Community law. (See the
judgment in Associazione Italiana per il World Wildlife Fund v Regione Veneto Case C-118/94
[1996] ECR I-1223 (para 19).)31
31
It is worth noting that the court has consistently taken the view the judgments in EC Commission v Netherlands Case
236/85 [1987] ECR 3989, EC Commission v Belgium Case 247/85 [1987] ECR 3029, EC Commission v France Case
252/85 [1988] ECR 2243, EC Commission v Germany Case C-288/88 [1990] ECR I-2721, EC Commission v Spain
Case C-355/90 [1993] ECR I-4221 and Association pour la Protection des Animaux Sauvages v Prfet de Maine et
Loire Case C-435/92 [1994] ECR I-67) that Community legislation on the protection of wild birds seeks to preserve the
common heritage, the management of which is entrusted to the member states. In that sense the directives in question
serve to protect the environment which exists as a Community public interest, in accordance with the reasoning
elaborated hitherto, and do not appear to have in direct contemplation the securing of a right in favour of individuals.
Moreover, notwithstanding the fact that the relevant directives have been in issue before the court, the court has not
adjudicated on the question whether they produce direct effect in the domestic legal orders.
56.
I regard that judgment as constituting a typical example of the manner in which a general objective,
such as environmental protection, when implemented by means of a series of provisions of secondary
Community legislation, may result in securing for individuals the possibility of seeking judicial assistance
in conserving the environment, even where such a right is not provided for directly and expressly by the
Community legislature32.
32
Also of interest is the judgment of the court in EC Commission v Germany Case C-361/88 [1991] ECR I-2567
concerning the mandatory effect of Council Directive (EEC) 80/779 on air quality limit values for sulphur dioxide and
suspended particulates. The court appears to link the existence of a public obligation on the part of the public authorities
with regard to protection of human health with a corresponding right on the part of individuals. At para 16 of the
judgment, it is stated as follows: In that respect, it should be pointed out that the obligation imposed on the member
states to prescribe limit values not to be exceeded within specified periods and in specified circumstances, laid down in
Article 2 of the Directive, is imposed in order to protect human health in particular. It implies, therefore, that whenever
the exceeding of the limit values could endanger human health, the persons concerned must be in a position to rely on
mandatory rules in order to be able to assert their rights It is worth observing that it is human health which is taken to
be the ground justifying the conferral of rights on individuals. Nevertheless, I consider that in that case public health
constitutes a special objective directly related to environmental protection. Moreover, the link between environment and
health is highlighted by the formulation of art 130r of the Treaty.
57.
That reasoning is also followed by the appellants when they maintain that Directive 85/337 created
certain rights in their favour which are affected by the Commission decision at issue. It should be noted
that that directive constitutes one of the most significant achievements by the Community legislature in
favour of environmental protection. Its objective is, as stated in the sixth recital in the preamble, to
establish the principle of prior assessment of the significant effects which certain interferences with the
environment are likely to have. Under art 3 of the directive member states are obliged to assess the direct
and indirect impact of a project on human beings, fauna and flora, soil, water, air, climate, landscape,
641material assets and the cultural heritage. The appellants consider that arts 2, 3, 6 and 8 of that
directive enshrine certain rights in favour of a group of individuals who are described in art 6 of the
directive under the term public concerned.
58.
Indeed, the court has upheld the direct effect of arts 2, 3 and 8 of Directive 85/337 (see the judgment
in EC Commission v Germany Case C-431/92 [1995] ECR I-2189 (para 39)). As regards the mandatory
effect of art 6(2) of the directive, Advocate General Elmer, in his opinion in Aannemersbedrijf PK
Kraaijeveld BV v Gedeputeerde Staten van Zuid-Holland Case C-72/95 [1995] All ER (EC) 134, [1996]
ECR I-5431 (para 70), observed as follows:
According to art 6(2) of the directive, it is for the member states to ensure that any request for
development consent and any information gathered are made available to the public and that the
public concerned is given an opportunity to express an opinion before the project is initiated. The
directive thus requires the member states to introduce a consultation procedure to give individuals
a right to express their opinion. Where a member states implementation of the directive is such
that projects which are likely to have significant effects on the environment are not made the
subject of an environmental impact assessment, the citizen is prevented from exercising his right to
be heard. The member states own negligent implementation of the directive thus deprives the
citizen of a right under the directive. I doubt that Kraaijeveld forms part of the public concerned,
since the project, it is stated, has serious consequences for the business operated by Kraaijeveld.
In those circumstances my view is that arts 2(1) and 4(2) of the directive, in conjunction with art
6(2), confer rights on individuals.33
33
However, the court did not expressly form a view on that issue because, on the basis of the factual circumstances of the
case pending before the court making the reference, the parties had not raised a claim concerning their rights under
Directive 85/337. On that ground, the court confined itself to replying that art 2(1) of Directive 85/337 has direct effect
and that a national court which, under national law, has the power to apply of its own motion rules of law not relied on
must apply the above-mentioned provision, even if it has not been invoked by the party concerned.
59.
I believe that, if the appellants are to be regarded as belonging to the public which may be concerned
by the projected construction of the two power stations in the Canary Islands 34, then they are entitled to
the rights conferred by Directive 85/ 642337. Those rights are the following: first, the requirement that the
projected interference with the environment be submitted for an appraisal of its impact before
authorisation is granted; secondly, projects for works impacting on the environment, namely those
mentioned in Annex I to the directive or, under certain conditions, in Annex II thereto, must be drawn up in
accordance with the procedure described in arts 5 to 10 of the directive. In particular, that procedure gives
the right, first, for information gathered to be made available to the public, secondly, to provide the public
with the possibility of expressing its opinion before the project is started and, thirdly, to require that opinion
to be taken into account in the context of the procedure for granting authorisation. Accordingly, if the
Commissions contested decision, under which it was decided to continue financing the works in Spain at
issue in these proceedings, infringes those rights, then that decision did indeed concern the appellants
within the meaning of the fourth paragraph of art 173 of the Treaty and the appellants were entitled, as a
matter of principle, to challenge it35.
34
It should be noted that Directive 85/337 does not itself determine the public to which the relevant provisions refer, which
is not without its relevance. See para 96, below.
35
Of course, the fact that the Commission decision concerns the appellants does not necessarily mean that it also affects
them individually (see para 66, below).
60.
It follows from the foregoing that secondary Community law creates special attendant rights to
environmental protection which may naturally be safeguarded by recourse to the courts. However, if the
rights to be vindicated, or the legal interests of the citizen in connection with the environment, go no
further than this, then the protection provided by the Community legal order remains incomplete and
fragmentary. First, judicially protected rights or legal interests exist only where rules of secondary
Community law having direct effect in the domestic legal order have been adopted 36, and cannot therefore
arise when they involve the imposition of an obligation on an individual 37. Secondly, reliance as against
Community institutions on rights arising as described above, in annulment proceedings against acts of
those institutions before the Court of First Instance, is in practice fraught with particularly severe
obstacles38.
36
It should also be emphasised that it is not always the rule that rights in favour of individuals may be derived from
directives concerning environmental protection. It is instructive to note the position taken by the court in its judgment in
Comitato di Coordinamento per la Difesa della Cava v Regione Lombardia Case C-236/92 [1994] I-483. In that case the
question arose as to whether rights are conferred on individuals by art 4 of Council Directive (EEC) 75/442 on waste (OJ
1975 L194 p 39) which is in the following terms: Member States shall take the necessary measures to ensure that
waste is disposed of without endangering human health and without harming the environment and, in particular, without
risk to water, air, soil and plants and animals, without causing a nuisance through noise or odours, and without
adversely affecting the countryside or places of special interest. Certain individuals had relied on the provision in
question before the national courts, seeking annulment of the decision of a national authority involved in the application
of that provision, on the ground that the domestic rules did not provide for the measures necessary to encourage
processing and recycling of waste. The court considered in the end that art 4 of the directive indicated a programme to
be followed and set out the objectives to be followed by the member states in the performance of the specific obligations
imposed on them by other articles of the directive. Thus, the provision at issue must be regarded as defining the
framework for the action to be taken by the member states regarding the treatment of waste and not as requiring, in
itself, the adoption of specific measures or a particular method of waste disposal. It is therefore neither unconditional nor
sufficiently precise and thus is not capable of conferring rights on which individuals may rely as against the state (see
[1994] ECR I-483 (para 14)). See also the judgment in Ministre public v Traen Joined cases 372374/85 [1987] ECR
2141.
37
A characteristic example is afforded by the judgment of the Court of Justice in Criminal proceedings against Arcaro
Case C-168/95 [1997] All ER 82, [1996] ECR I-4705 concerning Council Directive (EEC) 76/464 on pollution caused by
certain dangerous substances discharged into the aquatic environment of the Community. After reiterating its settled
position on the horizontal and non-horizontal effect of directives, the court decided that provisions of directives which
require a person discharging cadmium to seek and obtain authorisation for that purpose cannot in and by themselves,
and without the national legislation applicable in connection with the application of those provisions being taken into
account, justify an aggravation or diminution of the dischargers criminal liability for infringement of those provisions.
38
The principal obstacle is the fact that the infringement of rights enshrined in a directive as a rule stems from a decision
made or action taken by a national body which, even if it relates to an act of a Community body, cannot be the subject of
judicial review by the Community judicature. See judgment in Borelli [1992] ECR I-6313. See also footnote 63, below.
(c) Existence of a specific obligation on the Commission to monitor whether the works financed
comply with Community environmental legislation
61.
In addition to rights which Community law may expressly confer on individuals as against (primarily)
national authorities, I consider that in certain specific cases Community rules relating to environmental
protection directly impose on Community bodies specific and clear obligations whose observance may be
judicially enforced by individuals affected. The Commission has such an obligation under primary and
secondary legislation whenever it proposes to finance works likely to have an impact on the environment,
which is the case here. In the case of the works at issue, moreover, and as was rightly pointed out by the
appellants, the Commission acknowledged the existence of those obligations in Decision C(91)440 and,
moreover, bound itself to observe them. Let us now examine this issue in greater detail.
643
62.
I will begin by observing that the Treaty provisions concerning the environment are not mere
proclamations of principle. Paragraph 1 of art 130r may refer in general terms to the pursuit of objectives
to which Community policy must contribute in the sector of the environment, and para 2 may trace the
general principles of that policy, but the last sentence of the first sub-paragraph of para 2 of art 130r of the
Treaty appears to impose on the Community institutions a specific and clear obligation which could be
deemed to produce direct effect in the Community legal order. It expressly states that: Environmental
protection requirements must be integrated into the definition and implementation of other Community
policies.
63.
It should also be pointed out that that obligation has not remained a dead letter but has been
imported into secondary Community law, and indeed in the context of legislation on the financing by the
Community of certain actions having an impact on the environment. As referred to above, art 7 of
Regulation 2052/88 provides: Measures financed by the Funds shall be in keeping with Community
policies, including those concerning environmental protection. Thus, in so far as the financing of the
works for the construction of the two power stations in the Canary Islands is concerned, the Commission
was obliged to take into consideration the aspect of environmental protection and it was right to bind itself
to do so in Decision C(91)44039.
39
Notwithstanding the assertions of the Spanish government, I consider that the Commission did indeed bind itself in that
way. It is stated in the preamble to Decision C(91)440: Whereas given the characteristics of this investment and its
impacts it is compulsory to comply with Community law in this matter and, above all, with Directive 85/337. Article 5 of
the decision goes on to add that Lack of compliance with any of the conditions mentioned in this Decision shall
authorise the Commission to reduce or cancel the assistance granted. It is further stated at point 2 of Section C of
Annex III to the decision that: If the Commission observed that a certain operation has not complied with or is not
complying with Community policy, it shall retain payment of Community funds for that operation and shall notify this to
the authority responsible in the Member State for implementing the operation.
64.
I consider that the above obligations imposed on the Commission flow from a framework of rules
which may in a proper case give rise for a certain category of individuals to the right to seek the
assistance of the courts to secure compliance with those obligations. Moreover, it is not by chance that
the Community judicature has already discerned the need to link the obligations imposed on national
authorities by clear rules of secondary Community law relating to environmental protection with the
possibility for individuals to secure compliance with those obligations through the courts. That is the
conclusion to be inferred from the aforementioned case law of the court on the direct effect of Directives
80/68, 79/409 and 80/779. More specifically, there is a discernible intention in that case law on the part of
the Community judicature not to leave monitoring of observance of that secondary Community law in the
sole care of the privileged parties mentioned in the second 644 paragraph of art 173 of the Treaty
because the legislation in question is perceived to be closely interrelated with the protection of a certain
group of individuals. I am of the view that the same philosophy should inform the court in cases, such as
the present one, in which the Community rule does not merely impose obligations on member states but
directly concerns the activity of Community bodies. Moreover, the fact that the Commission does not itself
intervene in the environment but merely finances an intervention in it does not necessarily mean that its
decisions in that connection may not be likely to affect certain individuals, and indeed in a direct and
individual manner40.
40
Particularly revealing in that connection is the recent judgment in Geotronics v European Commission Case C-395/95 P
[1997] ECR I-2271. In accordance with the settled case law of the court in the matter of public works contracts financed
by the European Development Fund, measures adopted by bodies acting on behalf of the Commission, whether
approvals or refusals to approve, endorsements or refusals to endorse, are intended solely to establish whether or not
the conditions for Community financing have been met, and are notand cannot beintended to interfere with the
principle that the contracts in question remain national contracts for which the beneficiary states alone are responsible
(see also judgments in STS Consorzio per Sistemi di Telecommunicazione via Satellite SpA v EC Commission Case
126/83 [1984] ECR 2769, CMC Cooperativa muratori e cementisti v EC Commission Case 118/83 [1985] ECR 2325 and
Italsolar SpA v EC Commission Case C-257/90 [1993] ECR I-9).
65.
It must, I believe, be accepted that observance, in the present case, of the Commissions specific and
clear obligation to take into account the safeguarding of environmental interests at the same time as
adhering to the relevant Community legislation during the financing of the relevant works in the Canary
Islands, is not of concern solely to the Commission but is also of relevance for certain individuals.
None the less, the court held that, in light of the specific nature of the Geotronics v European
Commission Case C-395/95 P [1997] ECR I-2271 case, a Commission decision refusing a tender from a
company, in the context of the PHARE programme, for the supply of electronic equipment to Romania,
concerned that company individually. On that ground it set aside the judgment of the Court of First
Instance which had held to the contrary. Thus, the fact that the Commission simply finances an activity,
which it does not itself directly undertake, does not in principle preclude its decisions in that connection
from affecting certain persons, and indeed individually.
The latter may seek judicial protection in the event of non-compliance with that obligation, provided of
course that they satisfy the procedural requirements in that connection.
66.
Finally, I consider that in the context of the present case the appellants were entitled to plead before
the Court of First Instance, on the one hand, infringement by the Commission of their rights under
Directive 85/337 and, on the other, the damage they claimed to have suffered as a result of the fact that
the Commission 645 failed, as they maintain, to check, prior to continuation of the funding, whether the
relevant works were being carried out in accordance with Community environmental legislation. Certainly,
the foregoing considerations do not necessarily lead to the conclusion that the appellants action before
the Court of First Instance was admissible. The admissibility of their action depends on whether they
satisfied the preconditions of the fourth paragraph of art 173 of the Treaty and, in particular, the
requirement that the contested decision must concern them individually. I now turn to analyse that issue.
72.
(i) First, I do not agree with the view put forward by the Spanish government to the effect that the
appellants were seeking a decision by the Community judicature on the legality of a decision of a national
authority and for that reason had contrived the present dispute on the Commissions decision, which in
reality does not concern them. It is my belief that the appellants are solely contesting the decision of a
Community institution, and are alleging an infringement by that institution of a rule of Community law
which, according to them, affects their legally protected rights and interests 42. The fact that the contested
Commission decision relates to construction works in Spain does not necessarily mean that persons
desirous of contesting it have to proceed before the Spanish courts. Nor does it mean, at least in theory,
that that decision may not, in and by itself, affect the rights and legal interests of certain persons,
irrespective of whether any national administrative acts concerning those construction works subsist
against which only the means of redress afforded by national law are available to the persons concerned.
42
That is also why, moreover, the reliance placed by Spain on the judgment in Borelli [1992] ECR I-6313 is not on this
point felicitous. The Court of First Instance was not requested by the appellants to adjudicate on the legality of a
decision of the Spanish authorities adopted within the framework of the Community decision making process, as was
the case in Borelli. Thus, the appellants did not maintain that the contested Commission decision was unlawful on the
ground that it was based on an unlawful decision adopted by or on irregularities on the part of the Spanish authorities.
They are maintaining that the Commission did not check, as it ought to have done, the legality of the acts or omissions
of the national authorities, solely in the light of Community law. Consequently, their argument is on a different footing
from that of the Borelli judgment. In that case, the action was brought against a Community act which in law required the
concurrence of the national authorities, and the applicants arguments referred exclusively to the illegality of the opinion
given at national level. Notwithstanding that fact, the Borelli judgment is not entirely irrelevant to the present case (see
footnote 63, below).
73.
(ii) Both the Commission and the Spanish government further argue that the applicants could have
secured adequate judicial protection if they had confined themselves to seeking redress before the
national courts; in the proceedings for that purpose they could have raised the issue of the legality of the
Commission decision to continue financing, whereupon, in the event of doubt, the national court could
have referred a question in that connection to the Court of Justice for a preliminary 647 ruling. They go on
to stress that that solution was the most appropriate if it is borne in mind that the national court is the
ordinary court having jurisdiction to apply Community law.
74.
I think it useful to point out that, as is apparent from the documents in the case-file and from the
submissions on behalf of the parties at the hearing before the court, certain of the appellants sought to
prevent the construction works in question by seeking the appropriate remedies before the competent
national courts. Those proceedings are still pending. On the other hand, there is no question pending
before the Court of Justice submitted for a preliminary ruling by a Spanish court on the issue of the
legality of the relevant Commission decision to continue financing of the works on the Canary Islands. Nor
do I see in what way the issue of the legality of that decision could be raised in the context of national
proceedings. Those proceedings can concern only the lawfulness of the administrative authorisations
granted for construction of the electricity-generating power stations, or of the environmental impact
assessment. But, even if any such supplementary issue could, exceptionally, be raised 43, the protection
likely to be afforded by the national court would certainly not be as far reaching and comprehensive as
that which would have been secured by the appellants, had their action before the Court of First Instance
been successful. The judgment of the national court could not extend to cover the issue of legality of the
financing per se or, a fortiori, lead to the setting aside of the Commission decision to continue financing.
43
The only theoretical situation which I could imagine is one in which the Commission decision is relied on by the Spanish
authorities before the national courts in order to justify commencement of the construction of the electricity generating
plants in the Canary Islands without an environmental impact assessment. In other words the Spanish authorities could
argue that they did not proceed to draw up an impact assessment in accordance with Directive 85/337 because that was
not essential in the present case, as is corroborated, moreover, by the position adopted by the Commission which
continued to finance the works. And then again, of course, in order to reject that argument, the national court (on the
supposition that, under the directive, such assessment was mandatory) would not need to decide first on the legality of
the Commission decision or, a fortiori, to refer a question to the court for a preliminary ruling.
75.
Finally, if the appellants satisfy the procedural requirements for contesting the Commission decision by
means of an action under the fourth paragraph of art 173 of the Treaty, then, whatever may be the
possibilities of judicial protection under national law, those possibilities do not in the slightest act as a bar
to their having locus standi before the Court of First Instance.
(b) Locus standi of the appellant individuals
76.
First and foremost, I do not consider that the appellants are entitled to challenge the major premiss of
the reasoning followed by the Court of First Instance, by arguing that in their case the fourth paragraph of
art 173 of the Treaty, as consistently interpreted by the Court of Justice, should not be applied. The strict
and indeed restrictive criterion of admissibility according to which the contested act must be of individual
concern to the applicants was expressly laid down by primary Community law. Properly construing that
provision, the Court of First Instance is requiring persons who are not addressees of a decision of a
Community institution to plead and prove the existence of certain attributes peculiar to them, or of factual
circumstances which differentiate them and individually distinguish them from all other persons 44. That
view of the matter cannot be called in question either by the specific nature of the legal interest in
environmental protection or by the matters 648 relied on by the appellants concerning modern
developments in national and international law in the matter of environmental protection 45.
44
In any event I will not dwell on the further element as to the manner in which the applicants are distinguished in the
same way as the person addressed. That specific requirement, which is not expressly laid down in the relevant
provision of the fourth paragraph of art 173 of the Treaty, is correctly demanded by the Community judicature in cases of
an economic nature but cannot play the same role in cases such as the present one because, otherwise, it would
deprive that provision of all effect. The result would be a reductio ad absurdum in which individuals or environmental
associations, in proceedings against a decision of the Commission concerning the payment of financial aid to a member
state for works having an impact on the environment, are required to show that they are in law and in fact identical with
the addressee of the decision, that is to say may be assimilated to the state to which the financing is allocated. In other
respects the distinguishing requirement in regard to applicants remains entirely legitimate and current.
45
The procedural restrictions contained in the fourth paragraph of art 173 of the Treaty cannot be called in question even
where the interest at stake is the protection of the environment. The importance of preserving the environment,
underlined by the Rio Declaration, Agenda 21 and other associated texts, cannot exempt the appellants from the
aforementioned procedural restrictions. Furthermore, the court recently held that the Fifth Environmental Action
Programme, approved by the Council and representatives of the member states on 1 February 1993, aims to create a
framework for determining and giving effect to Community policy in the environmental sector, but does not contain
binding rules of law (see the judgment in Rovigo [1995] ECR II-455 (para 32)).
77.
None the less, the appellants further submit that the Court of First Instance erred in law by
misinterpreting the procedural rule contained in the fourth paragraph of art 173 of the Treaty and drawing
erroneous conclusions from the case law of the Court of Justice on that rule. That ground of appeal is
formally admissible and I now turn to examine it.
(i) Existing case law
78.
(aa) It is, I think, essential to refer to the courts case law in which the above mentioned procedural
requirement has been interpreted and particularised. In the first place, it should be emphasised that,
notwithstanding the apparent homogeneity of its judgments, at least in their formulation, the court does
not profess to adhere to an entirely immutable point of view 46. Indeed, it is prepared to ease the
procedural obstacles, when the specific nature of a case so requires, for the sake of affording more
comprehensive judicial protection47.
46
I refer eg to the alteration in the case law brought about by the court in its judgment in Sofrimport SARL v EC
Commission Case C-152/88 [1990] ECR I-2477 in relation to an earlier authority. On that case, see para 86, below.
47
Eg the court interpreted the relevant procedural criterion broadly and in a manner favourable to the applicants in its
judgment in Parti cologiste Les Verts v European Parliament Case 294/83 [1986] ECR 1339 in which it held that not
only the political groups in existence when the decision of the President of the Parliament was taken on the allocation of
credits authorised to cover the expenses of the political groups for the 1982 elections, but also groups unknown at that
time, were entitled to bring proceedings against that decision.
79.
In the first place, locus standi in favour of individuals presents no particular difficulties in cases where
they have participated in the preparation of the contested act 48 or where Community law has made
provision for a special procedure prior to adoption of the contested act, in which those individuals may
participate and submit their observations. On the basis of that reasoning, an action brought by a
company, which complained to the Commission of an agreement contrary to art 85 of the Treaty between
its competitors, against the Commission decision exempting that agreement under art 85(3) from the
prohibition laid down in art 85(1), was held to be admissible 49. Also held to have standing have been
persons who complained to 649 the Commission of unlawful state aid and submitted observations in the
procedure under art 93(2) of the Treaty (see the judgments in Compagnie franaise de lazote (Cofaz) SA
v EC Commission Case 169/84 [1986] ECR 391 and William Cook plc v EC Commission Case C-198/91
[1993] ECR I-2487)50.
48
See the judgment in Timex Corp v EC Council Case 264/82 [1985] ECR 849 on the adoption of an anti-dumping
regulation.
49
The court in that case based itself on the significance of the procedure under art 3 of Regulation 17/62 under which
certain persons are authorised to request the Commission to establish an infringement of art 85 of the Treaty.
Accordingly, it is logical for the same persons to have access to the courts in order to protect their legal interests
recognised by Regulation 17/62 (see the judgment in Metro SB Gromrkte GmbH & Co KG v EC Commission Case
26/76 [1977] ECR 1875).
50
The same applies, where the procedure under that para was not followed by the Commission, to persons who could
have submitted observations, had the art 93(2) procedure been implemented judgment in Matra [1993] ECR I-3203). In
that judgment the court emphasised the special nature of the procedure under art 93(2) of the Treaty and the right to a
hearing afforded by that procedure to interested parties. It is to be noted that a competitor undertaking may likewise
challenge a Commission decision finding that a merger decision between undertakings is compatible with the common
market, where that undertaking submitted observations under the procedure laid down in Regulation 4064/89 and
received the reply that its observations would be fully taken into consideration. A competing undertaking may even
contest a statement by the Commission that the merger in question does not have a Community dimension and thus
does not come within the scope of Regulation 4064/89. That is also the position hitherto taken by the Court of First
Instance in Air France [1994] ECR II-323 and Air France [1994] ECR II-121.
80.
The justification, in the final analysis, for the courts upholding the admissibility of the actions in the
above cases was elucidated in the judgment in Cofaz [1986] ECR 391 (paras 2223) as follows:
(22) It is clear from a consistent line of decisions of the Court that persons other than those to
whom a decision is addressed may claim to be concerned within the meaning of the second
paragraph of Article 173 only if that decision affects them by reason of certain attributes which are
peculiar to them, or by reason of circumstances in which they are differentiated from all other
persons, and by virtue of these factors distinguishes them individually just as in the case of the
person addressed
(23) More particularly, as regards the circumstances referred to in that judgment, the Court has
repeatedly held that where a regulation accords to applicant undertakings procedural guarantees
entitling them to request the Commission to find an infringement of Community rules, those
undertakings should be able to institute proceedings in order to protect their legitimate interests
(My emphasis.)
81.
Conversely, where such a procedure is not provided for under Community law, it is difficult for
individuals in an analogous situation to those mentioned above to secure protection by the Community
judicature51.
51
Eg a Commission decision granting EAGGF financing to certain undertakings cannot be challenged by competitors of
those undertakings (see the judgment in Societ Eridania Zuccherifici Nazionali v EEC Commission Joined cases
10/68 and 18/68 [1969] ECR 459). For the same reason, moreover, persons in receipt of state aid are not deemed to be
individually affected by a Commission decision declaring such aid incompatible with the common market (see the
judgment in Van der Kooy [1988] ECR 219).
82.
(bb) In other cases actions brought by individuals frequently run up against the courts settled case law
to the effect that a measure cannot concern applicants individually when it applies to objectively defined
situations and produces legal effects on categories of persons determined in a general and abstract
manner. It should also be noted that whether a measure challenged is objective in nature must 650 not be
confused with the number of persons affected by it. A single person may be affected by a decision, but
that does not mean that such person is individually affected by it for the purposes of the fourth paragraph
of art 173 of the Treaty52. Again
52
See eg the judgment in Spijker. In that judgment it was held that the decision whereby the Commission permitted
Belgium, Luxembourg and the Netherlands to exclude products such as brushes, brooms and similar products imported
from China did not concern the applicant in spite of the fact that it was at the time the sole importer into those member
states of the relevant products. The court considered that the Commission decision affected the applicant qua importer
of those products in the same way as any other undertaking actually or potentially in the same situation.
the possibility of determining more or less precisely the number or even the identity of the
persons to whom a measure applies by no mean implies that it must be regarded as being of
individual concern to them as long as it is established that such application takes effect by virtue of
an objective legal or factual situation defined by the measure in question (See the judgment in
Buralux SA v EU Council Case C-209/94 P [1996] ECR I-615 (para 24).)53
53
See also the judgment in Abertal SAT Ltda v EC Council Case C-264/91 [1993] ECR I-3265 (para 16).
83.
(cc) Furthermore, the court appears to accept that an act is of individual concern to the applicant only
where he belongs to a closed class of persons. I nevertheless believe that in that regard the courts case
law shows evidence of significant developments and fluctuations. (1) Initially, as for example in the
Toepfer v EEC Commission Joined cases 106107/63 [1965] ECR 405 and Bock v EC Commission Case
62/70 [1971] ECR 897 cases, the court deemed it decisive, in favour of the admissibility of an action, that
the number and identity of importers concerned in this way was already fixed and ascertainable before
the date of adoption of the decision. It also considered that the Commission was in a position to know that
its decision would affect the interests and situation of those importers alone. It went on to conclude that
the factual situation thus created differentiates the latter from all other persons and distinguishes them
individually just as in the case of the person addressed (see Bock [1971] ECR 897 (para 10)). (2)
Subsequently, the court appears to have determined the closed class of potential applicants to whom a
contested decision is of individual concern in a manner more favourable to individuals than was originally
the case. In Piraiki-Patraiki [1985] ECR 207 (para 19), a case concerning an action for the annulment of a
Commission decision authorising France to adopt protective measures against imports of cotton yarn of
Greek provenance, brought by a group of Greek exporters, the court stated:
it must be held that the fact that, before the adoption of the decision at issue, they had
entered into contracts which were to be carried out during the months to which the contracts
applied constitutes a circumstance which distinguishes them from any other person concerned by
the decision, in so far as the execution of their contracts was wholly or partly prevented by the
adoption of the decision.
It is noteworthy that in that case the Commission called in question the admissibility of the actions in
reliance on the fact that, when it adopted its decision, it was unaware of the number of contracts which
had been entered into in respect of the period covered by the decision. The court held ([1985] ECR 207
(para 21)):
in that respect it must be observed that the reply to be given to the question whether and to
what extent the Commission was aware which Greek 651 exporters had entered into contracts
covering the period of application of the contested decision depends on the interpretation given to
Article 130 of the Act of Accession, and in particular on the question whether the Commission,
before authorising a protective measure under that provision, is obliged to make appropriate
enquiries as to the economic effects of the decision to be taken and the undertakings which would
be affected by it (My emphasis.)
I would observe that in that judgment the court distanced itself from the condition originally laid down
concerning definition of the closed class, namely that the persons comprising that closed class had of
necessity to be known to the authority adopting the contested act at the time of its adoption. In coming to
the view which it took on the matter, the court took account of the special nature of the Commissions
obligations when adopting the contested decision and the interrelation between those obligations and
protection of the applicants legal interests.
84.
That judicial trend was reaffirmed in Sofrimport SARL v EC Commission Case C-152/88 [1990] ECR I-
2477. The case concerned an action brought by an importer of apples from Chile against the Commission
regulation suspending the issue of import licences for that fruit and determining import quotas.
Notwithstanding the Advocate Generals opinion to the contrary, the court considered importers of Chilean
apples which were in transit when the regulation at issue was adopted to constitute a restricted group
which is sufficiently well defined in relation to any other importer of Chilean apples and cannot be
extended after the suspensory measures in question take effect (see [1990] ECR I-2477 (para 11)). It
may be seen that the court no longer refers to persons defined in number and identity but to a restricted
group, sufficiently well defined.
85.
In reaching that conclusion, the court had regard, as in Piraiki-Patraiki [1985] ECR 207, to the
Commissions specific obligations, under the applicable Community law, in regard to the framing of its
contested decision. In actual fact, a Council regulation had imposed on the Commission the requirement
to take into consideration, when adopting protective measures, the specific situation of goods in transit to
the Community. It is also noteworthy that in Sofrimport [1990] ECR I-2477 it is expressly stated that,
where a Community rule affords special protection to a specific group of importers, they must therefore
be able to enforce observance of that protection and bring legal proceedings for that purpose (see [1990]
ECR I-2477 (para 12)).
86.
The judgment in Sofrimport is also of interest from another point of view. In that judgment the court
accepted that it was possible for there to be a closed class of personsentitled to bring an action under
art 173 of the Treatywithin an open class of persons to whom that procedural possibility is not
available. Thus, the Community act does not need to concern solely the members of that closed class (in
Sofrimport a specific group of importers), but may also affect, in an objective manner of course, persons
comprising the open class of actual or potential importers 54. None the less, it is essential for that closed
class to be sufficiently well defined (see [1990] ECR I-2477 (para 11)). For the purposes of such
definition, the court attached particular importance to the nature and extent of the Commissions
obligations under the applicable legislation.
54
The court appears to have abandoned the opposing viewpoint which it had adopted in Moksel Import-Export GmbH &
Co Handels KG v EC Commission Case 45/81 [1982] ECR 1129. In that case an exporter of beef meat had brought an
action against a Regulation suspending advance fixing of export refunds for beef meat, relying for locus standi on the
fact that it belonged to a closed class, known in advance and fully ascertained, of undertakings which had lodged
requests for refunds before the entry into force of the regulation and whose requests were still pending. The court did
not accept the applicants submissions, notwithstanding the Advocate Generals opinion to the contrary, taking the view
that the class of persons in the aggregate concerned by the regulation was not closed. Since Article 1 of Regulation No
3318/80 concerns both earlier applications and those lodged during the period of suspension, the nature of the
contested measure as a regulation is not called in question merely by the fact that it may be possible to determine the
number or even the identity of certain traders concerned, especially where such a possibility by definition did not exist
for other traders also covered by Regulation No 3318/80 (see [1982] ECR 1129 (para 17)).
(3) I wish now to draw attention to two judgments of the court which highlight the importance attached
by the Community judicature to the effects which the contested decision is likely to have on the applicant.
Those effects may give rise to a factual situation which sufficiently distinguishes the applicant.
652
87.
In Extramet [1991] ECR I-2501, an importer sought the annulment of a regulation imposing anti-
dumping duties on imports into the Community of certain products from China and the Soviet Union. On
the basis of the case law as it then stood, a distinction was made between producers, exporters and the
complainants, on the one hand, and independent importers, on the other. As regards the latter, the issue
of admissibility was dealt with by the court in a particularly succinct manner 55.
55
Regulations imposing temporary and definitive antidumping duties have been held to constitute, as regards independent
importers, measures of general application because they apply to objectively determined situations and entail legal
effects for categories of persons regarded generally and in the abstract (see the judgment in Alusuisse Italia SpA v EC
Council Case 307/81 [1982] ECR 3463 (para 9)). In accordance with its settled case law, the court had refused to
recognise a right of action in favour of independent importers even where the case concerned the sole importer within a
state of the product on which the duty was imposed (see the orders in Sermes (SA) v EC Commission Case 279/86
[1987] ECR 3109 and Nuova Ceam Srl v EC Commission Case 205/87 [1987] ECR 4427) on the ground that a
measure does not cease to be a regulation because it is possible to determine the number or even the identity of the
persons to whom it applies at any given time as long as it is established that such application takes effect by virtue of an
objective legal or factual situation defined by the measure in relation to its purpose (see the judgments in Zuckerfabrik
Watenstedt GmbH v EC Council Case 6/68 [1968] ECR 409 and Alusuisse [1982] ECR 3463 (para 11)).
88.
None the less, Advocate General Jacobs proposed that the court should remove that obstacle, stating
as follows ([1991] ECR I-2501 (paras 7576)):
(75) I am accordingly of the opinion that the Court should recognize that a measure imposing
an anti-dumping duty is of direct and individual concern to any undertaking which is able to
establish that it is identified, explicitly or implicitly, by the measure in question The Court
should in my view clarify the case-law by expressly acknowledging that, at least in the anti-dumping
field, it is not necessary for an applicant, in order to establish standing, to address the additional
question of whether the contested measure constitutes a regulation or a decision.
(76) This approach accords with the purpose of Article 173, which is designed to enable persons
to challenge measures having a particular impact on them, while limiting the right to challenge
regulations so that there is no risk of their annulment being sought by an unlimited class of
applicants. (My emphasis.)
653
89.
For its part the court, after recalling that an anti-dumping regulation may affect undertakings owing to
certain attributes peculiar to them and which differentiate them from all other persons, held ([1991] ECR I-
2501 (para 17)):
the applicant has established the existence of a set of factors constituting such a situation
which is peculiar to the applicant and which differentiates it, as regards the measure in question,
from all other traders. The applicant is the largest importer of the product forming the subject-matter
of the anti-dumping measure and, at the same time, the end-user of the product. In addition, its
business activities depend to a very large extent on those imports and are seriously affected by the
contested regulation in view of the limited number of manufacturers of the product concerned and
of the difficulties which it encounters in obtaining supplies from the sole Community producer,
which, moreover, is its main competitor for the processed product. (My emphasis.)
90.
In Codorniu SA v EU Council Case C-309/89 [1994] ECR I-1853 the court was called upon to
adjudicate on an action brought by a Spanish producer of sparkling wine against a provision of a
regulation laying down the conditions for use of the term crmant for sparkling wines. The Council raised
an objection of inadmissibility, contending that that measure was of a purely legislative nature and did not
concern the applicant, except in its capacity as a producer using the term cremant, that is to say in the
same way as it concerned any other producer in the same situation. In his opinion in that case, Advocate
General Lenz found first, as a matter of undisputed fact, that the contested measure was of a legislative
nature. Notwithstanding that fact, he did not consider that the action should be dismissed without more
ado as inadmissible, or that detailed examination was required of the question whether the measure in
point, though overall of a legislative nature, nevertheless had the effect of a decision as regards the
applicant. Instead, he examined whether the measure was of individual concern to the applicant. In order
to reply to that question, the Advocate General first considered whether, amongst the undertakings to
which the prohibition on use of the term crmant was of concern, there could be identified a category
comprising a fixed number of persons which could not be enlarged after adoption of the measure at issue.
The applicant undertaking did in fact come within that clearly defined category 57. However, that factor is
not sufficient because, in accordance with the case law, there must be a specific connection between the
applicants situation and the contested measure. A particular link of that kind, which also enables the
class of potential applicants under the fourth paragraph of art 173 of the Treaty to be determined, may be
that identified in the judgment in Extramet . The relevant criterion is the effects which a measure has on a
certain undertaking and which may be differentiated from the effects of that measure on other persons 58.
Finally, the Advocate General, 654having regard to all the evidence adduced by the applicant in
connection with the impact on it of the contested measure, concluded that the applicant is also
distinguished from the category of traders affected by the effects which the measure has on its
undertaking, and the measure is thus of individual concern to it (see the opinion in Codorniu [1994] ECR
I-1853 (para 64)). The court reached the same conclusion on the basis of evidently more elliptical
reasoning59.
57
That is to say, producers using the term crmant before entry into force of the regulation at issue.
58
The criterion of effects on the situation of the applicant is not applied only in Extramet and Codorniu. Also in cases
where the applicants participated in the preparation of the contested act and thus appear to be individually affected by it
(see para 79, above), the court accepts that the preconditions of art 173 are met only if the damage which the applicants
are likely to sustain is of a certain seriousness. Thus, undertakings which participated in the procedure under art 93(2)
of the Treaty in order to oppose state aid have standing to bring an action before the Community judicature provided,
however, that their position on the market is significantly affected by the aid which is the subject of the contested
decision (see Cofaz [1986] ECR 391 (para 25)).
59
Codorniu registered the graphic trade mark Gran Cremant de Codorniu in Spain in 1924 and traditionally used that
mark both before and after registration. By reserving the right to use the term crmant to French and Luxembourg
producers, the contested provision prevents Codorniu from using its graphic trade mark. It follows that Codorniu has
established the existence of a situation which from the point of view of the contested provision differentiates it from all
other traders (see [1994] ECR I-1853 (paras 2122)).
91.
The significance and extent of mitigation by the court, in Extramet and Codorniu, of the rigour of the
case law should not, however, be overstated. At least I infer as much from the judgment in Buralux SA v
EU Council Case C-209/94 P [1996] ECR I-615. In that case the court, on appeal, upheld as correct an
order of the Court of First Instance which had dismissed as inadmissible an action for annulment of
provisions of a regulation concerning the monitoring and control of shipments of waste within the
Community. The action had been brought by undertakings engaged in the collection, shipment and
dumping of household waste. The Advocate General proposed that the court should declare the action
brought by one of the undertakings to be admissible under the Extramet criteria60. The court did not follow
that proposal, regarding as decisive the fact that the legal effects which the contested regulation was
likely to produce concerned categories of persons in a general and abstract manner.
60
On the basis of these criteria it may very well be assumed that in this case the appellants by reason of special personal
circumstances are differentiated from all other persons concerned. Buralux, together with its partners, is the largest
importer, at least in the France/Germany area, and as it cannot fulfil its continuing contracts it is affected particularly
seriously by the regulation and the import prohibition envisaged therein. These contracts are almost all valid beyond the
date on which the regulation was to become applicable. In my view it may therefore be stated that in this case it is of
individual concern to the appellants (see the opinion of Advocate General Lenz: [1994] ECR I-1853 (para 33)).
92.
I do not believe, however, that that judgment constitutes a departure from Extramet. The court was
seeking to exclude cases in which an increasingly broad interpretation and application of the procedural
provisions of the fourth paragraph of art 173 of the Treaty would lead to recognition of a right of action by
individuals against rules of Community law and not against individual decisions. In other words, in
Buralux, the court wished to safeguard the legislative nature of the regulation, as it did in Deutz und
Geldermann, Sektkellerei Breisach/Baden GmbH v EC Council Case 26/86 [1987] ECR 941 (see paras
100 and 101, below).
(ii) The procedural restrictions in the fourth paragraph of art 173 of the Treaty and the particular
nature of the present dispute
93.
(aa) I shall first examine whether, on the basis of the inferences to be drawn from the case law
referred to above, the contested decision of the Commission to continue financing of the construction
works for the two power stations in the Canary Islands may be deemed to be of individual concern to the
appellants.
94.
As I stated above, the appellants have relied in support of their action both on the specific obligations
imposed on the Commission on adoption of the contested act, requiring it to monitor whether the works
were progressing in conformity with Community environmental law, and on the rights which they consider
are 655 conferred on them by Directive 85/337 in connection with the environmental impact assessment
for works such as those in the present case. However, they do not call in question the correctness of the
lower courts reasoning to the effect that the fact that certain of the appellant individuals lodged
complaints with the Commission or exchanged correspondence with it does not in itself suffice for the
contested act to be deemed to concern them individually (see [1995] ECR II-2205 (para 56)).
Consequently, I shall not dwell on that issue.
95.
It could nevertheless be argued that, whilst for the adoption of the contested decision no direct
provision is made for participation by interested parties 61, none the less, the procedure laid down in art
6(2) of Directive 85/337 should be regarded as such a participatory procedure in relation to the adoption
of the contested decision (see paras 58 and 59, above). Thus, Community law may not have included
individuals in the procedure for preparation of Commission decisions on financing of works having an
environmental impact, but it does require the Commission to verify prior to continuation of financing
whether the relevant works are being carried out in conformity with Community provisions, including the
provision contained in Directive 85/337 allowing the public concerned to participate in the drawing up of
the environmental impact assessment. It could be inferred from the combination of those obligations on
the Commission and from the rights in favour of the public concerned conferred by Directive 85/337 that
those persons comprising the public concerned are sufficiently differentiated in relation to the contested
act. They are therefore distinguished from all other persons because Directive 85/337 has afforded them
concrete procedural guarantees analogous to those in Cofaz, Metro SB Gromrkte GmbH & Co KG v
EC Commission Case 26/76 [1977] ECR 1875 and Matra SA v EC Commission Case C-225/91 [1993]
ECR I-3203. In other words, by dint of reasoning by analogy, it might be inferred from the Commissions
specific obligation to monitor whether the works financed are progressing on the basis of Community
environmental law and, thus, in accordance with the provisions of Directive 85/337 that the persons on
whom rights are conferred by Directive 85/337 constitute a closed class and thus have locus standi by
analogy with the Piraiki-Patraiki and Sofrimport cases.
61
For a discussion of an analogous problem see Rovigo [1995] ECR II-455.
96.
I cannot adhere to that view or, at least, cannot regard it as founded on existing case law. The
procedural guarantees relied on by the appellants are contained in the text of a directive and not a
regulation, unlike the situation before the court in Cofaz and Metro. That difference is not without
importance. Regulations and directives do not have the same binding effect as to their content.
Furthermore, the cases in which the court founded itself, in conferring locus standi on applicants, on the
existence of procedural guarantees were concerned purely with Community law procedures, implemented
exclusively by Community bodies. In contrast, the procedure for drawing up an environmental impact
assessment is national in character, is governed by rules of both Community and national origin and is a
matter for national authorities. But, irrespective of those differences 62, it would be difficult to equate the
procedure provided for in Directive 85/337 with the procedure for the adoption of the contested
Commission decision, in respect of which there is no direct provision for participation by interested
parties. Finally, it 656 does not follow from the nature of the obligation imposed on the Commission in
connection with the adoption of the contested act that a group of individuals has locus standi to bring
proceedings in the event of any infringement of that obligation. That obligation consists in the monitoring
of the application of Community legislation by the national authorities which implement the funded
projects and does not expressly concern the protection of certain persons. But even if the monitoring
obligationbecause it extends to cover the correct application of Directive 85/337is deemed to include
those provisions of that directive which provide for participation of the public concerned in the drawing up
of the environmental impact assessment, that does not automatically mean that those persons comprising
the public concerned are individually affected by the contested Commission decision. The public
concerned under Directive 85/337 cannot be regarded as constituting a closed class as defined in the
courts case law. Moreover, the concept of public concerned is not sufficiently defined by Directive
85/337. The definition of that term is left to the national courts. Thus, in Directive 85/337 Community law
dictates the protection of a group of persons which, however, it does not precisely define 63.
62
Those differences are not so crucial if it is accepted that, for the purposes of Directive 85/337, national authorities are in
essence exercising a Community competence conferred on them by the directive, that is to say in the context of rules of
Community law. That observation cannot, however, detract from the national character of acts adopted by national
bodies pursuant to Directive 85/337.
63
Moreover, if, finally, a Commission decision, such as the one at issue, were deemed individually to affect those persons
constituting the public to which Directive 85/337 refers, then, whenever an environmental impact assessment is required
for infrastructure works benefiting from financing (most frequently the case), a particularly wide category of persons
could bring proceedings before the Community judicature against decisions of the Commission concerning financing of
the works, basing their locus standi on the non-existence of or defects in the environmental impact assessment. A
development of that kind would run directly counter to the judgment in Borelli, according to which the court does not
have jurisdiction to decide upon the lawfulness of acts of a national authority, even where the national act is adopted in
the framework of the Community decision-making procedure. In any event, however, the majority of such proceedings
would be inadmissible for lack of any legal interest. We would thus arrive at the paradoxical situation in which the
procedural conditions laid down in the fourth paragraph of art 173 of the Treatythat the contested act must individually
affect the applicantwould be met more readily than the requirement of the existence of a legal interest. It might, finally,
be objected that relaxation to such an extent of the locus standi conditions is justified in extreme cases, such as the
present one, that is to say where the Commission declines to perform its supervisory function in order to bring to an end
a substantial irregularity, such as failure to obtain an environmental impact assessment. I cannot adopt that view of the
matter, even though I acknowledge its expediency, because I would then be interpreting the procedural requirements as
to admissibility after first appraising the substance of the dispute, and thus in a manner which would be methodologically
incorrect. However, I would also refer to the view which I develop in footnote 75, below.
97.
Accordingly, no inference may be drawn directly, either from the obligations imposed on the
Commission on adoption of the contested act or from the provisions of Directive 85/337, to the effect that
the contested act of the Commission individually concerned the appellant individuals within the meaning
of the fourth paragraph of art 173 of the Treaty, as interpreted in the courts case law.
98.
(bb) In light of the foregoing, the Court of First Instance in fact faithfully followed the case law
established hitherto. If the sole criterion of correct interpretation of the fourth paragraph of art 173 of the
Treaty is the reiteration of the viewpoint hitherto judicially accepted, then the order appealed against is
unimpeachable.
99.
Nevertheless, I take the view that the court should examine the possibility of taking a further step
forward from certain of its hitherto settled positions. The point on which I consider it expedient to submit to
particular examination the solution adopted by the Court of First Instance, and on which the need for
advancement in the case law is brought into sharp relief, is that part of the lower courts reasoning in
which the Commissions contested decision is deemed not to concern the appellants 657 individually on
the ground that it affected them in the same way as any other person living, staying or carrying on
business on Gran Canaria and Tenerife. According to the Court of First Instance, the contested decision
for them is a measure whose effects are likely to impinge on, objectively, generally and in the abstract,
various categories of person (see [1995] ECR II-2205 (para 54)).
100.
In the first place, I consider it relevant to emphasise that the general and abstract nature of the
impingement on the appellant individuals, on which the order of the Court of First Instance dismissing
their action is based, is not due to the legislative nature of the Commissions contested decision. The
significance of that point may, of course, be doubted. In accordance with existing case law, if a person is
affected by an act, whether of an individual nature or in the nature of a regulation, in a general and
abstract manner, that finding suffices to deny that person locus standi, without the need for further
distinction as between the legislative or non-legislative nature of that act 64
64
See eg the judgment in Union Deutsche Lebensmittelwerke GmbH v EC Commission Case 97/85 [1987] ECR 2265.
Proceedings brought by sellers of margarine against the Commission decision in favour of Germany in connection with
the promotion of sales of butter in the West Berlin market were held to be inadmissible. According to the courts
judgment, although the contested decision affects the applicants, that is only because of the effects it produces on their
position on the market. In that regard, the decision is of concern to the applicants just as it was to any other person
supplying margarine on the West Berlin market while the contested operation was in progress, and it is not therefore of
individual concern to them for the purposes of the second paragraph of Article 173 of the EEC Treaty (see [1987] ECR
2265 (para 11)).
101.
Yet I do not believe that the nature of the contested act is entirely without importance. When that act is
of a legislative nature, the court is particularly strict in denying individuals a right of action, precisely in
order to safeguard the legislative nature of the act (see para 92, above). In accordance with the expressly
formulated intention of the framers of the Treaty, a rule of Community law cannot form the subject matter
of proceedings brought by persons other than those mentioned in the second paragraph of art 173 of the
Treaty. That specific bar does not apply in cases where the contested act does not contain rules of law,
thus where the general and objective nature of the results produced by the act are due not to its
legislative nature but to its subject matter. In this problematical context, I believe the appellants
submission as to the particular nature of the consequences which an intervention in the environment has,
or is likely to have, to be worthy of consideration.
102.
For environmental protection is indeed a matter of general interest. Conservation of the environment is
a legal interest theoretically shared by all natural persons; it thus has a communal dimension 65.
Furthermore, the more significant is the intervention in or impingement on the environment, the greater is
the number of persons affected thereby.
65
For that reason, moreover, it has been recognized in certain member states as a fundamental social right.
103.
That unexceptionable statement cannot of course lead, on account of the special nature of the
environmental legal interest, to the setting aside of the procedural requirements laid down in the fourth
paragraph of art 173 of the Treaty. The conferral of a right of action before the Court of First Instance on
every person whose interest in conservation of the environment is affected by an act of a Community
institution would be tantamount to acceptance of an actio popularis in all cases having an environmental
dimension. As I stated at paras 53 and 76, above, a departure in the case law in that direction is
impossible because, apart from the practical obstacles which would be encountered, it would run counter
to the letter of the fourth paragraph of art 173 of the Treaty. It would equally be impossible to 658 lay
down specifically for cases raising issues of environmental protection requirements as to locus standi
which differ from those contained in the above mentioned provision. In the final analysis, the starting-point
for appraisal of locus standi cannot but be the same in all cases, irrespective of the subject matter of the
dispute: the applicant must be individually affected by the act which he contests.
104.
The points which I have made concerning the particular characteristics of the legal interest in the
environment and its protection are not intended to overturn the settled positions described above, but to
secure what is, in my view, the correct application of the fourth paragraph of art 173 of the Treaty 66. In
light of the particular nature of the issue of environmental protection, I consider that the Community
judicature, in particular in cases where that protection is likely to have been undermined by a non-
legislative act of a Community body, must not rest content with the self-evident finding that the likely harm
to the environment by its very nature affects categories of persons in a general, objective and abstract
manner, and must not, on that ground alone, dismiss the action brought. That is particularly so when the
Community body was under a specific and clear obligation to take account, on adoption of the contested
decision, of the factor of conservation of the environment (see paras 62 to 65, above). On this point, then,
I would draw the attention of the court to a possible and, in my view, appropriate easing of the
requirements laid down in the case law. Allow me to explain:
66
I believe, moreover, that judicial protection within a legal order governed by the rule of law must seek to safeguard the
rights and interests conferred by that legal order on persons subject to it. The procedural dimension of the legal interest,
as the precondition of admissibility of a legal action, cannot be distinguished in an absolute manner from the substantive
dimension of the legal interest, which the legal order seeks to safeguard in favour of the person entitled. Thus, account
should be taken of the particular nature of each interest protected by the Community legal order in determining the
specific procedural conditions under which the person in whose favour the rules enshrining that interest were created
may seek judicial assistance in upholding those principles. I further believe that to interpret the written procedural rules
in such a manner as entirely to debar a person entitled to a right or legal interest (in the substantive sense of that term)
from access to justice to defend his interests under the legal order, first, renders nugatory recognition by substantive law
of those rights and legal interests and, secondly, must be regarded as wrong in law, inasmuch as the procedural
provisions are laid down by the legal order in order to provide a structural framework, in so far as practicable, to give
effect to the rights or legal interests conferred on persons subject to it, and notabsolutely and uniformlyin order
entirely to debar them from judicial protection. Otherwise, if persons enjoying the protection of certain rules of law are
completely debarred by procedural rules from obtaining judicial protection, the legal order is simply abdicating its
function.
A decision which has an impact on the environment does indeed affect, or may affect, large categories
of citizens in a general and abstract manner. None the less, it is not impossible for one or more of the
persons affected, who constitute a closed class, to be particularly affected, and thus to be distinguished
from any other person, that is to say to be differentiated for the purposes of the fourth paragraph of art
173 of the Treaty. An intervention in the environment, such as that in point in the present case, is located
in a specific geographical area, and the extent of its impact is lessened the further away one is from the
area of the intervention67. Accordingly, persons close to the construction works suffer its consequences in
a different, more 659 intense manner than persons farther away, the latter being at a greater radius from
the epicentre of the intervention in the environment. By way of logical extension, it may be argued that
persons near the epicentre comprise a particularly closed and defined class, who find themselves in a
situation which differentiates them from any other person. It is then the task of the courts to determine, on
the basis of the appropriate criteria, the breadth of that closed class, the width of its radius. By logical
extension, persons within that class should be regarded as having locus standi to bring an action against
the decision occasioning consequences for the environment.
67
This phenomenon may be likened to the throwing of a stone into a lake which creates on the surface of the water a
series of concentric circles. Etymologically, moreover, the notion of a circle is inherent in the term environment. For
example, in Greek, the word for environment (perivallon) comes from pen (around) and vallo (throw); in French or
English from the word envirum; and the German equivalent Umwelt is made up of um (around) and Welt (world).
Thus, that term refers to an object which encompasses something else, that is to say encloses and embraces it.
105.
The criteria may not only be geographical. Geographical proximityreferred to in art 130r(2) of the
Treaty68is certainly useful, particularly in cases such as the present one, but will have to be weighed
together with the nature of the consequences which the intervention in the environment will or is likely to
have69, and principally having regard to the extent, that is to say the gravity, of those consequences 70.
Those are, moreover, the matters chiefly taken into account by the national courts in the member states in
disputes of this kind71.
68
Community policy shall be based on the precautionary principle and on the principles that preventive action should
be taken, that environmental damage should as a priority be rectified at source (my emphasis).
69
Eg construction of a conventional power station would be dealt with differently from that of a nuclear power station.
70
The gravity of the consequences was, moreover, one of the basic criteria taken into account in drawing up the annexes
to Directive 85/337 and distinguishing the works for which a mandatory environmental impact assessment is required
from those for which such assessment is optional.
71
See eg: English law: in R v Secretary of State for Trade and Industry, ex p Duddridge [1995] ELR 151 the decision of a
public authority not to limit by regulation electromagnetic emissions from electricity cables may be challenged before the
courts by parents residing in the area in which new electricity cables are placed, relying solely on the increased danger
of leukaemia to which their children are exposed as a specific consequence of high electromagnetic levels. Belgian law:
Conseil dtat, ville de Lige et Heze, 20.9.1991, No 37.676 Proceedings by neighbour to quash decision approving
installation of plant using substances harmful to environment held to be admissible. Netherlands law: Raad Van State,
Afdeling Bestuursrechtspraak (Council of State, Administrative Law Section), 18.6.96, AB 1996, 313. Inhabitants of a
village may invoke expected reduction in road safety in their village in order to challenge projected works. German law:
Bundesverwaltungsgericht (Fed Admin Ct), 1.128Z BVerwGE 66 p 307 (the crab-fishermen case): proceedings held to
be admissible brought by fishermen against decision approving dumping at sea of liquid toxic waste on ground of
reduction in fish population as a result of dumping of waste. Italian law: TAR Lazio, 20.1.95, No 62, Foro Italiano 1995,
11-460. Inhabitants of an area may invoke their right to quality of life (interesse di vita) in order to challenge permission
to build shopping and trading centre in their area. Greek law: Simvoulio tis Epikratias (Council of State) 2281/1992:
Inhabitant of the centre of a large town held to have locus standi to seek the quashing of decisions authorising
clearance of wooded area on edge of town. Held that the town and threatened woods belonged to same geographical
basin which constituted an unbroken ekistic whole with very few green spaces in constant diminution. Thus, the
unfavourable consequences for the ecological balance and for the quality of life of its inhabitants of the decisions
leading to clearance of a wooded area in that basin are experienced not only by those in its immediate vicinity but also
by those in more distant and lower-lying areas, and indeed in some cases more intensely by the latter. French law:
Vicinity constitutes the principal criterion of locus standi for natural persons in planning cases (Conseil dtat, 22.10.86,
Reynaud, Lebon, p 652). In determining vicinity regard is had, in addition to distance from proposed works, to nature
and gravity of consequences arising. Thus, an applicant challenging building permit for large shopping centre (Conseil
dtat, 24.6.91, Soc Interprovence Cte dAzur Lebon, p 1110) does not need to be in such close proximity to the works
as an applicant challenging construction works having less significant environmental impact (CE 17.6.91, Renauld,
Lebon, p 1110). See also R Chapus, Droit du Contentieur Administratif, LGDJ, 6th edn, 1996, No 438).
106.
That reasoning is not entirely foreign to existing case law. As I have said, it is possible for an act to
concern both an open class of persons (in environmental matters that class is especially wide) without
locus standi to challenge it and a closed class of persons who do have that procedural possibility (see my
observations on the Sofrimport [1990] ECR I-2477 at paras 84ff, above). Furthermore, the gravity of the
impact which a measure has or may have on a person may bring about a situation which distinguishes
that person from all others, as was held to be the case in Extramet and Codorniu72.
72
Nevertheless, it cannot of course be maintained that the solution here advocated may be directly drawn from dicta in the
courts existing case law. Those dicta are merely indicative of the interpretative possibilities open to the Community
judicature in the context of the application of the fourth paragraph of art 173 of the Treaty.
107.
The interpretative approach I am advocating constitutes, in my view, the appropriate way, in cases
such as this, in which to particularise the procedural condition that the contested act must concern the
applicant individually. In my opinion, it cannot be maintained that this approach no longer seeks to
differentiate the applicant but to establish whether the applicant is affected personally by the act 73. The
applicants individual relationship to the contested act continues to be the decisive criterion also under the
solution now advanced. Admittedly, on this view of the matter, the requirement of differentiation is
assimilated to that of the existence of an individual legal interest and is perhaps identical with it, albeit that
the Community judicature has hitherto not been accustomed to that assimilation. I do not believe,
however, that, in particular in cases such as the present one, to approximate the courts reasoning on the
individual nature of the effect on the applicant to the reasoning followed by the majority of national courts
in determining the legal interest of the individual, runs counter to the formulation and spirit of the fourth
paragraph of art 173 of the Treaty or to the underlying rationale of the courts existing case law, even if it
does not constitute a linear continuation of that case law.
73
On that point I refer to the relevant arguments of the Commission at para 33, above.
108.
Moreover, I do not believe that the above class of persons having locus standi which will emerge from
the application of the interpretative approach advocated is not sufficiently closed and defined, especially
if it comprises persons who already enjoy, before the entry into force of the contested act, the
environmental interests which that act is likely to affect (that criterion is also to be 660 found in Sofrimport,
Codorniu and Extramet). Therefore, protection should be afforded to natural persons who had previously
secured, perhaps even over a long period of time, a quality of life which is likely to be particularly severely
affected by the act of the Community institution. It is worth remembering that the court, in its case law to
date, appears to accept the locus standi of non-privileged parties in cases where they invoke the
protection of an acquired right. At least, that interpretation may be inferred from the judgments in Bock,
Piraiki-Patraiki and Sofrimport. I consider therefore that the situation of a natural person who was already
enjoying environmental protection of a certain quality, before the alteration likely to be brought about by
the contested act of the Community institution, is analogous to the situation of the applicants in the above
cases and is equally deserving of judicial protection.
109.
Again, the adequacy of the definition of the closed class of natural persons with locus standi depends
on the criteria which the Community judicature will apply. I have already said that, in my view, the severity
with which the quality of life of the applicant, or any other interest connected with the environment, is likely
to be affected will be particularly considerable so as to bring him within the class of persons having locus
standi, regard being had to the nature of the environmental intervention and the applicants situation.
However, the criterion cannot be a mathematical one. A Community act concerning construction works,
such as an electricity-generating station, irrespective of whether it is built on an island with many
inhabitants, such as Gran Canaria or Tenerife, or on an island with very few, affects them either generally
and in an abstract mannerin which case no question of locus standi arisesor individually, irrespective
of their number. The criteria by which it is to be judged whether an applicant has locus standi remain the
same.
661
110.
I now come to the application of the above observations to the present case. The natural persons who
brought proceedings before the Court of First Instance are not relying on precisely the same legal and
factual situations. Certain of them say that they reside in areas which are a short distance from the works
in question, others that they are owners of real estate in those areas, and others that they carry on some
occupational activity there. Others refer to the negative impact which the construction works in question
will have on the health of inhabitants, on tourism, on fishing, on farming, education of the young, local
flora and fauna or occupations in connection with windsurfing. Finally, some of the parties cite health
problems associated with the impact on the environment of the construction works.
111.
The above submissions and the factual evidence relating to them were taken into consideration by the
Court of First Instance, which examined them at paras 35 and 36 of the order appealed against and
concluded that the action should be dismissed. The legal classification of the above submissions and
evidence falls within the purview of appellate review. However, contrary to the appellants assertions, and
again in light of the restrictive interpretation, as set out above, of the fourth paragraph of art 173 of the
Treaty, I do not consider that the Court of First Instance erred on this point. It did not have before it
sufficient evidence for it to accept that the probable impingement on the environment individually affects
the natural persons belonging to the closed class and, specifically, that the applicants before it are
affected, by virtue of the legal and factual situation peculiar to them, in such a way as to differentiate them
from all other persons. Thus, the Court of First Instancecorrectlydid not deduce from the matters
relied on by the applicants that the latter were differentiated in regard to the contested act and thus had
locus standi to bring an action under art 173.
112.
In particular, certain of the applicants vaguely74 relied on the fact that they reside very close to the
units under construction, without, however, its being possible to deduce from that unsupported
submission that their situation differs from that of other persons. Nor is it possible to discern the reason
why arable production, fishing, tourism or other activities are affected by the construction works in
question, and to what extent, or whether the likely impact on such activities especially affects the
applicants with particular severity, so as to justify granting them locus standi. Equally general and abstract
is the invocation of harm to health likely to be occasioned by the carrying out of the works in question.
74
With the sole exception of one appellant who, without giving further particulars, merely stated that she is the owner of
real estate ten kilometres away from the construction works in question.
113.
Subject to those essential clarifications, I consider that the view taken by the Court of First Instance in
para 54 of the order appealed against is correct 75.
75
Nevertheless, there are also arguments in favour of precisely the opposite viewpoint, which have as the major premiss
of their legal reasoning the interpretative approach which I advocate above. In fact, in the present case, the Commission
is under a clear and specific obligation to monitor whether the works financed are being carried out in accordance with
Directive 85/337. Under the applicable legislation, commencement and continuation of the construction of the electricity
generating stations, such as the ones in question, depend upon the prior obtaining of an environmental impact
assessment and, hence, it may be presumed that those works may have an unfavourable impact on the environment.
The importance attached by both Community and national law to that assessment should indeed be emphasised.
Whether those works can be implemented and under what specific terms and conditions will in the end be determined
by that assessment. Prior to completion of the assessment, it is not possible accurately to determine the impact which
the works in question will have on the environment or, a fortiori, whether those works should be carried out and, by
logical extension, whether they should be financed by Community funds. Accordingly, it is perhaps excessively strict for
individuals desirous of challenging a Commission decision continuing financing of the works in question to be required
fully to prove the damage they are likely to sustain as a result of those works, since, precisely because there is no
environmental impact assessment, the consequences of the works in question for the environment remain essentially
unknown. A special rule should thus be implied that, when there is no environmental impact assessment for a given set
of works, persons challenging the Commission decision granting financial aid for the carrying out of those works, when
required to show why the contested act affects them individually in accordance with the provisions of the fourth
paragraph of art 173 of the Treaty, should not be obliged to provide full and concrete proof of the effects on their
individual situations owing to the actual or potential environmental impact of the works financed. It may then suffice for
them to invoke their status as residents of the wider area in which the works in question are being carried out or as
persons carrying on occupations in that area. Under that interpretation, the matters relied on by the appellants in the
present case were in principle sufficient for them to be deemed to be affected individually by the contested act, in which
case the order of the Court of First Instance is wrong in law and should be set aside.
116.
None the less, the appellant associations argue that, in general, legal persons which represent the
interests of a group of persons should be recognised as having the right to bring proceedings against a
Community act where one or more of their members would have locus standi to do so or where that legal
person can show the existence of a specific right or interest. As regards the second alternative basis of
locus standi which they put forwardwhich, it is to be noted, finds no support in existing case lawthe
appellant associations make the following observations: in their view, the court ought to recognise the
existence of a specific interest on the part of environmental associations to bring annulment proceedings
against acts which jeopardise environmental protection, even where their members or other natural
persons cannot show themselves to be individually affected by such an act. In that way, it is contended on
behalf of the appellants, it is possible to ensure adequate judicial protection in favour of natural persons
who, though affected by a Community act having negative consequences on the environment, do not 663
comprise a closed class of persons, in accordance with the courts case law cited above, and thus cannot
directly challenge such an act78.
78
The appellant associations also stress that to confer on them locus standi would enable judicial review of Community
measures concerning the environment to be exercised in a more consistent and coherent manner.
117.
The court is thus invited to embark on a further extension of its case law. For my part, I consider it
desirable to set out the following observations. First, I believe that a relaxation by the court, to the extent
sought, of the criteria of admissibility could be abused and lead to aberrant consequences. Natural
persons without locus standi under the fourth paragraph of art 173 of the Treaty could circumvent that
procedural impediment by setting up an environmental association. Moreover, whilst the number of
natural persons, that is to say citizens of the European Union, however high it may be, none the less
remains limited, the number of environmental associations capable of being created is, at least in theory,
infinite. But, even if that obstacle could be overcome, for example, by conferring locus standi only on
associations constituted prior to adoption of the contested measure, account would have to be taken of
the fact that, within the European Union, the number of legal persons which have as their object the
protection and conservation of the environment is today particularly high. If the court were ultimately to
follow the proposal of the appellant associations, in future every measure of a Community institution
concerning the environment or having an impact on it could be expected, on each occasion, to form the
subject matter of proceedings brought by a plethora of environmental associations.
118.
For those reasons and notwithstanding the recent developments in national and international law, I
continue to have significant reservations concerning the expediency of the departure from existing case
law sought by the appellant associations. Moreoverand this I think is the decisive argumentto give to
environmental associations the possibility of challenging Community measures concerning the
environment would, notwithstanding the positive consequences which might well flow from this, run
counter to the letter of the law, in this case of art 173 of the Treaty. The Community legislature has divided
applicants into two categories, namely those mentioned in the second and those mentioned in the fourth
paragraphs of art 173. To accept the interpretative approach advocated by the appellant associations
would be tantamount to creating a third category extra legem. In other words, between the privileged
parties mentioned in the second para, who are not required to invoke any legal interest, and the parties
mentioned in the fourth paragraph, who must be directly and individually affected by the contested
measure, there would be interposed the environmental association, which would be presumed to have
locus standi whenever the contested measure concerns the environment or any impact on it. In
conclusion, I believe that the departure from case law advocated, irrespective of whether or not it is
desirable, remains unfeasible79 on the basis of existing written law.
79
Moreover, I do not see why locus standi should be granted in that way as a privilege only to environmental associations
and not to other legal persons of a representative nature. Invocation of the special nature of environmental protection,
extensively canvassed above, cannot, in my view, justify different treatment of environmental associations in relation to
associations which have other, analogous objects.
119.
From all the foregoing, I conclude that the order of the Court of First Instance appealed against is
unimpeachable and there can be no question of its being 664 set aside. Moreover, there is no need to
examine the remaining objections of inadmissibility raised by the Commission and Spain, that is to say
whether a decision to continue financing infrastructure works can directly affect the rights or interests of
the appellants or whether that measure, by its very nature, can constitute the subject matter of
proceedings under the fourth paragraph of art 173 of the Treaty.
VIICONCLUSION
120.
In light of the foregoing I propose that the Court of Justice should: dismiss the appeal in its entirety,
and order the appellants to pay the costs.
2 April 1998.
Costs
36.
Under art 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if
they have been asked for in the successful partys pleadings. Since the appellants have been
unsuccessful in their appeal, they must be ordered to pay the costs. Under art 69(4) of the Rules of
Procedure, the Kingdom of Spain, which intervened in these proceedings, is to bear its own costs.
On those grounds, the Court of Justice hereby: (1) dismisses the appeal; (2) orders the appellants to
pay the costs; (3) orders the Kingdom of Spain to bear its own costs.
672
In the first case, the plaintiff, a Luxembourg national, purchased a pair of spectacles from an optician
established in Belgium, on a prescription from an opthalmologist established in Luxembourg. However, in
accordance with the Luxembourg Code des Assurances Sociales, which provided that treatment abroad
had to be authorised by the competent sickness fund, the defendant insurance fund refused to reimburse
the plaintiff, since the spectacles had been purchased without its prior authorisation. The plaintiff, relying
on art 30 (free movement of goods) of the EC Treaty, contested that decision before the Social Insurance
Arbitration Council, which stayed the proceedings and referred to the Court of Justice of the European
Communities the question whether the relevant measures were compatible with arts 30 1 and 362 of the
Treaty.
1
Article 30, so far as material, provides: Quantitative restrictions on imports and all measures having equivalent effect
shall be prohibited between Member States.
2
Article 36, so far as material, provides: Articles 30 to 34 shall not preclude prohibitions or restrictions on imports,
exports or goods in transit justified on grounds of the protection of health and life of humans
In the second case, the plaintiffs sickness insurance fund, UCM, rejected a request made in
accordance with the Luxembourg Code des Assurances Sociales 673 by a doctor established in
Luxembourg for authorisation for the plaintiffs daughter, a minor, to receive treatment from an
orthodontist in Germany on the ground that the proposed treatment was not urgent and that it could be
provided in Luxembourg. That decision was confirmed by the UCM board and the plaintiff appealed to the
Social Insurance Arbitration Council, contending that the provisions relied on were contrary to art 59 3 (free
movement of services) of the EC Treaty. His appeal was dismissed and he appealed to the Higher Social
Insurance Council, which upheld the contested decision on the ground that the national provisions relied
on were consistent with art 224 of Council Regulation (EEC) 1408/71 on the application of social security
schemes to employed persons, to self-employed persons and to members of their families moving within
the Community. The plaintiff appealed to the Cour de Cassation, which stayed the proceedings and
referred to the Court of Justice the question whether the relevant measures were compatible with arts 59
and 605 of the Treaty.
3
Article 59, so far as material, provides: restrictions on freedom to provide services within the Community shall be
abolished in respect of nationals of Member States who are established in a State of the Community other than that of
the person for whom the services are intended.
4
Article 22, so far as material, is set out at p 710 h to p 711 b, post
5
Article 60, so far as material, provides: Services shall, in particular include (d) activities of the professions.
Before the Court of Justice the Luxembourg government contended in both cases (i) that the relevant
measures did not fall within the scope of the Treaty since they concerned social security and therefore
should be examined solely from the point of view of art 22 of Regulation 1408/71, and (ii) that any barriers
to free movement presented by the measures were objectively justified under arts 36 and 56 6 since their
purpose was to control health expenditure and to guarantee the protection of public health.
6
Article 56, so far as material, provides: (1) The provisions of this Chapter shall not prejudice the applicability of
provisions providing for special treatment for foreign nationals on grounds of public health.
Held (1) Measures adopted by member states in social security matters which might affect the
marketing of medical products and indirectly influence the possibilities of importing those products were
subject to the Community rules on the free movement of goods; and the special nature of certain services
did not remove them from the ambit of the fundamental principle of freedom of movement. Consequently,
the fact that the rules at issue fell within the sphere of social security could not exclude the application of
arts 30 and 59. Further, the fact that a national measure was consistent with a provision of secondary
legislation, such as art 22 of Regulation 1408/71, did not have the effect of removing that measure from
the scope of the provisions of the Treaty. Moreover, on its true construction, art 22 was not intended to
regulate and therefore did not in any way prevent the reimbursement by member states, at the tariff in
force in the competent state, of costs incurred in connection with treatment provided in another member
state, even without prior authorisation (see p 712 d g to j, p 717 h and p 718 c to f, post); Duphar BV v
Netherlands Case 238/ 67482 [1984] ECR 523 and Criminal proceedings against Webb Case 279/80
[1981] ECR 3305 applied.
(2) Articles 30 and 36 of the Treaty precluded national rules under which a social security institution of
a member state refused to reimburse an insured person, on a flat-rate basis, the cost of a pair of
spectacles with corrective lenses purchased from an optician established in another member state, on the
ground that prior authorisation was required for the purchase of any medical product abroad. Such rules
encouraged insured persons to purchase those products in Luxembourg rather than in other member
states and were liable to curb the import of spectacles assembled in those states and therefore
constituted a barrier to the free movement of goods. Moreover, they could not be justified by purely
economic objectives and it was clear that reimbursement at a flat rate of the cost of spectacles purchased
in other member states had no effect on the financing or balance of the social security system.
Furthermore, the art 36 derogation on grounds of public health was not applicable since the conditions for
taking up and pursuing a profession had been the subject of regulation at Community level, so that the
purchase of spectacles from an optician established in another member state provided guarantees
equivalent to those afforded by a sale on national territory (see p 713 b to d j to p 714 a d to j to p 715 a,
post); EC Commission v France Case 18/84 [1985] ECR 1339 and EC Commission v Germany Case C-
62/90 [1992] ECR I-2575 applied.
(3) Articles 59 and 60 of the Treaty precluded national rules under which reimbursement, in
accordance with the scale of the insuring state, of the cost of dental treatment provided by an orthodontist
established in another member state was subject to authorisation by the insured persons social security
institution, since such rules deterred insured persons from approaching providers of medical services
established in another member state and constituted, for them and their patients, a barrier to freedom to
provide services. Moreover, they were not justified on the grounds of public health, since it had not been
shown that they were necessary to provide a balanced medical and hospital service accessible to all or
that they were indispensable for the maintenance of an essential treatment facility or medical service on
national territory. Nor were they necessary to protect the quality of medical services provided in other
member states, since doctors and dentists established in other members states had to be afforded all
guarantees equivalent to those accorded to doctors and dentists established on national territory, for the
purposes of freedom to provide services (see p 719 b to d j, p 720 f to p 721 e, post) Gl v
Regierungsprsident Dsseldorf Case 131/85 [1986] ECR 1573, Syndesmos ton en Elladi Touristikon kai
Taxidiotikon Grafeion v Ergasias Case C-398/95 [1997] ECR I-3091, Bachmann v Belgium Case C-
204/90 [1992] ECR I-249 and European Commission v France Case C-381/93 [1994] ECR I-5145,
applied.
Notes
For exceptions to the principle of free movement of goods, see 52 Halsburys Laws (4th edn) paras 1298,
12112.
For exceptions to the principle of freedom to provide services, see ibid, para 1623.
For the EC Treaty, arts 30, 36, 56, 59 and 60, see 50 Halsburys Statutues (4th edn) 276, 278, 286,
287, 288.
675
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Compensation de lAssurance Viellesse des Artisans (Cancaval) Joined cases C-159160/91 [1993]
ECR I-637.
Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837.
R v Secretary of State for Health, ex p Richardson Case C-137/94 [1995] All ER (EC) 865, [1995] ECR I-
3407, ECJ.
Rewe-Zentral AG v Bundesmonopolverwaltung fr Branntwein Case 120/78 [1979] ECR 649.
Rijkinstituut voor de Sociale Verzekering der Zelfstandingen v Wolf Case 154/87 [1988] ECR 3897.
Rnfeldt v Bundesversicherungsanstalt fr Angestellte Case C-227/89 [1991] ECR I-323.
Sger v Dennemeyer & Co Ltd Case C-76/90 [1991] ECR I-4221.
Schumacher v Hauptzollamt Frankfurt am Main-Ost Case 215/87 [1989] ECR 617.
Socit Civile Immobilire Parodi v Banque H Albert de Bary et Cie Case C-222/95 [1997] All ER (EC)
946, [1997] ECR I-3899, ECJ.
Society for the Protection of Unborn Children Ireland Ltd v Grogan Case C-159/90 [1991] ECR I-4685.
Sodemare SA v Regione Lombardia Case C-70/95 [1997] ECR I-3395.
Spruyt v Bestuur van de Sociale Verzekeringsbank Case 284/84 [1986] ECR 685.
Stanton v Inasti (Institute national dassurances sociales) Case 143/87 [1988] ECR 3877.
Stichting Collectieve Antennevoorziening Gouda v Commissariaat voor de Media Case C-288/89 [1991]
ECR I-4007.
Stber v Bundesanstalt fr Arbeit Joined cases C-45/95 [1997] ECR I-511.
Svensson v Ministre du Logement et de lUrbanisme Case C-484/93 [1995] ECR I-3955.
Syndesmos ton en Elladi Touristikon kai Taxidiotikon Grafeion v Ergasias Case C-398/95 [1997] ECR I-
3091.
Triches v Casse de Compensation pour Allocations Familales de la Rgion Ligeoise Case 19/76 [1976]
ECR 1243.
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER
(EC) 97, [1995] ECR I-4921, ECJ.
van Binsbergen v Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid Case 33/74 [1974] ECR
1299.
Webb (Criminal proceedings against) Case 279/80 [1981] ECR 3305.
Wirth v Landeshauptstadt Hannover Case C-109/92 [1993] ECR I-6447.
677
References
16 September 1997.
RELEVANT LEGISLATION
4.
Article 20(1) of the Luxembourg Social Insurance Code, which was enacted on 27 July 1992 and
entered into force on 1 January 1994, provides that, with the exception of emergency care received in the
event of accident or illness abroad, insured persons may receive medical treatment abroad or have
recourse to a treatment centre or a centre providing ancillary facilities abroad only after obtaining the prior
authorisation of the competent social security institution. The terms and conditions for granting
authorisation are laid down by arts 25 to 27 of the statutes of the Union des Caisses de Maladie (the UCM
statutes), in the version which entered into force on 1 January 1995. In particular, the statutes provide that
authorisation may not be given for services which are not eligible for reimbursement under the national
rules (art 25), that the cost of duly authorised treatment is to be reimbursed in accordance with the tariffs
applicable to persons insured in the state in which the treatment takes place (art 26), and that
authorisation will be granted only after a medical assessment and on production of a written request from
a doctor established in Luxembourg indicating the doctor or hospital centre recommended to the insured
person and the criteria and facts which make it impossible for the treatment in question to be carried out
in Luxembourg (art 27).
It should also be noted, since those national rules were not yet in force at the time material to Case C-
120/95, that the relevant provisions of the former code wereso far as is relevant hereessentially
identical. In particular, the question of treatment abroad and prior authorisation thereof was governed by
art 60(3), 680which is essentially the same as art 20(1) of the code currently in force. Furthermore, the
rules governing reimbursement of the cost of spectacles were at the material time contained in art 78 of
the UCM statutes, which referred to the relevant collective agreement. For present purposes it is sufficient
to note that then, as now, reimbursement was on a flat-rate basis with a ceiling of Lf 1,600 for frames (see
art 119 of the current UCM statutes).
5.
As regards the relevant Community legislation, apart from the provisions on the movement of goods
and provision of services, art 22 of Council Regulation (EEC) 1408/71 on the application of social security
schemes to employed persons, to self-employed persons and to members of their families moving within
the Community7, is of particular significance, as we shall see below.
7
See the version consolidated by Council Regulation (EC) 118/97 (OJ 1997 L28 p 1).
8
Article 22a, inserted by Council Regulation (EC) 3095/95 (OJ 1995 L335 p 1), provides as follows: Notwithstanding
Article 2 of the Regulation, Article 22(1)(a) and (c) shall also apply to persons who are nationals of a Member State and
are insured under the legislation of a Member State and to the members of their families residing with them. Following
that amendment, therefore, it is no longer necessary to be a worker or a member of a workers family in order to rely on
art 22; it is enough to be insured, irrespective of the basis on which one is insured.
This article therefore, like the Luxembourg legislation challenged in this case, makes reimbursement of
medical expenses incurred in another member state subject to the condition that the insured person (who
received the benefits in question) obtained prior authorisation from the competent social security 681
institution. Only if that is the case will the competent institution bear the costs incurred 9.
9
Article 36(1) of the regulation provides that benefits in kind provided in accordance with the provisions of this chapter by
the institution of one Member State on behalf of the institution of another Member State shall be fully refunded.
Case C-120/95
6.
The dispute in Case C-120/95 is between Mr Decker, a Luxembourg national, and the Caisse de
Maladie des Employs Privs (the fund) and arises from the latters refusal to reimburse the cost of a pair
of spectacles purchased from an optician in Arlon (Belgium) on production of a prescription from an
ophthalmologist in Luxembourg. Arguing that this refusal, based on the ground that he had failed to seek
prior authorisation as required under the relevant legislation, was contrary to the Community rules on the
free movement of goods, Mr Decker complained to the fund and subsequently appealed to the Conseil
Arbitral des Assurances Sociales10.
10
The Conseil Arbitral des Assurances Sociales dismissed the appeal by order of 24 August 1993. It likewise dismissed Mr
Deckers appeal against that order by decision of 20 October 1993. It was after the setting aside of that decision by the
Cour de Cassation that the case was remitted to the Conseil Arbitral des Assurances Sociales.
7.
For the purpose of resolving the dispute before it, the latter body decided to refer the following
question to the Court of Justice for a preliminary ruling:
Is Article 60 of the Luxembourg Code des Assurances Sociales, under which a social security
institution of Member State A refuses to reimburse to an insured person, who is a national of
Member State A, the cost of spectacles with corrective lenses, prescribed by a doctor established
in Member State A but purchased from an optician established in Member State B, on the ground
that all medical treatment abroad must be authorised in advance by the above social security
institution, compatible with Articles 30 and 36 of the EEC Treaty, in so far as it penalises in general
the importation by private individuals of medicinal products or, as in this case, spectacles from
other Member States?
Case C-158/96
8.
The plaintiff in Case C-158/96 is another Luxembourg national, a Mr Kohll, who, unlike Mr Decker, did
request prior authorisation from the Union des Caisses de Maladie (the UCM), with which he is insured, to
enable his daughter Aline, who is a minor, to receive orthodontic treatment in Trier (Germany). His request
was rejected, however, by decision of 7 February 1994, on the grounds, first, that the treatment sought
was not urgent and, secondly, that suitable treatment of that kind could be obtained in Luxembourg.
The Conseil Arbitral des Assurances Sociales, before which Mr Kohll challenged the refusal, since
confirmed by the UCM Management Board, dismissed his appeal by decision of 6 October 1994. Mr Kohll
appealed against that decision to the Conseil Supeneur des Assurances Sociales which, by decision of 17
July 1995, upheld the contested decision on the ground that art 20 of the code and arts 25 and 27 of the
UCM statutes, on which the refusal was based, were fully in accordance with art 22 of the regulation.
682
9.
Finding that the appellate body had considered only whether the Luxembourg rules were consistent
with the regulation, and had not taken any account of the provisions on freedom to provide services, the
Cour de Cassation, before which Mr Kohll challenged the decision of the appellate body, decided that it
was necessary to refer the following questions to the Court of Justice for a preliminary ruling:
(1) Are Articles 59 and 60 of the Treaty establishing the EEC to be interpreted as precluding
rules under which reimbursement of the cost of benefits is subject to authorisation by the insured
persons social security institution if the benefits are provided in a Member State other than the
State in which that person resides?
(2) Is the answer to Question 1 any different if the aim of the rules is to maintain a balanced
medical and hospital service accessible to everyone in a given region?
684
the freedom to provide services includes the freedom, for the recipients of services, to go to
another member state in order to receive a service there and that tourists, persons receiving
medical treatment and persons travelling for the purpose of education or business are to be
regarded as recipients of services. (See the judgment in Luisi v Ministero del Tesoro Joined cases
286/82 and 26/83 [1984] ECR 377 (para 16).)
That being the case, it is equally indisputable, in my view, that rules which make reimbursement of
medical expenses conditional on the medical products and/or services upon which they were incurred
having been purchased within the national territory are quite capable, at least in theory, of having an
adverse effect on trade in goods and services. Suffice it for now to point out that such rules for the very
reason that they deny insured persons reimbursement of medical expenses incurred abroad, unless prior
authorisation has been obtainedmay discourage those concerned from purchasing such products or
from seeking treatment in a member state other than the one in which they reside, which may, in certain
cases, act as a restriction on imports of the relevant products or on the freedom to provide the services in
question.
16.
The applicability of the Treaty rules on the free movement of goods and freedom to provide services
has, however, been called into question, as indicated above, on the grounds that the national measure in
question concerns social security and is alleged to be in accordance with a precise and specific provision
of the regulation. It has been argued that those two considerations, which, as we shall see, are
interrelated, have the effect of taking the contested measure outside the scope of arts 30 and 59. The
following arguments seek to refute that contention, which was supported by the majority of the member
states which submitted observations in the two cases.
The fact that the contested measure concerns social security
17.
Let me begin by remarking that the fact that the national rules in question concern social security by
no means has the effect of removing them, at least not automatically, from the scope of the Community
rules on the movement of goods and provision of services. And I would add straight away that the courts
consistent view that Community law does not detract from the powers of the member states to organise
their social security systems by no means implies that the social security sector constitutes an island
beyond the reach of Community law and that, as a consequence, all national rules relating to social
security fall outside its scope (see the judgment in Duphar BV v Netherlands Case 238/82 [1984] ECR
523 (para 16))12.
12
See also, more recently, the judgment in Sodemare SA v Regione Lombardia Case C-70/95 [1997] ECR I-3395 (para
27). For a comprehensive review of the case law in this area, and its implications, see the opinion of Advocate General
Fennelly, delivered in Sodemare SA [1997] ECR I-3395 (paras 2330).
18.
It is of course true that as Community law stands at present it is for the legislature of each member
state to lay down the conditions creating the right or the obligation to become affiliated to a social security
scheme13, with the result that those subject to such legislation, if it makes affiliation compulsory, have no
13
It is not by chance that this statement is a Constant feature of the case law on the interpretation of Regulation 1408/71.
See, inter alia, the judgments in Coonan v Insurance Officer Case 110/79 [1980] ECR 1445 (para 12) and Paraschi v
Landesversicherungsanstalt Wrttemberg Case C-349/87 [1991] ECR I-4501 (para 15).
685
choice as to which scheme to join. It is also true, as the court held in Poucet v Assurances Gnrales
de Frances (AGF), Pistre v Caisse Autonome Nationale de Compensation de lAssurance Viellesse des
Artisans (Cancaval) Joined cases C-159160/91 [1993] ECR I-637 (para 19), that the activity of sickness
funds, and of the organisations involved in the management of the state social security system, is not an
economic activity and, therefore, the organizations to which it is entrusted are not undertakings within the
meaning of Articles 85 and 86 of the Treaty.
However, the scope of that case law is much narrower and more confined than is claimed by the
member states in arguing that Community law does not apply to social security. It is therefore necessary
to place those decisions in their proper context and to assess their implications correctly.
19.
First of all, it is quite clear that, in the absence of harmonisation at Community level, it is for the
member states to lay down the conditions governing affiliation to the social security system and, at least
in principle, the conditions governing entitlement to social security benefits (see Stber v Bundesanstalt
fr Arbeit Joined cases C-45/95 [1997] ECR I-511 (para 36)). However, the court has also made clear
that the freedom thus left to the member states must not give rise to discrimination between nationals of
the host state and nationals of the other Member States (see Coonan v Insurance Officer Case 110/79
[1980] ECR 1445 (para 12) and Paraschi [1991] ECR I-4501 (para 15)).
In other words, while it is true that the organisation of the social security system remains a matter for
the member states and that the relationship between the social security institutions and their members is
governed by national law, this does not mean that member states may contravene with impunity a
fundamental principle established by the Treaty to secure the free movement of persons, namely the
prohibition of discrimination on grounds of nationality 14.
14
Suffice it to recall that one of the cardinal principles of Regulation 1408/71, although its purpose is limited merely to
coordinating national legislation in this area, is in fact equality of treatment, laid down in art 3(1), between a member
states own nationals and those of other member states resident in the state.
20.
Secondly, the point must be made that while the court did indeed conclude that social security
institutions are not subject to the rules on competition, this applies only in so far as the activity of those
institutions is based on the principle of solidarity, in the sense that the benefits provided are statutory
benefits bearing no relation to the amount of the contributions (see the judgment in Poucet [1993] ECR I-
637 (para 18)). In other words, it is clear that the determining factor in the outcomealthough the court
also referred, in the same judgment, to the exclusively social function performed by those institutions,
whose activity is entirely non-profit-makingwas precisely the fact that the system in question was based
on the principle of solidarity15. This was confirmed in a later judgment in which the court held that where
those (or similar) institutions operate instead a supplementary insurance scheme, based on the funding
principle and with the level of benefits directly linked to the level of
15
A point confirmed, albeit a contrario, in Hfner v Macrotron GmbH Case C-41/90 [1991] ECR I-1979 (para 21), where
the court stated that, in the context of competition law, the concept of an undertaking encompasses every entity
engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed.
686
contributions (the solidarity principle thus not applying), they are to be regarded as undertakings within
the meaning of the Treaty rules on competition (see the judgment in Fdration Franaise Socits
dAssurances v Ministre de lAgriculture et de la Pche Case C-244/94 [1995] ECR I-4013 (paras 17
22)).
In essence, therefore, compulsory affiliation to a particular scheme, although it has the effect of
eliminating all potential competition by other entities or at any rate reducing their activity to a purely
residual sector, is a necessary condition for the operation of a social security scheme based on the
solidarity principle, which depends on everybodys contribution in order that each may benefit. It is
therefore only such institutions as operate social security schemes of this nature that are exempted from
the application of the Community rules on competition.
21.
It is true also that in its judgment in Garcia v La Mutuelle de Prvoyance Sociale Aquitaine Case C-
238/94 [1996] ECR I-1673 (para 13) the court stated that arts 57(2) and 66 of the Treaty, which were the
legal basis for the adoption of the coordinating directives intended to facilitate the taking-up and pursuit of
self-employed activities, could not regulate the field of social security, which is covered by different
provisions of Community law. But this statement, I believe, cannot be interpreted as meaning that the
Treaty rules on the right of establishment and provision of services are inapplicable, by definition, to
national rules on social security16, and it should be read in the light of the particular features of that case.
16
Since the statement was taken, albeit couched in more absolute terms, from my opinion in that case, I must point out
that it was certainly not my intention to arrive at such an result (see [1996] ECR 1-1675 (para 9)). Rather, as may be
seen from the opinion, I was seeking to make the point that in the present state of Community law, none of the
provisions of the Treaty, including those directly concerning the social security sector or social affairs in general, can
serve as a basis for the adoption of measures aimed at dismantling the national social security systems (see footnote
6), where the term dismantling means precisely the destruction of the different systems which exist at present in the
member states. There is no doubt, on the other hand, that if those systems were one day to be harmonised, the proper
legal basis for undertaking the liberalisation (inter alia) of the activity of the institutions which administer them would
indeed be arts 57(2) and 66 of the Treaty.
In view of the fact that that case concerned a challenge to the requirement of compulsory affiliation to
a statutory social security scheme in reliance on the liberalisation introduced by a directive coordinating
national rules on direct insurance other than life assurance, it need only be pointed out that the exclusion
from liberalisation of the activities of bodies operating statutory social security schemes, which is,
moreover, an express provision of that directive, was a necessary corollary to the exemption, already
established, of such activities from the competition rules. Otherwise the obligation to join such schemes
would inevitably have been removed, whereas the court emphasised that the obligation was necessary in
order to ensure that the principle of solidarity is applied and that their financial equilibrium is maintained,
pointing out that, if the obligation was removed, the schemes in question would thus be unable to survive
(see the judgment in Garcia [1996] ECR I-1673 (para 14)).
22.
In the light of the foregoing, it is abundantly clear that the statement that Community law does not
detract from the powers of member states to organise their social security systems means, quite simply,
that Community law does not regulate this area directly, nor does it impinge on it, if its application would
have the effect of jeopardising the survival of social security schemes of the kind described above.
Otherwise, however, member states are bound to comply with 687 Community law even when exercising
the powers reserved to them in the field of social security.
There is no basis for any other conclusion. The fact remains, therefore, that no discrimination based
on nationality is permitted on the territory of a member state, and that, with the exception of the case
where national rules are closely bound up with the operation and survival of the relevant social security
scheme, social security is not exempt from the application of Community law (see para 19, above). In
particular, for the purposes of the present case, we may note that unjustified restrictions on the free
movement of persons (establishment and services) and of goods are not permitted merely because the
benefit conferred on individuals by the relevant Community rules conflicts with a national measure which
in some way relates to social security.
23.
The courts case law on the matter confirms this. For example, the court has acknowledged that, as
Community law stands at present, a member state may consider that the social welfare system it has put
in place, whose implementation is in principle entrusted to the public authorities, [and which] is based on
the principle of solidarity, necessarily requires, in order to achieve its objectives, that the admission of
private operators to the system be subject to the condition that they are non-profit-making; the court
accordingly came to the conclusion that national rules laying down such a requirement are not contrary to
art 52 of the Treaty (see Sodemare [1997] ECR I-3395 (paras 29, 32, 34))17. Clearly, the outcome was
determined by the importance attributed, rightly or wrongly, to the fact that the system in question was
based on the principle of solidarity.
17
The court none the less felt it necessary, in that judgment, to state that the system in question cannot however place
profit-making companies from other Member States in a less favourable factual or legal situation than profit-making
companies from the Member State in which they are established (see [1997] ECR I-3395 (para 33)).
The court has taken an entirely different approach, however, in cases where the national measures,
albeit falling within the sphere of social security, were not of such a kind, on the face of it, as to be
capable of having an adverse effect on the survival of social security schemes based on the principle of
solidarity. For example, in upholding as compatible with art 52 a Belgian measure which denied
laboratories operated by legal persons, whose members were also legal persons, reimbursement of the
cost of clinical biology services performed by them, the court not only pointed out that the legislation in
question applied without distinction to Belgian nationals and those of other member states, but also stated
that there was no evidence that it had been adopted for discriminatory purposes or that it produced
discriminatory effects (see the judgment in EC Commission v Belgium Case 221/85 [1987] ECR 719
(para 11)). Still on the subject of art 52, but on a more general note, the court has stated that member
states are under an obligation to observe its provisions even though, in the absence of Community
legislation on social security for self-employed persons, they retained legislative jurisdiction in this field
(see the judgment in Stanton v Inasti (Institute national dassurances sociales) Case 143/87 [1988] ECR
3877 (para 10))18.
18
See also the judgments of the same date in Rijkinstituut voor de Sociale Verzekering der Zelfstandingen v Wolf Case
154/87 [1988] ECR 3897 (para 10).
24.
The court has also had occasion to state, in relation to the rules on the free movement of goods, that
even measures adopted in the field of social security and which do not relate directly to importation,
depending on the manner of their application and the use made of them may affect the possibilities of
688 marketing the preparations and, to that extent may indirectly influence the possibilities of
importation, thus, potentially, falling foul of art 30 (see the judgment in Duphar [1984] ECR 523 (para
18))19. This would be the case, for instance, of national rules which had the effect of making only domestic
products eligible for reimbursement.
19
See also the judgment in EC Commission v Belgium Case C-249/88 [1991] ECR I-1275 (paras 38, 42), where the court
held that national rules which gave preference, as regards eligibility for reimbursement, only to domestic pharmaceutical
products, were contrary to art 30.
Lastly, in the judgment in Sodemare SA v Regione Lombardia Case C-70/95 [1997] ECR I-3395 (paras
3640), where a possible breach of the rules on the freedom to provide services was also in issue, the
court took pains to explain that in the case in question there was no provision of services within the
meaning of the Treaty. It accordingly ruled:
(40) Article 59 of the Treaty does not cover the situation of a company which, having
established itself in a member state in order to run old peoples homes there, provides services to
residents who, for that purpose, reside in those homes permanently or for an indefinite period.
That statement demonstrates, however, lest there be any remaining doubt, that social security does not
per se fall outside the scope of the Community rules.
25.
In short, the fact that, in the present state of Community law, member states powers in the field of
social security, as in other areas20, remain intact, by no means leaves them free to enact in that field rules
which are contrary to Community law. It follows that the social security nature of the disputed rules does
not, of itself, by any means have the effect of precluding any review of their compatibility with arts 30 and
59 of the Treaty.
20
A similar approach is to be seen, for example, in the area of direct taxation. The court, in its case law in that field, has
consistently held that although, as Community law stands at present, direct taxation does not as such fall within the
purview of the Community, the powers retained by the member states must nevertheless be exercised consistently with
Community law (see Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR
I-225 (para 21); see also, more recently, Futura Participations SA v Administration des Contributions Case C-250/95
[1997] ECR I-2471 (para 19)).
28.
That being so, it would appear, at least on the face of it, that cases such as this do indeed come within
the scope of art 22 of the regulation and are accordingly governed by it. That conclusion, which is not in
dispute in respect of cases where the benefits sought by the insured person consist, for example, in
specialist consultations or treatment (as in the Kohll case), is however disputed in respect of cases where
the benefits sought consist instead of the purchase of medical products and accessories (as in the
Decker case).
Specifically, the European Commission argues that the term benefits in art 22 covers only medical
services in the strict sense and does not extend to medical products and accessories, such as medicines
and spectacles. By contrast, the member states which have intervened (in the Decker case) maintain that
the term covers all benefits necessary for the treatment of a particular ailment and hence all products
necessary for that purpose as well. They further argue that the applicability of art 22 to medical products
and accessories is confirmed by art 19 of Council Regulation (EEC) 574/72 laying down the procedure for
implementing Regulation 1408/7122, which expressly provides that frontier workerswho are entitled to
medical treatment in both their state of residence and their state of employmentmay purchase such
items as medicines and spectacles only in the member state in which those products were prescribed 23.
22
See the amended and updated version published in OJ 1997 L28 p 1.
23
Article 19 of Regulation 574/72 provides: In the case of frontier workers or members of their families, medicinal
products, bandages, spectacles and small appliances may be issued, and laboratory analyses and tests carried out,
only in the territory of the Member State in which they were prescribed, in accordance with the provisions of the
legislation of that Member State, except where the legislation administered by the competent institution or an agreement
concluded between the Member States concerned or the competent authorities of those Member States is more
favourable.
29.
There is no doubt that sickness and maternity benefits, within the meaning of Ch 1 in Title III of the
regulation, of which art 22 forms part, include benefits under legislation concerning invalidity which are in
the nature of medical or surgical benefits (see the judgment in Jordens-Vosters v Bestuur van de 690
Bedrijfsvereniging voor de Leder- en Lederwerkende Industrie Case 69/79 [1980] ECR 75 (para 9))24.
Furthermore, I am not convinced by the Commissions argument that art 19 of Regulation 574/72 has no
application to the present case. While it is true that the provision in question applies only to frontier
workers, whom it requires to purchase medical products and accessories (and to have laboratory
analyses carried out) in the member state where the prescription was made, this is simply because those
workers are the only ones to have access, without prior authorisation, to the benefits in question in two
different member states. It would be illogical, however, to infer that what frontier workers are not allowed
to do, to prevent them from purchasing the relevant products in whichever of the two member states has
more favourable reimbursement terms, other workers in any of the other 14 member states are permitted
to do.
24
The particular case involved the refusal by the Competent social security institution, that of the Netherlands, to
reimburse to a Belgian national expenses which she had incurred in Belgium on pharmaceutical products and
medicines.
That said, I readily concede that where the benefit sought consists, as it does in the Decker case, in
the purchase of a pair of spectacles, or in the purchase of medical products in general, it can hardly be
argued that the treatment in question could not be provided in sufficient time to prevent any deterioration
in the insured persons state of health, in which case art 22 provides that authorisation may not be
refused. But this fact is not conclusive, as it means simply that authorisation will virtually never be granted
for the purchase of medical products and accessories25, save in the case of products (for example, a
particular kind of prosthesis or appliance) which cannot be found in the member state in question.
25
Of course, prior authorisation granted for medical treatment in another member state cannot but also cover expenses
incurred in that state on the purchase of medical products and accessories; this fact is, I believe, indisputable and,
indeed, has not been disputed.
30.
In the final analysis, it is my view that art 22 is intended to apply not only to medical services, in the
narrow sense, as the Commission maintains, but to all benefits involved in a particular type of treatment
or health care, and thus also to medical products and, for our purposes, to the purchase of a pair of
spectacles. I therefore conclude that the cases under consideration do indeed fall within the scope of art
22(1)(c) of the regulation.
31.
I now turn to the question whether the contested measure is in conformity with art 22 of the regulation.
It is not in dispute that both measures (Community and national) make the reimbursement of medical
expenses incurred in another member state subject to prior authorisation. Both measures also require, in
order for such authorisation to be granted, that the benefits sought by the insured person are among
those eligible for reimbursement under the legislation of the member state in question. I would also recall
that member states are bound to grant authorisation, under art 22(2), only where the treatment sought
cannot be provided within such time as to ensure its effectiveness, thereby leaving all other eventualities
to the member states discretion. For their part, the national rules in force in Luxembourg, specifically art
25 of the UCM statute, provide that authorisation is to be granted only if the treatment sought is not
available in Luxembourg or if the standard of the health care provided is inadequate for the particular
ailment from which the insured person is suffering.
691
Accordingly, there can be no doubt that the contested rules are consistent with art 22 of the regulation.
It is quite clear that those rules, at least in terms of their wording, do not go beyond the limits laid down by
the latter provision26.
26
It would be otherwise only if the interpretation given by the court to the phrase treatment appropriate to his condition, in
art 22(1)(c), were still valid today. The court had held that the phrase in question meant that benefits in kind for which
the worker is authorized to go to another Member State cover all treatment calculated to be effective for the sickness or
disease from which the person concerned suffers (see Pierik No 1 [1978] ECR 825 (para 15) and Pierik No 2 [1979]
ECR 1977 (para 10); my emphasis). Unfortunately, that interpretation must now be regarded as having been
superseded, because art 22(2) was amended, in fact as a consequence of the Pierik judgments, and made more
restrictive so that, in particular, it now sets out expressly and without ambiguity the one case in which authorisation may
not be refused.
32.
That finding, however, as already indicated, does not mean, contrary to the contention of a number of
governments during the proceedings, that there is no possibility of the contested rules conflicting with arts
30 and 59 and that, consequently, there is no need to examine whether the former are compatible with
the latter. Furthermore, the arguments put forward in support of this view are, even on the face of it,
devoid of substance.
In particular, we need not be detained by the argument that if the contested rules were found to be
incompatible with arts 30 and 59 of the Treaty, the fact that this would mean that art 22 of the regulation
was unlawful (as well) would have the effect of giving those Treaty provisions precedence over art 51, the
legal basis of the regulation, thereby setting up a hierarchy of norms for which there is no basis in the
Treaty itself. Suffice it to say that the fact that a particular national rule is compatible with an article of the
Treaty can under no circumstances constitute sufficient reason for the rule in question to be immune from
the application of other (relevant) Treaty provision27. Similarly, it is difficult even to conceive that a
regulation might violate Treaty provisions with impunity merely because (and as long as) it complied with
the Treaty provision which constitutes its legal basis, in this case art 51 28
27
On this point see eg the judgment in Du Pont de Nemours Italiana SpA v Unit Sanitaria Case C-21/88 [1990] ECR I-
889 (paras 2021), in which the court ruled that the possible classification of a national measure as aid within the
meaning of art 92 did not exempt it from the prohibition in art 30.
28
I would also recall that the court has made it clear that the discretionary power vested in the Community legislature by
art 51 must be exercised by means which are objectively justified (see the judgment in Triches v Casse de
Compensation pour Allocations Familales de la Rgion Ligeoise Case 19/76 [1976] ECR 1243 (para 18)). This
statement can only be interpreted as meaning that measures adopted pursuant to art 51 may not unjustifiably restrict
the scope of the rights conferred by the Treaty on the citizens of the Community.
33.
Furthermore, the regulation does not set up a common scheme of social security but allows different
national schemes to exist and its sole objective is to coordinate those national schemes 29, whence it
follows that the substantive and procedural differences between the systems of individual Member
States, and hence in the rights of persons working in the Member States, are unaffected by Article 51 of
the Treaty (see the judgment in Pinna v Caisse dAllocations Familiales de la Savoie Case 41/84 [1986]
ECR 1 (para 20)). It would therefore be perverse, in the absence of common rules on the matter, to hold
that a national measure is exempt from any review of its compatibility with the Treaty provisions merely
because it is one of those covered by the Communitys coordinating legislation adopted on the basis of art
51.
29
See the judgments in Gravina v Landesversicherungsanstalt Schwaben Case 807/79 [1980] ECR 2205 (para 7),
Borowitz v Bundesversicherungsanstalt fr Angestellte Case 21/87 [1988] ECR 3715 (para 23) and Rnfeldt v
Bundesversicherungsanstalt fr Angestellte Case C-227/89 [1991] ECR I-323 (para 12)
692
This appears also to be the view taken by the court in its decisions in point. I refer, in particular, to a
judgment in which the court interpreted the provisions of the regulation relied upon in the case in question
as meaning that entitlement to family benefits provided in respect of children resident in another member
state may not also be conferred on self-employed persons affiliated to a voluntary social insurance
scheme where, as in that case, the competent national institution for the payment of such benefits is
German (see the judgment in Stber [1997] ECR I-511 (paras 3234)). That conclusion, however, did not
prevent the court from inquiring into whether the national rules under which the self-employed are eligible
for the allowances in question only if they are affiliated to a statutory social security scheme were
compatible with art 5230. Thus, having pointed out that the rules in question treat nationals who have not
exercised their right to free movement and migrant workers differently, to the detriment of the latter, since
it is primarily the latters children who do not reside in the territory of the Member State granting the
benefits in question, the court found that such treatment was not objectively justified and held that the
rules in question must be regarded as discriminatory and hence as incompatible with Article 52 of the
Treaty (see [1997] ECR I-511 (paras 3839)).
30
This approach confirms, moreover, that the courts statement quoted above to the effect that observance of a directly
effective provision, such as art 52 of the Treaty, is binding on member states even though, in the absence of Community
legislation on social security for self-employed persons, they retained legislative jurisdiction in this field, has not lost any
of its significance merely because of the fact that the regulation has since been extended to cover self-employed
workers (see the judgments in Stanton [1988] ECR 3877 (para 10) and Wolf [1988] ECR 3897 (para 10)).
34.
In short, the court held in that case, on the one hand, that the relevant provisions of the regulation did
not entitle the plaintiffs to the benefits sought and upheld the lawfulness of such exclusion 31 and, on the
other, that the plaintiffs were entitled to those benefits by virtue of art 52 of the Treaty, with which the
relevant national rules were therefore in conflict32. Clearly, this is an outcome which confirms, at the risk of
stating the obvious, that there is no basis for the argument that the court is precluded from inquiring into
whether national rules are compatible with Treaty provisions having direct effect, solely because such
rules are in conformity with the relevant regulation or, at least, are not outlawed by it.
31
In this connection, the court noted in that judgment that there is nothing to prevent Member States from restricting
entitlement to family benefits to persons belonging to a solidarity system constituted by an old-age insurance scheme.
The Member States are at liberty to determine the conditions for entitlement to social security benefits, since Regulation
No 1408/71 merely plays a coordinating role (see [1997] ECR I-511 (para 36)).
32
In that respect, it is puzzling that the court did not find it necessary to question the validity of the provision of the
regulation which permitted workers not affiliated to the statutory social security scheme to be excluded from eligibility for
family allowancesparticularly if it is borne in mind that, in support of its conclusion that the national rules were
incompatible with art 52, the court pointed out that such exclusion had the effect of placing at a disadvantage nationals
who had exercised their right to free movement. But if that is the case, it must follow that the provision of the regulation
which permits such exclusion is invalid. I need hardly recall that the court has consistently held that the aim of Articles
48 to 51 would not be attained if, as a consequence of the exercise of their right to freedom of movement, workers were
to lose the advantages in the field of social security guaranteed to them by the law of a single Member State (see, inter
alia, the judgments in Spruyt v Bestuur van de Sociale Verzekeringsbank Case 284/84 [1986] ECR 685 (para 19) and
Lepore v Office National de Pensions (ONP) Joined cases C-4546/92 [1993] ECR I-6497 (para 21)). Clearly, the same
must apply to self-employed persons who exercise their right to freedom of movement, since the regulation is now also
applicable to them.
693
38.
In the first place, it is quite clear that the rules in question, by requiring prior authorisation only for
purchases made outside the national territory, involve unequal treatment based on the place of purchase
of the products 694 concerned34. Even assuming, for the sake of argument, that such differentiated
treatment is in itself of no relevance for the purposes of the application of the Community rules on goods,
it is nevertheless the case that the rules in question, by denying insured persons not having obtained prior
authorisation reimbursement of medical expenses incurred outside the national territory, have the effect of
deterring those concerned from buying medicinal products, or even a pair of spectacles, in another
member state. In other words, such rules constitute a clear disincentive to purchase the products
concerned in a member state other than the state of residence: and this results, or at any rate may result,
in a limitation on imports of such products.
34
In this regard, it should however be emphasised that the authorisation in question, although it is required only for the
purchase of products abroad, cannot be equated with other prior authorisations struck down by the court (see eg EC
Commission v UK Case 124/81 [1983] ECR 203 (para 18)). This is essentially because in the case which concerns us
importation as such is not subject to authorisation.
Moreover, the authorisation in question, in view of the particularly restrictive conditions to which its
grant is subject, is very unlikely to be accorded in a case where the benefit sought by the insured person
is simply the purchase of a pair of spectacles and/or, in general, any products prescribed in the member
state in which he or she is resident35. In those circumstances, clearly, the rules in question regulate the
reimbursement process in such a way that only products purchased in the national territory are eligible 36.
In view of the point made above regarding the deterrent effect of reimbursement not being available, it is
therefore indisputable that such rules inhibit, albeit indirectly, imports of medical products and accessories
by private individuals for their personal use.
35
In circumstances such as these, it is obvious that the competent social security institution will refuse to grant prior
authorisation, since it must be assumed, first, that a pair of spectacles (even of a particular kind), or a medicinal product,
prescribed respectively by an ophthalmologist and a doctor established in a given member state, are available in the
territory of that state and, secondly, that the state of health of the insured person is not going to deteriorate if he does
not purchase those products outside the national territory (on this point, see also para 29, above). If anything, the
insured persons state of health could deteriorate if he decided, instead of buying the products he needs as soon as
possible, to seek prior authorisation and to await the result (virtually certain to be negative) of a series of medical and
administrative formalities.
36
A very clear corollary of the decision in Duphar [1984] ECR 523 (paras 1822), interpreted a contrario, is that if national
rules were to regulate the reimbursement process in such a way that only domestic products were eligible, they would
be contrary to art 30. The fact that in the case which concerns us it is only products purchased in the national territory
which are eligible for reimbursement should not, to my mind, produce a different outcome.
39.
To my mind, this is sufficient to warrant the conclusion that the national rules in question meet the
criteria for a measure having equivalent effect to a quantitative restriction inasmuch as they are capable,
in accordance with the well-known Dassonville formula, of directly or indirectly, actually or potentially,
hindering intra-Community trade (see the judgment in Procureur du Roi v Dassonville Case 8/74 [1974]
ECR 837 (para 5)). It follows that, without prejudice to any possible justification which may be available,
they must be regarded as contrary to art 30 of the Treaty. This conclusion also holds, it goes without
saying, in relation to art 22 of the regulation.
The provision of services
40.
The same rules are in dispute and the barrier is of the same type. However, the relevant provisions of
Community law, arts 59 and 60 of the Treaty in this case, are different, as is the position of the central
figure, who, as 695 always in such cases, is still the patient. In this case, the patient derives standing in
Community law not indirectly, via the products he imports, but rather as a recipient of services, which is a
factor of some importance (see the judgment in Luisi [1984] ECR 377 (para 16))37. Given then that the
patient is covered by the provisions on freedom to provide services when travelling to another state in
order to avail himself or herself of medical treatment appropriate to his or her state of health, what are we
to make of the rules in question?
37
In that connection, moreover, I cannot overcome the suspicion that the rules on the provision of services may also be of
relevance to cases involving the purchase of products (as in the Decker case). In view of the special nature of the
products in question and also the fact that the court has acknowledged that the presence of qualified personnel is
required both for the sale of spectacles and contact lenses and for that of medicinal products (see the judgments in
Criminal proceedings against Delattre Case C-369/88 [1991] ECR I-1487 and Criminal proceedings against Monteil
Case C-60/89 [1991] ECR I-1547, both concerning pharmacists, and Laboratoire de Prothses Oculaires (LPO) v Union
Nationale des Syndicats dOpticiens de France Case C-271/92 [1993] ECR I-2899, which concerned opticians), it could
very well be argued that the rules applicable in such cases also come within the scope of arts 59 and 60 of the Treaty. In
short, I do not believe the possibility can be ruled out, at least not categorically, that the rules on the provision of
services may apply to the circumstances of Mr Decker travelling to another member state to purchase a pair of
spectacles: by virtue of the fact that the journey is undertaken not for the purpose of simply purchasing a product but to
take advantage of the professional skills of an optician established in another member state. That said, the points made
in the text in relation to the Kohll case would clearly also be valid in relation to the Decker case if it were found that the
rules on the provision of services were applicable to that case as well.
Let me say straight away that those rules must also be regarded as being in conflict with arts 59 and
60, for reasons broadly similar to those adduced in considering their compatibility with art 30. Before
examining more closely the restrictions they place on freedom to provide services, however, I believe it
worthwhile to clear up some of the misunderstandings which have emerged during the course of the
proceedings.
41.
It has been argued that the rules in question merely lay down the terms and conditions for
reimbursement of medical expenses and that, accordingly, they are concerned only with the relationship
between the insured person and the social security institution to which he or she is affiliated, with the
result that a dispute over reimbursement of the expenses in question is purely an internal matter. The
relevant service in such circumstances, according to this argument, is the benefit provided by the social
security institution to the insured person, and not a provision of services within the meaning of arts 59 and
60 of the Treaty. In any event, it should be acknowledged that an activity financed by the state using
public funds does not involve any provision of services within the meaning of those articles.
That argument, in my opinion, betrays some confusion about the nature of the issue under
consideration. What needs to be determined is whether national rules which make reimbursement of
medical expenses incurred in a member state other than the state of residence conditional upon prior
authorisation have the effect of discouraging and hence restricting the freedom to provide services in the
sector in question. The fact that the rules in question are in the field of social security and are expressly
concerned with the terms and conditions of reimbursement of medical expenses is, in this regard, wholly
irrelevant38. Nor does the mere fact that the state is involved in financing the benefit in question mean that
there is no provision of services: the fact remains that the medical 696 treatment is supplied for
consideration39 and that the insured person bears a significant portion of the cost through his health
insurance contributions40.
38
The case law on services provides many examples of national measures which, although they were not concerned with
the provision of a service themselves, were found to be contrary to art 59 as they were liable to have an adverse effect
on the provision of the service in question. For instance, the court has held that national rules which made the grant of a
housing benefit subject to the requirement that the relevant loan was obtained from a credit institution established in the
member state in question were incompatible with art 59, for the very reason that such a requirement was liable to
dissuade borrowers from approaching banks established in other member states in order to obtain loans intended to
finance the construction, acquisition or improvement of housing (see the judgment in Svensson v Ministre du Logement
et de lUrbanisme Case C-484/93 [1995] ECR I-3955). Needless to say, in that case just as in the present case, the
rules under scrutiny did not directly concern the provision of the services in question.
39
The court has in fact made clear that it is not necessary that the service should be paid for directly by those receiving it
(see the judgment in Bond van Adverteerders v Netherlands Case 352/85 [1988] ECR 2085 (para 16)), hence the nature
of the issue does not change even if the competent social security institution pays for the service directly.
40
Medical practice is thus not comparable to public instruction in this respect (see the judgments in Belgium v Humbel
Case C-263/86 [1988] ECR 5365 (paras 46) and Wirth v Landeshauptstadt Hannover Case C-109/92 [1993] ECR I-
6447).
42.
That said, it is clear that the rules in question do not prohibit insured persons (who are recipients of
services in this case) from using a provider of services established in another member state and, in
general, do not, at least not directly, make their access to medical care in other member states subject to
conditions. Moreover, since the requirement of prior authorisation applies to all persons resident in the
member state in question wishing to travel to another member state in order to obtain the health care they
require, it is equally clear that those rules do not discriminate on grounds of nationality among the
recipients of the services in question.
None the less, the fact of the matter is that the authorisation referred to is required only where it is
sought to use a provider of services established in another member state, and this constitutes, albeit
indirectly, a difference in the treatment of insured persons based on the country of origin of the service.
Furthermore, reimbursement is denied only to insured persons who obtain a medical service in another
member state but without having secured the requisite authorisation; this constitutes a difference in the
treatment of insured persons according to whether they choose to avail themselves of services supplied
by providers established in the national territory or in another member state.
43.
In short, it is abundantly clear that the rules in question, because they make reimbursement of medical
expenses incurred in another member state subject to prior authorisation and because they deny
reimbursement of such expenses to insured persons who have not obtained such authorisation, are a
highly deterrent factor and thus entail a restriction on the freedom to provide services. Furthermore, it
cannot be denied that a situation of that kind is bound inevitably to have an adverse effect on providers of
the service in question who are not established in the state concerned 41. Save for the limited number of
instances in which authorisation is granted, they can supply only benefits which are not eligible for
reimbursement.
41
It may be recalled that art 59 requires the abolition of any restriction when it is liable to prohibit or otherwise impede
the activities of a provider of services established in another Member State where he lawfully provides similar services
(see the judgment in Sger v Dennemeyer & Co Ltd Case C-76/90 [1991] ECR I-4221 (para 12)). I need hardly add that
the nature of the issue does not change even if the rules in question do not apply to all providers of services established
in the territory but only to those approved for social security reimbursement purposes. It is settled case law that the fact
that national rules do not give preference to all domestic providers of a service is immaterial for the purposes of the
application of art 59 (see eg the judgment in EC Commission v Netherlands Case C-353/89 [1991] ECR I-4069 (para
25)).
In the final analysis, the disputed national measure and, by the same token, art 22 of the regulation,
entail restrictions based, albeit indirectly, on where the provider of services is established 42. Both
provisions reduce very substantially the freedom of health care consumers (recipients of services) to use
(also)
42
In that regard, the General Programme for the abolition of restrictions on freedom to provide services (OJ 1974 S edn
(II) IX, p 3) included among the restrictions to be abolished those which impinge indirectly on providers of services, for
example via their effect on the recipient of the service.
697
providers of services established in other member states and thereby hinder the latters cross-border
trade. Clearly, such restrictions are manifestly contrary, at least in principle, to art 59 of the Treaty 43.
43
This conclusion, that art 22 of the regulation is also, on the face of it, contrary to the Treaty rules on services, is one
which commands widespread support among academic writers. See, inter alia, Bosscher La seguridad social de los
trabajadores migrantes en la perspectiva del establecimiento del mercado interior in Los sistemas de seguridad social y
el mercado nico europeo (1993) p 23 esp at pp 31ff; and Cornelissen The Principle of Territoriality and the Community
Regulations on Social Security (1996) CML Rev 439 esp at 463466.
45.
That said, in order to determine what type of justification is permissible it first needs to be decided
whether the contested measure is to be categorised as formally discriminatory or as indistinctly
applicable. In the former case it can be justified, and hence upheld as compatible with Community law,
only if it comes within the scope of art 36 (goods) and art 56, referred to by art 66 (services), in other
words, if it comes within one of the derogations expressly provided for by the Treaty 45, with the further
consequence that no consideration may be given to economic aims pursued by means of the restrictive
measure46 but only, in the present instance, to the protection of public health.
45
In relation to goods, see EC Commission v Ireland Case 113/80 [1981] ECR 1625 (paras 8, 11), and, more recently,
Criminal proceedings against Pistre Joined cases C-321/94 and C-324/94 [1997] ECR I-2343 (para 52). In relation to
services, it was only in its judgment in Bond van Adverteerders [1988] ECR 2085 (para 32) that the court for the first
time clearly stated that national rules which are discriminatory are compatible with Community law only if they can be
brought within the scope of an express derogation; on the same point, see also the more recent case of Svensson
[1995] ECR I-3955 (para 15).
46
As regards goods, see Duphar [1984] ECR 523 (para 23) and EC Commission v Italy Case 7/61 [1961] ECR 317 at 329.
As to services, see, inter alia, Bond van Adverteerders [1988] ECR 2085 (para 34), and, more recently, Federacin de
Distribuidores Cinematogrficos (Fedicine) v Estado Espaol Case C-17/92 [1993] ECR I-2239 (paras 16, 21).
In the latter case, on the other hand, there is a broader range of requirements pertaining to the general
interest capable of justifying the measure. The court has held that in order to be compatible with
Community law national measures liable to hinder or make less attractive the exercise of fundamental
freedoms 698 guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-
discriminatory manner; they must be justified by imperative requirements in the general interest; they
must be suitable for securing the attainment of the objective which they pursue; and they must not go
beyond what is necessary in order to attain it 47. This means, first, that even measures applicable without
distinction may be incompatible with Community law if they are restrictive and not justified by overriding
requirements or reasons relating to the general interest 48; and, secondly, as we shall see below, that in
this latter case consideration may also be given to economic aims pursued by means of the restrictive
measure, such as the safeguarding of the financial stability of the health care system.
47
See the judgment in Gebhard v Consiglio dellOrdine degli Avvocati e Procuratori di Milano Case C-55/94 [1996] All
ER (EC) 189, [1995] ECR I-4165 (para 37), in which, significantly, the court referred without distinction to all the
fundamental freedoms enshrined in the Treaty, thus highlighting the unitary nature, for the purposes which concern us
here, of the relevant rules.
48
This approach, which when first adopted, in the judgment in Rewe-Zentral AG v Bundesmonopolverwaltung fr
Branntwein Case 120/78 [1979] ECR 649 (Cassis de Dijon), was confined to the free movement of goods, was
subsequently extended to the other fundamental freedoms enshrined in the Treaty. As far as services are concerned,
that approach was expressly adopted, in particular, in Stichting Collectieve Antennevoorziening Gouda v Commissariaat
voor de Media Case C-288/89 [1991] ECR I-4007 (paras 1115), EC Commission v Netherlands Case C-353/89 [1991]
ECR I-4069 (paras 1519), and Sger [1991] ECR I-4221 (para 15). Given, however, that since its very first decisions
on the subject the court has upheld as justified in the general interest measures restricting freedom to provide services
(see eg van Binsbergen v Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid Case 33/74 [1974] ECR 1299), it
is clear that the Gouda, Commission v Netherlands and Sger judgments, far from constituting a new departure, merely
clarified the existing approach and provided it with a fuller theoretical analysis.
46.
However, the parties and the governments which submitted observations have, in justifying the
contested measure, referred without distinction both to the protection of public health, and thus to one of
the derogations provided by arts 36 and 56, and to the safeguarding of the financial stability of the health
care system, which is a reason relating to the general interest. The Commission, for its part, submits that
the measure is discriminatory as regards goods, since prior authorisation is not required to purchase the
relevant products in the national territory, but indistinctly applicable as regards services, since the
authorisation requirement, although it applies only where medical services are sought abroad, applies in
the same manner to nationals and non-nationals alike. It would seem, therefore, that under the rules laid
down for goods even measures which, while not prescribing any particular formalities for the purposes of
importation as such, are likely to discourage imports, are discriminatory, whereas under the rules
governing services only measures which involve different treatment based on nationality are
discriminatory49.
49
This view has in fact been superseded by developments in the case law. The court also regards as discriminatory, and
hence as justifiable only in accordance with one of the derogations set out in art 56, national rules which treat services
differently according to their origin (see, inter alia, the judgments in Bond van Adverteerders [1988] ECR 2085 (paras
26, 29), EC Commission v Belgium Case C-211/91 [1992] ECR I-6757 (paras 911) and Fedicine [1993] ECR I-2239
(para 14)).
699
I cannot subscribe to this analysis. The measure in question does not directly hinder trade either in
goods or in services. It may, however, have the effect of limiting such trade by reason of the obvious
disadvantage (no reimbursement) in purchasing products or medical services abroad, without
authorisation. What needs to be determined, therefore, is whether restrictions on the free movement of
goods and on the freedom to provide services based, albeit indirectly, on where the seller of the goods or
provider of the service is established, fall to be classified as discriminatory or as indistinctly applicable.
47.
So far as concerns the rules on goods, let me begin by pointing out that this is the first time that the
court has been called upon to determine whether a measure which imposes an additional burden (prior
authorisation) only on those intending to purchase the products in question outside the national territory is
discriminatory for the purposes and within the meaning of art 30 of the Treaty. Given that authorisation is
required solely for the purpose of conferring a benefit (total or partial reimbursement of the cost of a
particular product) and not for the purpose of importation 50, it must be recognised, however, that the
measure in question does not lay down different rules for imported products, but rather entails a
difference in the treatment of persons (the insured), all resident in the same member state, according to
whether they have chosen to purchase a particular product in their state of residence or in some other
member state. Let me add that the fact that the difference in the treatment of insured persons depends,
albeit indirectly, on the place where the optician or pharmacist who supplies the products is established, is
of no significance for the purposes of the rules on goods, even if it may be considered to constitute formal
discrimination based on the place of establishment51.
50
There still is complete freedom as regards actual importation. See para 37, above, and esp footnote 34.
51
This would be a relevant factor, however, if it were decided that the rules on the provision of services were also
applicable to the Decker case. See footnote 37, above.
700
Any restriction on imports stems from the deterrent effect, on insured persons decisions, of the fact
that the cost of products purchased in another member state is not reimbursed. It is my view, therefore,
that the measure in question, even though it favours the purchase of products sold in the national territory,
is not formally discriminatory. Leaving aside all other considerations, it requires no specific formality to be
complied with at the time of and for the purpose of importation, nor does it favour domestic products over
imported products.
48.
Turning to the scope of the contested national measure in relation to the provisions on services, I
would first recall that the court has consistently held that measures are formally discriminatory only where
they prescribe different rules for non-nationals52 and/or for the provision of services originating in other
member states (see footnote 49, above). It regards as indistinctly applicable, on the other hand,
measures capable of applying to all those who carry on a particular activity in the territory of a particular
member state, even if such measures expressly impose a requirement of residence 53 or establishment54
which effectively makes it impossible for service providers established in another member state to carry
on the activity in question55.
52
See the judgments in Hubbard v Hamburger Case C-20/92 [1993] ECR I-3777 (paras 1415) and EC Commission v
Spain Case C-45/93 [1994] ECR I-911 (paras 910).
53
See eg the judgments in van Binsbergen [1974] ECR 1299 (para 14) and Coenen v Sociaal-Economische Raad Case
39/75 [1975] ECR 1547 (paras 7/8, 9/10).
54
See esp the judgments in EC Commission v Germany Case 205/84 [1986] ECR 3755 (paras 5257) and European
Commission v Italy Case C-101/94 [1996] ECR I-2691 (para 31).
55
See, most recently, the judgment in Socit Civile Immobilire Parodi v Banque H Albert de Bary et Cie Case C-222/95
[1997] All ER (EC) 946, [1997] ECR I-3899 (para 31), in which the court again emphasised that the requirement of
establishment has the result of depriving art 59 of the Treaty of all effectiveness, a provision whose very purpose is to
abolish restrictions on the freedom to provide services of persons who are not established in the state in which the
service is to be provided. The court added, however, that if such a requirement is to be accepted, it must be shown that
it constitutes a condition which is indispensable for attaining the objective pursued.
The measure under consideration, it is worth noting, does not entail any discrimination based on
nationality nor does it prescribe, at least not directly, separate rules for service providers established in
another member state. The difference in treatment concerns, at least formally, all those insured under the
social security scheme in question. Bearing in mind, however, that different treatment depends on the
choice of doctor or of hospital, it is quite clear that the difference in the way insured persons are treated
depends on the place where the provider of the service is established. Is this sufficient to warrant a
finding that the measure in question, in so far as it results in different rules applying in respect of the
provision of services originating in another member state, is in any event to be categorised as
discriminatory?
49.
A negative answer to this question could be deduced from the fact, referred to above, that, under the
courts case law on services, rules requiring a person to be established in the member state in question in
order to carry on a given activity are justifiable on grounds relating to the general interest, by reason of
the fact, however unsatisfactory this result may seem, that the requirement is imposed on all those who
carry on a particular activity in the territory of a particular member state and is thus, formally at least, not
in any way discriminatory. From the same perspective, a measure which does not prescribe, at least not
formally and directly, different rules for providers of services established in another member state, should
likewise be regarded as non-discriminatory.
701
On this very point, however, the case law on measures of the kind at issue in this case, in other words
measures by which the conferring of a benefit is made conditional upon a provider of services established
in the national territory being used, is not free from uncertainties and contradictions. For example, in
Bachmann v Belgium Case C-204/90 [1992] ECR I-249 the court held that the contested measure, which
made the deductibility of certain contributions subject to the condition that they were paid in the member
state itself, was justifiable in the interests of the cohesion of the national tax system, thereby classifying
the measure as indistinctly applicable56. In the later case of Svensson [1995] ECR I-3955 (para 15), on
the other hand, the court ruled that a measure which specified as a condition for the grant of a housing
benefit that the loan should be obtained from a lending institution established in the national territory was
discriminatory on the ground of the place of establishment, and thus justifiable only on the basis of the
derogations expressly provided for in the Treaty57. Nor did it help to clarify matters that the court then
considered it necessary, in the same judgment, to rebut the proposition that the measure in question was
necessary in order to preserve the cohesion of the tax system: in so doing, the court was also verifying
whether that measure could be justified on the basis of requirements likely to be taken into account only
in the case of measures applicable without distinction (see [1995] ECR I-3955 (paras 1618)).
56
To this end, it is worth pointing out, the court confined itself to noting that the requirement of an establishment is
compatible with Article 59 of the Treaty where it constitutes a condition which is indispensable to the achievement of the
public-interest objective pursued (see [1992] ECR I-249 (para 32)). It would appear from that statement that since the
general interest can justify even a prohibition, imposed by means of a requirement of establishment, on exercising
particular activities in the territory of the state concerned, there is all the more reason to regard as justified rules which
entail some disadvantages, or at any rate do not confer certain advantages, for those who choose to avail themselves of
providers of services not established in the state in question.
57
More precisely, the court stated that the rule in question entails discrimination based on the place of establishment and
that accordingly it can only be justified on the general interest grounds referred to in Article 56(1) of the Treaty, to which
Article 66 refers, and which do not include economic aims.
50.
I do not believe that the compatibility of a national measure with Community law may be assessed
without distinction and/or cumulatively with regard to derogations expressly provided for in the Treaty and
to grounds relating to the general interest58, particularly as the justifications in question apply in different
situations which are in part governed by different rules. While acknowledging that it may not be an easy
matter to establish whether or not a particular measure is discriminatoryeither because the
discriminatory effect (in fact) is all too obvious, or because the particular features of a given sector induce
a degree of cautionit is essential none the less to place the measure in the proper category.
58
On this point, it should be emphasised that Svensson is not the only case, nor the first, in which the court took into
consideration, for the purpose of determining whether a national measure restricting freedom to provide services was
compatible with art 59, both the requirements set out in art 56 and those relating to the general interest (see eg the
judgment in European Commission v Italy Case C-101/94 [1996] ECR I-2691 (paras 3132)).
In short, it is my view that, for the purposes of this case and in order to dispel the aforementioned
ambiguities in the case law, the court should either follow Svensson and rule that discriminatory measures
include those which indirectly give rise to unequal treatment as between providers of services established
in a given member state and those not so established or, alternatively, confirm the 702 approach which
appears to have been adopted in Bachmann, namely that measures which do not formally lay down
different rules for providers of services not established in the member state are still deemed to be
indistinctly applicable. I would merely add that the latter approach would appear at present to be more in
keeping with the case law in this area considered as a whole. This does not of course alter the fact that a
reappraisal would be timely.
51.
Assuming that the national measure under consideration is to be regarded as indistinctly applicable,
with respect to the Community rules on both goods and services, I now turn to the requirements relied
upon to justify it, namely the protection of public health and the maintenance of a balanced medical and
hospital system accessible to everyone in a given region. The latter requirement, it may be recalled, is
expressly mentioned in the second question submitted by the national court in Case C-158/96 (Kohll),
while the member states which submitted observations have referred instead to preserving the systems
financial stability. The two aims are in fact interrelated in that the latter, more immediate, objective
constitutes, according to those member states, the means by which the former is to be achieved.
One further aspect, I believe, needs to be made clear. The points raised and the result arrived at in
examining whether the contested measure is justifiable on public health grounds would be equally valid,
given that it is a requirement expressly provided for in arts 36 and 56 of the Treaty, if the contested
measure were assumed to be discriminatory (see esp the judgments in Aragonesa de Publicidad Exterior
SA v Departamento de Sanidad y Seguridad de la Generalitat de Catalua Joined cases C-1/90 and C-
176/90 [1991] ECR I-4151 (para 13)). But the same cannot be said for the requirement of maintaining a
balanced medical and hospital system accessible to everyone in a given region. Even granting that this
aim comes within the concept of public health, in the broad sense of the term 59, the fact remains that it is
based entirely on the financial stability of the system and thus on an economic aim, which, as such, can
under no circumstances justify a discriminatory measure60.
59
But the court has so far given a narrow interpretation to the concept of public health and has allowed it to be used to
justify only measures aimed at preventing risks to the health of humans and animals.
60
See the judgments cited in footnote 46. I would merely note that in Duphar [1984] ECR 523 (para 23) the court made
clear that because art 36 relates to measures of a non-economic nature, it cannot therefore justify a national measure
intended to reduce the operating costs of a sickness insurance scheme.
52.
That said, let me add straight away that the proposition, also put forward by the Luxembourg
government, that the contested rules are necessary to ensure the quality of medical products and
serviceswhich, where travel abroad is involved, can only be checked when authorisation is requested
is devoid of any foundation. The conditions for taking up (and pursuing) the activities with which we are
concerned here, like the rules governing the release of medicinal products on to the market, have been
the subject of Community coordinating and harmonising directives 61. Indeed, the court has already cited
those directives in judgments where it stated that the prescription of a medicinal product by a doctor in
another member state and the purchase of such a product in that state provide guarantees equivalent to
those afforded where prescription is by a doctor in the importing state or the product is sold through a
pharmacy in the member state into which it is imported by a private individual (see the judgments in
Schumacher [1989] ECR 617 (para 20) and EC Commission v Germany Case C-62/90
61
I refer, in particular, to Council Directive (EEC) 93/16 to facilitate the free movement of doctors and the mutual
recognition of their diplomas, certificates and other evidence of formal qualifications (OJ 1993 L165 p 1) and, among the
specific directives, to Council Directives (EEC) 78/686 and 78/687 concerning the mutual recognition of diplomas and
the coordination of national provisions on dentists (OJ 1978 L233 pp 1, 10). I would also refer to Council Directives
(EEC) 85/432 and 85/433 on the coordination of national provisions and the mutual recognition of diplomas in relation to
certain activities in the pharmaceutical sector (OJ 1985 L253 pp 34, 37). Finally, I would recall that the free movement of
pharmaceutical products is ensured at Community level, with due account taken of the protection of public health, by
Council Directive (EEC) 65/65 (OJ S edn 196566 p 20).
[1992] ECR I-2575 (para 18)). That case law, which of necessity also applies to the purchase of all
medical and surgical accessories, including a pair of spectacles, presupposes that guarantees equivalent
to those provided by doctors, pharmacists and opticians established in the national territory must be
assumed to be provided by doctors, pharmacists and opticians established in other member states as
well.
In those circumstances, I do not believe it is reasonable to argue that the health of insured persons is
not adequately protected when they obtain health care in another member state 62. It follows, of course,
that the measure in question cannot be regarded as necessary for the protection of health.
62
Since the Luxembourg government itself stated that insured persons are free to obtain health care in another member
state, the question has to be asked why the aforesaid public health concerns no longer arise when reimbursement is not
sought.
53.
So far as preserving the systems financial stability is concerned, let me begin by stating that this is, in
my view, a requirement worthy of protection by Community law. While it is true that the court has on
occasion categorically dismissed economic aims put forward to justify indistinctly applicable measures (as
well)63, it is also apparent, on a closer reading of the relevant judgments, that economic aims are indeed
justifiable, where far from being an end in themselves, they are crucial to the operation of the system in
question64 or affect interests of vital importance to the state 65.
63
See the judgment in Gouda [1991] ECR I-4007 (para 11). See also, more recently, the judgment in Syndesmos ton en
Elladi Touristikon kai Taxidiotikon Grafeion v Ergasias Case C-398/95 [1997] ECR I-3091 (para 23), in which the court
stated that maintaining industrial peace as a means of bringing a collective labour dispute to an end and thereby
preventing any adverse effects on an economic sector, and consequently on the economy of the state, must be
regarded as an economic aim which cannot constitute a reason relating to the general interest that justifies a restriction
of a fundamental freedom guaranteed by the Treaty.
64
I recall, for example, that in the judgment in Customs and Excise Comrs v Schindler Case C-275/92 [1994] 2 All ER
193, [1994] ECR I-1039 (para 60), the court stated that a ground which is not without relevance, although it cannot in
itself be regarded as an objective justification, is that lotteries may make a significant contribution to the financing of
benevolent or public interest activities such as social works, charitable works, sport or culture (my emphasis). I would
further refer to the judgment in Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-
415/93 [1996] All ER (EC) 97, [1995] ECR I-4921 (paras 106107), in which the court upheld as legitimate the aim
of maintaining a financial and competitive balance between football clubs as its purpose was to preserve a degree of
equality and uncertainty as to results.
65
This is one possible interpretation of the courts acceptance of the cohesion of the tax system, which is undoubtedly an
economic aim, as a ground related to the general interest (see the judgment in Bachmann [1992] ECR I-249 (paras 21
28)).
From that point of view, I believe it is beyond dispute that the preservation of the financial stability of
the social security system, which is indeed the essential aim of the measure in question, is not an end in
itself but a means which contributes (at least) to providing insured persons with services of a certain
standard in terms of both quantity and quality. If the financial balance of the system were upset, the level
of health protection could deteriorate with obvious and inevitable adverse repercussions, particularly for
insured persons belonging 703 to the weakest strata of society. Moreover, the court has already
recognised, for example in the matter of equal treatment of men and women in the social security
sector66, and also in interpreting the relevant provisions of the Staff Regulations of Officials, that the
financial stability of social security systems constitutes a legitimate objective and, accordingly, one worthy
of protection (see, most recently, Barassi v EC Commission Case T-41/90 [1992] ECR II-159 (paras 32
35)).
66
See the judgment in R v Secretary of State for Health, ex p Richardson Case C-137/94 [1995] All ER (EC) 865,
[1995] ECR I-3407 (paras 1829).
54.
I now turn to consider whether the contested measure is necessary for and suited to preserving the
financial stability, and thereby the continued operation, of a medical and hospital service accessible to
everyone. All the governments which submitted observations have argued, on this issue, that prior
authorisation is essential in order to avoid the social security institutions having to reimburse the cost of
the benefits in question in accordance with the legislation of the member state in which each individual
insured person chooses to avail himself or herself of medial care and/or to purchase medical products.
They add that the member state chosen will normally be the one in which the benefit in question is
considered most advanced and is, accordingly, the most expensive.
Now it must of course be acknowledged that an obligation to reimburse, in accordance with the
legislation of the different member states, the cost of benefits which insured persons have chosen to avail
themselves of outside the national territory, could indeed upset the financial stability and adversely affect
the continued operation of a balanced medical and hospital system accessible to everyone. In that regard,
suffice it to note that, at present, the costs of health care and the rules governing the financing of health
insurance systems differ appreciably from one member state to another 67. Unrestricted freedom of
movement for patients could therefore lead to imbalances which would be highly detrimental to those
member states in which the cost of benefits is significantly lower than the cost which their social security
institutions would have to reimburse to insured persons who chose to avail themselves of such benefits in
other member states.
67
For an overview of current differences, see Le Grand La asistencia sanitaria y la construccin del mercado nico:
perspectiva y problemtica in Los sistemas de seguridad social y el mercado nico europeo (1993) pp 321ff. See also,
in relation to the more general issue of the funding of social protection, Euzeby Le financement de la protection sociale
dans les pays de la CEE: problmes et perspectives in Quel avenir pour lEurope sociale: 1992 et aprs? (1990) pp
133ff, and, by the same author, Financement de la protection sociale, efficacit conomique et justice sociale in (1997)
Revue du March commun et de lUnion europenne 253ff.
55.
In view of this, the contested measure must be regarded as necessary and proportionate to the
attainment of the aim pursued. The requirement of prior authorisation is the only means which enables
the social security institutions to assume the burden of expenses incurred by insured persons in another
member state, on the terms laid down in that member state, only where it is adjudged necessary because
of the state of health of the persons insured and thus to contain excessive expenditure which could upset
the financial balance of the system.
The Commission, however, arguing that art 22 of Regulation 1408/71 imposes an obligation not to
refuse authorisation in a particular case but is silent as to other situations which might arise, maintains
that each case has to be looked 704 at individually to determine whether the grant of authorisation for a
particular benefit, and the attendant financial burden, would entail upsetting the financial balance 68. As
attractive as this approach may appear, it is lacking in rigour. It is clearly the case, and rightly so, that
member states could (and indeed can) be more generous than is required of them by art 22 of the
regulation; I wonder, however, on the basis of what criteria national rules which authorise insured persons
to travel to other member states to avail themselves of medical care, at least in the cases in which art 22
so requires, can be regarded as compatible with that provision, which the Commission itself deems valid,
but contrary to the Treaty rules on services69.
68
This point, it should be noted, would apply only to services. Having maintained that the contested measure was
discriminatory in relation to the rules on goods, the Commission was consistent and submitted that the measure in
question was not justifiable on the ground of protection of public health set out in art 36 of the Treaty.
69
While I do not share the authors view (see para 31 and footnote 36, above), I find more convincing the view put forward
by da Mavridis Le citoyen europen peut-il se faire soigner dans ltat de son choix? (1996) Droit social 1086ff,
according to which it is art 22 itself, as interpreted by the court in Pierik No 1 and Pierik No 2, which requires
authorisation to be granted for all care liable to ensure effective treatment of the disease from which the person
concerned is suffering.
56.
Rather, it is quite true that art 22 in no way requires, or implies, that in cases in which authorisation is
not granted on the ground that the conditions it lays down are not satisfied, insured persons must bear the
full cost of the benefits concerned or are not entitled to any form of reimbursement. The purpose of the
provision in question is to ensure that the right of the insured to certain benefits may, by derogation from
the principle that a person is subject to a single body of legislation, which is the basis for the coordination
brought about by the regulation, also be exercised in another member state (at least) in cases where a
transfer is necessary because of the state of health of the person concerned. In other words, the provision
in question is intended to guarantee to insured persons the right to receive appropriate care in another
member state without suffering financially as a result and without endangering the stability of the systems
in operation in the various member states.
57.
But if this is true it follows, first, that the restrictions imposed by the relevant provisions of art 22,
precisely because they are aimed at ensuring that insured persons may avail themselves of medical
benefits in another member state on the terms laid down by the legislation of that state, are objectively
justified and hence compatible with arts 30 and 59 of the Treaty and, secondly, that the preservation of
financial stability, the aim pursued by the national measure, is relevant only if and to the extent that it is
assumed that reimbursement by the competent social security institution of benefits which insured
persons choose to obtain in another member state must be based on the rules and criteria applied by the
member state in which the benefits are provided.
That being so, it must therefore be considered whether the risk of upsetting the financial balance, and
hence the need for prior authorisation, still subsists if the competent social security institution is obliged to
make full reimbursement in accordance not with the legislation of the member state in which the insured
person received the care in question, but with the legislation and the tariffs in force in the member state in
which the recipient of the medical care is insured. In other words, the question is whether reimbursing Mr
Decker, as he claims, on the same terms as those to which he would have been entitled had he bought
the spectacles from an optician established in Luxembourg, or reimbursing Mr Kohll 705 on the basis of
the Luxembourg tariff, would really have the effect of undermining the financial balance of the system.
58.
Viewed in those terms, it is clear that differences in financing methods and in health care costs
between the various systems are immaterial for as long as the competent social security institution does
not have to reimburse benefits received by insured persons in another member state in accordance with
the legislation applicable in that state. It is self-evident that reimbursement to Mr Decker of the sum of Lf
1,600, to which he would have been entitled had he purchased the spectacles from an optician
established in Luxembourg, would have no effect on the financial balance of the system, any more than
would be the case in the event of reimbursement of orthodontic treatment provided in Germany to a
person insured by the Luxembourg health insurance fund in accordance with the Luxembourg cost of
such treatment70.
70
The only effect I can conceive of is that one optician established in Luxembourg will have sold one less pair of
spectacles and the only orthodontist established in the same state will have lost one patient. It is therefore the individual
practitioners who are adversely affected and not the system itself.
Nor, in consequence, would the maintenance of a medical service accessible to everyone in a given
region be placed in jeopardy. While it is true that those living in border regions may cross the border more
frequently, inter alia for medical treatment, the fact remains that the traffic is not all one-way, at least in
principle, and, especially, that the benefits we have been considering do not affect the financial balance to
a greater extent than if they had been obtained in the member state of residence of the persons
concerned.
59.
I believe, however, that the position in relation to hospital infrastructure is quite different and requires a
different answer. Unlike the benefits provided by individual practitioners, the reality in the case of hospitals
is, first, that their location and number is determined by forward-planning and, secondly, that the cost of
one persons stay in a hospital cannot be separated from that of the hospital as a whole. Clearly, if a large
number of insured persons chose to avail themselves of hospital facilities located in another member
state, their domestic hospitals would be under-utilised but would have the same staff and equipment
overheads as if they were being used to full capacity71.
71
Of course, this does not mean I wish to associate myself with the view advanced by some member states that, if
freedom to choose ones doctor and hospital were given, there would be an uncontrolled and uncontrollable flow of
patients from one member state to another. The fact remains that travelling to a state other than the state of residence
entails significant inconvenience, often including language difficulties, and additional costs, if only for those persons
accompanying the patient.
In other words, reimbursement, by the competent social security institution, of medical benefits
received by insured persons in hospitals of other member states, even on the basis of a flat-rate
equivalent to the Luxembourg cost of the benefits in question, would none the less result in an additional
financial burden for the system concerned. In the hospital sector, therefore, it remains essential, in order
not to disrupt the financial balance of the system and to ensure the maintenance of a service which is
accessible, both financially and logistically, to everyone, including therefore those who do not intend to
travel but wish to receive the health care they require in the place nearest to them, to seek and obtain
prior authorisation72.
72
On this point, however, the question arises whether, and to what extent, the situation is otherwise, in relation to the aim
of maintaining a hospital system accessible to everyone, in those member states where the competent social security
institution provides reimbursement, albeit on a partial and flat-rate basis, of the cost of benefits which insured persons
choose to obtain in private clinics.
60.
In short, it is my view that the contested measure is justified in relation to all benefits which must be
provided to insured persons in hospitals and, in 706 general, to all benefits which the insured person
wishes to have paid or reimbursed in full by the competent social security institution. On the other band,
the measure is not justifiable in relation to the purchase of products or medical services provided by
private practitioners, consisting of consultations and visits to specialists, in respect of which a flat-rate
reimbursement is requested at the tariff in force in the member state in which the person concerned is
insured.
Action by the Community legislature aimed at harmonising the area in question so as to allow genuine
and effective freedom of movement for patients, which would be a significant factor in the creation of a
single integrated market, would be welcome. Conscious of the fact that this is an ambitious goal which is
difficult to achieve at present, I believe that the Community legislature should at least act, and do so
promptly, to broaden the range of circumstances in which authorisation may not be refused. There is no
doubt that it would be advantageous in many respects for authorisation to be granted in all cases in which
the insured person could receive more effective treatment in another member state or where, as was
explained in the course of the hearing in the Kohll case, there is just one specialist in the member state of
residence capable of providing the service required.
61.
In the light of the foregoing considerations, I suggest that the Court of Justice answer the questions
referred to it by the Luxembourg Conseil Arbitral des Assurances Sociales and the Cour de Cassation
respectively, as follows:
CONCLUSION
28 April 1998.
Costs
47.
The costs incurred by the Luxembourg, Belgian, German, Spanish, French, Netherlands and UK
governments and by the European Commission, which have submitted observations to the Court of
Justice, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step
in the action pending before the national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice in answer to the question referred to it by the Conseil Arbitral
des Assurances Sociales by decision of 5 April 1995, hereby rules: arts 30 and 36 of the EC Treaty
preclude national rules under which 713 a social security institution of a member state refuses to
reimburse to an insured person on a flat-rate basis the cost of a pair of spectacles with corrective lenses
purchased from an optician established in another member state, on the ground that prior authorisation is
required for the purchase of any medical product abroad.
28 April 1998.
Costs
55.
The costs incurred by the Luxembourg, German, Greek, French, Austrian and UK governments and by
the European Commission, which have submitted observations to the Court of Justice, are not
recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action
pending before the national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Luxembourg
Cour de Cassation by judgment of 25 April 1996, hereby rules: arts 59 and 60 of the EC Treaty preclude
national rules under which reimbursement, in accordance with the scale of the state of insurance, of the
cost of dental treatment provided by an orthodontist established in another member state is subject to
authorisation by the insured persons social security institution.
720
Held Discrimination could arise only through the application of different rules to comparable situations
or the application of the same rules to different situations. Moreover, Directive 75/117 precluded the
application of national measures which, although formulated in neutral terms, worked to the disadvantage
of far more women than men, unless that measure was based on objective factors unrelated to any
discrimination on grounds of sex. In the instant case, workers entering full-time work were paid less than
double what they would have earned had they been job-sharing and, as a result, their hourly rate of pay
was reduced without taking account of the fact that a job-sharer could acquire the same experience and
performed the same functions as a full-time worker in respect of the quality and the quantity of work. It
followed that 722 full-time employees who had previously job-shared were treated differently from those
who had always worked on a full-time basis; and since 992% of clerical assistants and 98% of all civil
servants who job shared were women, there was indirect discrimination. Accordingly, where far more
women were affected than men, art 1191 of the EC Treaty and Directive 75/117 precluded national
measures which provided that workers who converted from job-sharing to full-time work regressed on
their salary scale due to the application of the criterion of service calculated by the length of time actually
worked in a post, unless such measures could be objectively justified (see p 740 c to g, p 741 e to g and p
743 b c to g, post).
1
Article 119, so far as material, is set out at p 737 f, post
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319 and Megner v
Innungskrankenkasse Vorderpfalz Case C-444/93 [1996] All ER (EC) 212 applied.
Notes
For the EC Treaty, art 119, see 50 Halsburys Laws (4th edn) 306.
Cases cited
Almelo (Municipality of) v NV Energiebedrijf Ijsselmij Case C-393/92 [1994] ECR I-1477.
Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607.
Corbiau v Administration des contributions Case C-24/92 [1993] ECR I-1277.
De Weerd, ne Roks v Bestuur van de Bedrijfsvereniging voor de Gezondheid, Geestelijke en
Maatschappelijke Belangen Case C-343/92 [1994] ECR I-571.
Defrenne v Sabena Case 43/75 [1981] 1 All ER 122, [1976] ECR 455, ECJ.
Enderby v Frenchay Health Authority Case C-127/92 [1993] ECR I-5535.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Gerster v Freistaat Bayern Case C-1/95 [1997] ECR I-5253.
Handels- og Kontorfunktionrernes Forbund i Danmark v Dansk Arbejdsgiverforening acting on behalf of
Danfoss Case 109/88 [1989] ECR 3199.
Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972, [1981] ECR 911, ECJ.
Kording v Senator fr Finanzen Case C-100/95 [1997] ECR I-5189.
Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591.
Kuratorium fr Dialyse und Nierentransplantation eV v Lewark Case C-457/93 [1996] ECR I-243.
Megner v Innungskrankenkasse Vorderpfalz Case C-444/93 [1996] All ER (EC) 212, [1995] ECR I-4741,
ECJ.
Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297.
Pardini (Fratelli) SpA v Ministero del Commercio Case 338/85 [1988] ECR 2041.
Rinner-Khn v FWW Spezial Gebudereinigung GmbH Case 171/88 [1989] ECR 2743.
Secretary of State for Social Security v Thomas Case C-328/91 [1993] 4 All ER 556, sub nom Thomas v
Chief Adjudication Officer [1993] QB 747, [1993] 3 WLR 581, [1993] ECR I-1247, ECJ.
Stadt Lengerich v Helmig Joined cases C-399/92, C-409/92, C-425/92, C-34/93, C-50/93 and C-78/93
[1994] ECR I-5727.
Vaassen v Management of the Beambtenfonds voor het Mijnbedrijf Case 61/65 [1966] ECR 261.
723
X (Criminal proceedings against) Joined cases C-74/95 and C-129/95 [1996] ECR I-6609.
Reference
By order of 5 April 1995, the Labour Court referred to the Court of Justice of the European Communities
for a preliminary ruling under art 177 of the EC Treaty three questions (set out at p 739 c to f, post) on the
interpretation of Council Directive (EEC) 75/117 on the approximation of the laws of the member states
relating to the application of the principle of equal pay for men and women. Those questions arose in a
dispute between Ms Hill and Ms Stapleton, who had previously worked in a job-sharing capacity, and the
Revenue Commissioners and Department of Finance concerning the latters decision to place them, on
their conversion to full-time employment, on a point of the full-time pay scale lower than that of the job-
sharing pay scale which they had previously occupied. Written observations were submitted on behalf of:
Kathleen Hill and Ann Stapleton, by M Redmond, Solicitor, and J OReilly, SC; the Revenue
Commissioners and the Department of Finance, by M A Buckley, Chief state Solicitor, M Finlay, SC, and F
Flanagan, of the Office of the Attorney General, acting as agents; and the European Commission, by M
Wolfcarius and C Docksey, of its Legal Service, acting as agents. Oral observations were made by:
Kathleen Hill and Ann Stapleton, represented by M Redmond and J OReilly; the Revenue
Commissioners and the Department of Finance, represented by M Finlay; the United Kingdom
government, represented by L Nicoll, the Treasury Solicitors Department, acting as agent, and C Lewis,
Barrister; and the Commission, represented by M Wolfcarius and C Docksey. The language of the case
was English. The facts are set out in the opinion of the Advocate General.
20 February 1997.
FACTS
2.
The facts underlying the dispute may be briefly recapitulated as follows: Kathleen Hill and Ann
Stapleton (the claimants)recruited to the Irish civil service from open competitions for the grade of
Clerical Assistantwere assigned to the office of the Revenue Commissioners.
3.
Both claimants exercised their right under the Irish rules governing public service to work in a job-
sharing capacity2. More specifically, Ms Hill, who was recruited in July 1981, began job-sharing in May
1988 when she was on the
2
As the national court makes clear (order for reference, p 3), the job-sharing scheme was introduced in 1984 as a job-
creation measure. Two officers share one full-time job: since the salary is divided, the cost to management remains the
same. Under the rules, staff recruited on a full-time basis may participate in the scheme, in which case they retain the
right to return to full-time work (Ms Hills position); staff recruited on a job-sharing basis are entitled to be appointed to
full-time positions provided that suitable vacancies exist (Ms Stapletons position).
724
seventh point of the scale of pay for Clerical Assistant posts; Ms Stapleton, for her part, was directly
recruited to a job-sharing post in April 1986.
The claimants each job-shared for two years (Ms Hill from May 1988 to June 1990; Ms Stapleton from
April 1986 to April 1988). During that period of service they worked half full-time hours on a one week
on/one week off basis3.
3
This is one of four job-sharing options operated under the Irish system. The others are: day on/day off;
morning/afternoon, and alternate three day/two day week.
4.
As regards pay, under instructions contained in a circular of 27 February 1984 issued by the
Department of Finance, the scale of pay applicable to job-sharing staff is a scale each point of which
represents 50% of the corresponding point on the scale of pay appropriate to full-time staff 4. Employment
while job-sharing is therefore paid on a strictly pro-rata basis.
4
It seems worth adding a few brief comments on the pay classification system used in the Irish administration. There are
two different scales, subdivided into eleven salary grades: one for full-time employees and the other for job-sharers. The
salaries in the second scale represent, at each grade, half of the corresponding point on the scale of pay appropriate to
full-time staff. Under the rules governing employment within the administration, increments on that scale are granted
annually if the officers services are considered satisfactory by the head of the department.
5.
The rules laid down in the administrative circular in question were incomplete. There was no provision
concerning the criteria for calculating periods of service in a job-sharing capacity for the purposes of
progression on the pay scale when the employee exercised the right to return to full-time work (or, in the
case of employment in a job-sharing capacity ab initio, the right to take up full-time employment).
6.
The competent administrative authoritythe Department of Finance addressed that question in a
circular of 31 March 1987 which stated that as each years job-sharing service is reckonable as 6
monthsfull-time service, an officer who has served for two years in a job-sharing capacity should be
placed on the second point of the full-time scale (equivalent to one years full-time service) (emphasis
added). Where officers had been job-sharing for more than two years, their position on the full-time scale
was to be adjusted on a strictly pro-rata basis (see Circular of 31 March 1987 from the Civil Service
Training Centre of the Department of Finance).
7.
Those criteria for calculating years of service were not, however, immediately applied to the claimants.
In calculating their point on the pay scale, the administration initially reckoned the period spent in job-
sharing as if it had been full-time employment. On that basis, Ms Hill, who returned to full-time work in
June 1990, was placed on the ninth point on the corresponding scale (that is to say, at the same point as
she had reached on the job-sharing scale); Ms Stapleton, on the other hand, was placed when she
secured full-time workhaving completed two years job-sharing serviceon the third point of the pay
scale and, since she worked satisfactorily throughout 1989 and 1990, moved up to the fifth grade of the
full-time scale.
8.
It was only subsequently that the administration realised its mistake and undertook the necessary
adjustments. Ms Hill was regressed from the ninth to the eighth point on the pay scale. For her part, Ms
Stapleton was not permitted to progress to the sixth point on the scale, even though from the point of view
of the quality of her work, she satisfied the requirements for such advancement.
9.
Under s 7(1) of the Anti-Discrimination (Pay) Act 1974, the claimants submitted a complaint to an
Equality Officer in which they argued that the rules governing the recognition of pay increments accrued
while job-sharing were 725 unlawful as contrary to art 119 of the Treaty and Council Directive (EEC)
75/117 on the approximation of the laws of the member states relating to the application of the principle of
equal pay for men and women (OJ 1975 L45 p 19).
10.
The Equality Officer, relying on the 1974 Act and the courts judgment in Nimz v Freie und Hansestadt
Hamburg Case C-184/89 [1991] ECR I-297, found in the claimants favour. In his opinion, equating two
years job-sharing service to one years full-time service for the purposes of progression on the
incremental scale constituted discrimination against them.
11.
Following the recommendation of the Equality Officer, the Revenue Commissioners and the
Department of Finance (the appellants) appealed to the Labour Court. The claimants, for their part, also
appealed to that court for an order requiring the administration to implement the recommendation.
12.
The Labour Court found that a case of direct discrimination was not made out. However, on the
grounds that the majority of job-sharing staff are women and that the period of service spent job-sharing
may give the officer experience equivalent to that gained by a full-time worker, it has referred the following
questions to the Court of Justice in order to ascertain whether indirect discrimination may be made out
against female civil employees in this case.
In circumstances in which far more female workers than male workers spend part of their
working lives in a job-sharing capacity: (a) Does a prima facie case of indirect discrimination arise
where job-sharing workers who convert to full-time work are given credit for incremental
progression on the scale of pay for full-time staff by reference to actual time worked such that,
while the benefits awarded to them are fully prorated to those awarded to staff who have always
worked full-time, they are placed at lower points on the full-time scale than comparators who are in
all respects similar to them except that they have worked continuously on a full-time basis? In other
words, is the principle of equal pay, as defined in Directive 75/117/EEC, contravened if employees
who convert from job-sharing to full-time work, regress on the incremental scale and hence on their
salary scale, due to the application by the employer of the criterion of service calculated by time
worked in a job? (b) If so, does the employer have to provide special justification for recourse to the
criterion of service, defined as actual time worked, in awarding incremental credit? (c) If so, can a
practice of incremental progression by reference to actual time worked be objectively justified by
reference to factors other than the acquisition of a particular level of skill and experience over
time?
Apart from the parties, the European Commission has also submitted written observations. The
parties, the UK government and the Commission participated in the hearing.
The relevant provisions
13.
The provisions quoted below are relevant to consideration of the case.
The second paragraph of art 119 of the Treaty defines pay as follows:
For the purpose of this Article, pay means the ordinary basic or minimum wage or salary and
any other consideration, whether in cash or in kind, which the worker receives, directly or indirectly,
in respect of his employment from his employer.
Article 1 of Directive 75/117 provides:
726
The principle of equal pay for men and women outlined in Article 119 of the Treaty, hereinafter
called principle of equal pay, means, for the same work or for work to which equal value is
attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and
conditions of remuneration.
Legal analysis
14.
Before examining the substance of the questions referred by the Labour Court, I shall start by tackling
a matter which the Commission alone raised in its observations. May the Labour Court be regarded as a
court or tribunal within the meaning of art 177 of the Treaty? The Commission considers that it may. The
other parties did not state any views in the written procedure. At the hearing, however, the representative
of the appellant administrative authorities considered it necessary to state that the Labour Court may be
regarded as a court or tribunal within the meaning of art 177 solely in respect of certain areas of
jurisdiction, including that involved in this dispute.
15.
It seems to me that a few observations will suffice on this point. The Labour Court was first constituted
by the Industrial Relations Act 19465, which lays down detailed rules concerning its powers and
procedure. Its members are appointed by the Minister for Trade and Industry on recommendations from
trade union and employers organisations6. Whilst its original jurisdiction was exclusively in the sphere of
arbitration, the functions of the Labour Court have changed over time. The alteration introduced by the
Anti-Discrimination (Pay) Act 19747 particularly significant for the purposes of this case. Section 8 of the
Act provides that the Labour Court is to hear and determine appealsas in this caseconcerning
Recommendations of the Equality Officer. In such cases there is provision on the one hand for a private
or public hearing (s 8(1)(c)(i) and (ii)), and on the other hand for a possible appeal on a point of law to the
High Court against the Labour Courts rulings, which does not exist for other cases within the Labour
Courts jurisdiction (s 8(3))8.
5
See Acts of the Oireachtas (1946) No 26, p 1019, ss 1025.
6
The procedure for appointing the chairman does not involve consultation with employers and workers representatives,
but is a matter for the minister alone. See s 10(3) of the 1946 Act.
7
See Acts of the Oireachtas (1974) No 15, p 211.
8
See s 17 of the Industrial Relations Act 1946. It is to be noted that s 8(4) of the 1974 Act lays down the procedure to be
followed where the employer fails to implement a decision of the Labour Court. In that case, there is a second stage
before that court, at the end of which the employer may be ordered to take certain action. If the employer fails to comply,
fines may be imposed.
16.
To my mind, the requirements which a decision-making body must satisfy, according to the courts
case law, in order to constitute a court or tribunal within the meaning of art 177 are fulfilled in this case: it
must be established by law and be independent, have a permanent existence, exercise binding
jurisdiction, be bound by rules of adversary procedure and apply rules of law 9. The Labour Court, which
was established and is governed by law, is a permanent, independent body and also exercises binding
jurisdiction inasmuch as it has sole jurisdiction to hear and determine equal-treatment disputes (see s
7(1) of the 1974 Act). It takes its decisions in accordance with a procedure laid 727 down by statute, with
the safeguard of an inter partes hearing, and is called upon to apply rules of law. An appeal against its
decisions can be brought before the High Court on a point of law (see Vaassen v Management of the
Beambtenfonds voor het Mijnbedrijf Case 61/65 [1966] ECR 261). Last, I would point out that the court
held in Handels- og Kontorfunktionrernes Forbund i Danmark v Dansk Arbejdsgiverforening acting on
behalf of Danfoss Case 109/88 [1989] ECR 3199 (Danfoss), a case much more open to doubt than this,
that an industrial arbitration board was entitled to refer questions for a preliminary ruling under art 177 10.
9
See, most recently, Criminal proceedings against X Joined cases C-74/95 and C-129/95 [1996] ECR I-6609;
Municipality of Almelo v NV Energiebedrijf Ijsselmij Case C-393/92 [1994] ECR I-1477 (para 21); Corbiau v
Administration des contributions Case C-24/92 [1993] ECR I-1277; Handels- og Kontor- funktionrernes Forbund i
Danmark v Dansk Arbejdsgiverforening acting on behalf of Danfoss Case 109/88 [1989] ECR 3199 and Fratelli Pardini
SpA v Ministero del Commercio Case 338/85 [1988] ECR 2041.
10
I would point out that in that case neither the establishment of the board nor the procedure to be observed was
determined in detail by statute; the arbitration board was in general composed on an ad hoc basis, so that doubts arose
as to its nature as a permanent body; finally, the legal rules which it had to apply were those of collective agreements.
On this point, see the opinion of Advocate General Lenz in Danfoss [1989] ECR 3209 (paras 1624).
17.
I would ask the court to bear with me while I make a few preliminary observations regarding this
dispute. The case before the court resembles those considered in Gerster v Freistaat Bayern Case C-
1/95 [1997] ECR I-5253 and Kording v Senator fr Finanzen Case C-100/95 [1997] ECR I-5189on
which I delivered a joint opinion on 22 October 1996and in the case of Nimz. Yet this is true only in
certain legal and factual respects. In other respects the case now before the court differs.
18.
The points of similarity with the Gerster and Kording cases are as follows. In those proceedings it was
alleged that the calculation method used by the German government in regard to advancementin terms
of career in those cases as against in terms of pay scale in this casegave rise to indirect discrimination
against part-time workers. Having said that, it should be noted that the circumstances under consideration
in Gerster and Kording fell within the ambit of Community rules different from those in point in this dispute.
In the cases in question it was necessary to determine whether the German administrations conduct with
regard to access to a post of higher grade was lawful under Council Directive (EEC) 76/207 on the
implementation of the principle of equal treatment for men and women as regards access to employment,
vocational training and promotion, and working conditions (OJ 1976 L39 p 40).
19.
In relation to Nimz [1991] ECR I-297, the similarity lies in the fact that, in that case and in this, what
has to be determined is whether national rules laying down the criteria which part-time workers have to
satisfy in order to acquire the right to pay increases are compatible with the principles of equal treatment.
Unlike the provision at issue in Nimz, however, the Irish provision under consideration in this case
evaluates work carried out over a reduced number of hours on the basis of strictly pro-rata parameters:
there is a direct correlation between the work carried out and progression on the scale 11.
11
I note that the provisions of Bundesangestelltentarifvertrag (the BAT) (the collective wage agreement scale for federal
employees; see Nimz [1991] ECR I-297 (para 3)) which were at issue in Nimz provided that full account should be taken
of the period of service of workers employed for at least three-quarters of normal working time, but that only one-half of
such period of service should be taken into account in the case of workers whose working hours were between one-half
and three-quarters of normal working time.
20.
To my mind, this case falls within the scope of the Community rules on equal pay: art 119 of the Treaty
and the relevant implementing provisions, especially those laid down in Directive 75/117. I have more
than one reason for taking this view.
728
In its decisions the court has repeatedly held that art 119 is mandatory and applies to individual and
collective agreements, as well as to laws, regulations and administrative provisions (see Rinner-Khn v
FWW Spezial Gebudereinigung GmbH Case 171/88 [1989] ECR 2743, Kowalska v Freie und
Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591 and Enderby v Frenchay Health Authority Case
C-127/92 [1993] ECR I-5535 (para 21).).
On top of this, there isas the Commission observesspecific clarification afforded by the judgment
in Nimz [1991] ECR I-297 (para 10), which is directly relevant to the subject matter of this case: the rules
governing what is practically an automatic reclassification in a higher salary grade come in principle within
the concept of pay as defined in Article 119 of the Treaty. In the case now before the court, movement
from one salary grade to another is automatic, which accords with the test laid down in Nimz. The
question arises precisely because employees who initially worked in a job-sharing capacity automatically
suffer a reduction in hourly pay at the time when they convert their employment relationship into a full-
time arrangement.
The first question
21.
As we know, two kinds of appraisal have to be carried out in discrimination cases. First of all, it must
be ascertained whether discrimination is present and then whether it is objectively justified (see Jenkins v
Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972, [1981] ECR 911 (paras 1011)).
From the latter angle, the Labour Court asks in its second and third questions whether, in order for the
employer to have recourse to the criterion of service, defined as actual time worked, it must provide
special justification and, if so, whether it may do so by reference to factors other than the proven
acquisition of a particular level of skill.
22.
So, let us see whether discrimination is present in this case. One point is certain already: there is no
direct discrimination. The national court itself has said so. The rules in question apply without distinction
to men and women.
It must, however, be pointed out that the majority of officers in the grade of Clerical Assistant are
women. What is more relevant for present purposes is that the overwhelming majority of job-sharers are
women12. This explains why the question of possible discrimination between employees on the ground of
sex came to be referred to the court.
12
From this point of view, the figures supplied during the proceedings speak for themselves. Of clerical assistants working
in a job-sharing capacity, 992% are women; more generally, 98% of Irish Civil Servants who have chosen to job-share
are women. The claimants assertion, made both in their observations (point 1.2) and at the hearing, that workers
choose that scheme in order to combine work and family responsibilities, seems to be borne out by the experience of
the Civil and Public Service Union that 83% of job-sharers do so to combine family and work responsibilities. This
invariably involves caring for children (quoted in point 2.9 of the claimants observations).
23.
What arguments have been put before the court concerning the hypothesis of indirect discrimination?
As I have said, under the calculation rules used in the Irish provisions, when workers who have
exercised the right to job-share return to full-time work, their pay is less than that received by workers who
have always worked full-time. In the claimants view, this results in differential treatment which has no
objective justification and is disadvantageous to women, who form the majority of job-sharers. The
practical upshot is indirect discrimination contrary to the principles of Community law. Furthermore, the
particular character of job-sharing 729 distinguishes it from part-time work: job-sharing, they say, is the
sharing of work and the related responsibilities between two employees. That difference in kind between
job-sharing and part-time work provides justification for taking account of job-sharing for the purposes of
calculating length of service in accordance with the same rules as apply to full-time work.
24.
The government concerned, and also that of the United Kingdom, consider that the present case does
not exhibit the essential features of discrimination. They cite the courts judgment in Stadt Lengerich v
Helmig Joined cases C-399/92, C-409/92, C-425/92, C-34/93, C-50/93 and C-78/93 [1994] ECR I-5727 in
order to argue that it is lawful for a job-sharer to be placed at a lower level on the pay scale on returning
to full-time work. They argue that such regression occurs as a result of the use of a strictly pro-rata
criterion in reckoning service in a job-sharing capacity, and that that criterion is fully justified for the
purposes also of progression on the pay scale: the claimants, they say, are placed, as regards pay, on a
substantially equal footing with workers who have worked an equivalent number of hours. The Irish
authorities maintain that that solution is not discriminatory. Conversely, the solution proposed by the
claimants would be. Once equal treatment in terms of pay is claimed for classes of employees who have
carried out quantitatively different work, those who have worked reduced hours will be unjustifiably
advantaged over those who have worked full-time.
25.
I shall now consider the arguments set out above. Under the rules governing job-sharing, just as under
the rules for full-time work, progression on the pay scale depends on an assessment of both the quality
and quantity of the work performed (see, to this effect, Circular No 9/87 of the Department of Finance).
These are two inseparable assessment criteria, which operate together in forming the decision on
advancement which the administration has to take. Given the same qualitative assessment of quality of
two workers, the employee working in a job-sharing capacity will progress on the pay scale whilst he is
job-sharing in parallel with the full-time worker. Each incremental step corresponds to half of the pay of
the full-time employee. Accordingly, the hourly pay of the two categories of worker is the same at every
level of the scale. Yet, when the job-sharer converts to full-time work, his position is automatically
reviewed, with the result that he is placed at a lower level on the full-time scale than he occupied on the
job-sharing scale.
26.
That method of calculation is based on the number of hours actually worked and on strictly pro-rata
criteria. Can this constitute indirect discrimination? In my view, it can. The regression provided for in the
rules has direct effects on pay. Workers receive less, in real terms, than twice what they would have
earned job-sharing13: they therefore suffer a reduction in their hourly rate of pay. On close consideration,
this situation is the mirror-image of that created by the German rules in issue in Nimz. In that case, by
providing that account should be taken of only half of the hours worked, the national legislation prevented
(or, more properly, delayed) part-time workers from gaining access to a higher level in the pay scale. By
contrast, in this case, under the rules in question workers returning to full-time work are unable to
preserve the level on the 730 pay-scale which they had reached while job-sharing. In both cases,
therefore, employees working part-time (here the expression is to be understood in the broad sense) are
denied pay benefits which are, however, granted to those doing the same work full-time. This difference of
treatment in terms of pay within the category of full-time workers affects those who have previously
worked in a job-sharing capacity and are regressed in relation to the position which they had already
achieved on the pay scale.
13
In this regard it might be interesting to note the figures supplied by the claimants in their observations for loss of hourly
pay. As a result of regression Ms Hills hourly pay went down from Ir 618 at the ninth level to Ir 600 at the eighth
level; in Ms Stapletons case, the hourly loss was the 18 pence difference between the rates at the second and third
levels (see the claimants observations, points 5.5 and 5.6).
On examination, this difference in treatment is based solely on the mechanism provided in order for
the time work variable to be taken into account in calculating pay when the job-sharer converts to full-time
work. I cannot but conclude, if I may paraphrase Advocate General Darmon, that there can be no doubt:
employees converting from job-sharing are subject to discrimination in relation to full-time employees;
they require twice the length of service in order to remain, on moving to full-time work, at the level of pay
which they had reached on the scale for part-time work (see Advocate General Darmons opinion in Nimz
[1991] ECR I-297 (para 7)).
27.
In my view, this first conclusion is not contradicted by the courts decision in Helmig [1994] ECR I-
5727. In that case the issue was the right of part-time workers to overtime payments on the same basis
as full-time workers when they had completed hours in excess of the set part-time working hours. The
court found that the rules in question were not discriminatory. Part-time workers could not claim the right
to overtime supplements except under conditions in substance equal to the conditions applicable to full-
time workers, and provided always that they had actually worked in excess of the normal full-time working
hours. As is evident, the dispute then concerned the possibility of treating employees assigned to the
same work in a different manner for the purposes of calculating pay. Giving part-time workers the right to
overtime supplements as from the first hour worked over and above their working hours would have led to
the unacceptable result of paying full-time workers proportionately less than part-timers. The court held
that there is unequal treatment wherever the overall pay of full-time employees is higher than that of part-
time employees for the same number of hours worked on the basis of an employment relationship (see
[1994] ECR I-5727 (paras 2630)). That is the correct view, which holds good, as the Commission notes,
in this case as far as concerns the amount of pay due to the employee while job-sharing. As long as the
persons concerned are employed in a job-sharing capacity, their pay is calculated on the basis of the
work actually performed, and in no other way.
28.
In the case now before the court, however, the pay aspect is different. On close study, the court is not
faced, as it then was, with the calculation of pay for employees required to work according to different
systems. In our case, the court is called upon to ascertain whether or not persons working in a job-sharing
capacity have the right to preserve their hourly rate of pay, once they have exercised their right to return
to full-time work. In essence, if the strictly pro-rata criterion adopted in Helmig were to apply in the case in
point, as the Irish and UK governments propose, that would signify, to all intents and purposes, calling in
question workers hourly pay, thus making some of their financial rights nugatory 14. For my part, I do not
believe that I can accept such a result.
14
Here, I consider it useful to recall a subsequent measure which bears out the confusion created in this area of the Irish
system: the circular of the Department of Finance of 14 July 1994 dealing with Job-Sharing Staff and Increments. In
paras 3 and 4 the circular tackled various problems connected with the system of calculation which had arisen where a
person returned to job-sharing after resuming full-time duties for a period (para 3) and where a person was requested to
resume full-time work for a period (para 4). In both cases, the administration found it necessary to adopt mark-time
provisions to ensure that the workers preserved their financial entitlements. This is a significant example of the
consequences for workers rights which may ensue from the rules.
Let me dwell on this point. If it is held to be lawful to reduce the hourly pay of workers moving from job-
sharing, this will be tantamount to reducing ex post the pay they received during the years in which they
worked reduced hours15. To my mind, this disparity in the hourly pay of a full-time worker compared with a
731
part-time worker is directly contrary to the principle of equal treatment upon which the judgment in
Helmig is based.
15
An example in figures: a worker job-sharing at the first level earns Ir 447 an hour; at the second level Ir 468 an hour
and at the third level Ir 486 an hour. Her average hourly pay over three years is Ir 467 an hour; by contrast, if the
Irish governments calculation method is used, her average pay per hour is Ir 460. It can therefore be seen that the
calculation used leads to an ex post reduction in the workers hourly earnings.
29.
Similar kinds of objections are encountered by the Irish administrations argument that if full-time
employees who had formerly chosen to share jobs were to be treated in the same way as those who have
always worked full-time, the first category of workers would be unjustifiably advantaged in relation to the
second category. That is not in fact the case. I repeat: we are talking about calculating pay when
someone leaves job-sharing; that method of calculation incorporates as a variable the fact that the person
employed in a job-sharing capacity has worked for double the period required of a full-time worker. That is
where the discrimination is to be found. In order to refute the governments argument suffice it to observe
that workers who work, and while they work, in a job-sharing capacity, are paid in proportion to the work
actually performed. That is not treating different situations in the same way: pay for job-sharing is different
from pay for full-time work.
30.
Extension of such different treatment, still on account of the pro-rata criterion, to employees moving
from job-sharing to full-time work results in a downward valuation of the work they previously did when
they were employed part-time. To my mind, that cannot be squared with the judgment of the court in
Nimz. The important thing to consider is the effect of such a valuation. Recourse to the criterion of hours
worked during the period of part-time employment, as provided for by the Irish rules, introduces a
retrospective disparity in the overall pay of workers performing the same duties in their employment both
in terms of quality and quantity: workers are treated as belonging to different categories. Hence the
conclusion that there is unequal treatment. It is apparent from the order for reference that the majority of
the employees concerned are women: the calculation criterion used by the Irish government does
therefore constitute discrimination against them (see the judgment in Nimz [1991] ECR I-297 (para 12)).
The second question
31.
I must now begin to consider the second question. The national court asks the court to specify whether
the employer is required to provide special justification for recourse to the criterion of service, defined as
actual time worked.
32.
In essence, the court is called upon to clarify what it held in its judgment in Danfoss [1989] ECR 3199
(para 24). There, it laid down the principle that since length of experience goes hand in hand with
experience and since experience generally enables the employee to perform his duties better, the
employer need not provide special justification for recourse to the criterion of length of service.
732
33.
To my way of thinking, such a statement can only be considered in the light of the facts of the case
then before the court. Let me briefly recall them. Under a clause in a collective employment agreement,
Danfoss paid individual supplements to employees to reward flexibility, training and length of service 16.
The system used by the employer to calculate those supplements was absolutely lacking in transparency,
with the result that it was impossible for employees to find out the actual break-down of the supplements
paid to them. Recognising the need for workers to know the detailed break-down of their pay, the court
went on to assess the individual criteria for the supplements, and in respect of the criterion of length of
service it made the statement quoted above.
16
Under the collective agreement the employer was free to grant supplements on the basis of certain individual
characteristics of the employee (see Advocate General Lenzs opinion in Danfoss [1989] ECR 3199 (paras 4243)).
34.
That judicial opinion, the meaning of which the national court now wishes the court to define, cannot
be understood in isolation from the facts set out above. Some analysis is called for here. When the
employer takes an individual decision it is certainly lawful to take length of service into account as one
factor in granting the employee a differential pay supplement. It may be that greater experience in the
post enables the employee to work more efficiently. What does, however, give rise to doubts is the use of
a criterion which generalises recourse to length of service, so as to extend it indiscriminately even to
cases in which it may be unjustified.
This is an idea which I have already discussed in my joint opinion in Gerster and Kording but to which I
believe I must now return. The criterion of length of service must be supported by adequate justification
where it is applied to a series of work relationships in respect of which it is far from proved that length of
service can be equated with competence. Different treatment of part-time and full-time workers is not
justified where it is assumed, in a general way and merely on the basis of strictly proportional criteria, that
workers in the first category are per se less deserving of pay supplements. Thus it is in our case. The
result is the discrimination we have just seen between men and women, given the fact that the great
majority of part-time workers are women17.
17
On the other hand, I must indicate the lines along which some learned writers have interpreted the relationship between
Danfoss and Nimz. In particular, More Seniority pay for part-time workers (1991) European Law Review p 826 (sic) has
written: This (the finding on that point in Nimz) appears to contradict the view expressed by the Court of Justice in
Danfoss in 1989, when it stated that seniority goes hand in hand with experience which generally places a worker in
a better position to carry out his duties and that it was permissible for an employer to reward seniority without having to
establish the importance which it takes on for the performance of the specific duties to be entrusted to the worker. The
latter statement, in particular, appears to be at variance with the view of the court in Nimz that there should be
identifiable connection between rewarding seniority and an improved performance of the task in hand. This suggests
that the courts view of justifying seniority payments as expressed in Danfoss can no longer be regarded as valid. This is
a welcome development and can, perhaps, be regarded as the major contribution of the Nimz judgment.
35.
I must now consider whether the solution adopted by the court in Danfoss may profitably be
transposed to the case in point. I do not think it can. Indeed, it seems clear to me that the principle laid
down in that case must not only be construed having regard to the above-mentioned caveats but must
also apply only to length of service reckoned in terms of years and not of hours actually worked. In that
decision the court gave an important explanation of the way in 733 which the criterion of length of service
must be used in order to avoid unlawful discrimination between men and women:
as regards the criterion of length of service, it is also not to be excluded that it may
involve less advantageous treatment of women than of men in so far as women have entered the
labour market more recently than men or more frequently suffer an interruption of their career.
(See Danfoss [1989] ECR 3199 (para 24); my emphasis.)
To my mind, this explanation leads us to draw a distinction between length of service reckoned in years
which the employer can take into consideration in deciding on promotions without having to establish the
importance it has in the performance of specific tasks entrusted to the employee (para 24)and length of
service reckoned in hours worked, whose relevance for the purposes of progression to a higher rate of
pay must, in contrast, be proved by objective evidence.
36.
To round off this reasoning, and the better to explain it, I shall add a few other observations which will
help to distinguish this case from Nimz and to bear out the conclusion I have proposed. The job-sharing
scheme undoubtedly possesses specific features differentiating it from part-time work. Each of the
workers who share the job is responsible for the work carried out by the entire teamif I may so
describe itmade up of the two officers sharing the job 18. In addition, employees who have opted for job-
sharing may not perform any work other than their work for the administration.
18
See, to this effect, the analysis of the tasks performed by the claimants as set out in their observations, highlighting the
high degree of integration and communication in both job-sharing partners (point 3.7). More generally, compare the
statements in point 2.3 of the observations concerning the fact that the job-sharers were not on fixed-term contracts:
There are no part-timers in the [Irish] Civil Service and no job-sharers on temporary contracts.
In the light of both those aspects of job-sharing, the employment relationship can be seen to have
special characteristics different from those of full-time work. Employees working in a job-sharing capacity
are in a position halfway between part-time and full-time work. Their employment presents features of
both categories: it resembles full-time work from the point of view of the responsibility for the work in its
entirety and part-time work because the hours to be worked are half the full-time hours. In my view, all of
this must necessarily be taken into account in the assessment required as to the work performed and
experience acquired by those who have worked as job-sharers. That is one more reason for considering
that in the circumstances of this case it is unjustifiable to have recourse to length of service reckoned in
hours worked19. Moreover, that argument of mine is indirectly, but significantly, confirmed by the
statements of the national court itself. It says that it has found that the job-sharing period may give the
employee the equivalent experience of a full-time employee.
19
On this point it would be apt to recall the words of Advocate General Darmon in his opinion in Nimz [1991] ECR I-297
(para 14), where, when considering the United Kingdoms argument, he stated that: Certainly it could be considered
necessary to take account of length of service not in years but in hours of work performed, as proposed by the United
Kingdom, but on condition that it is to facilitate progression to different duties, entailing new responsibilities and
consequently presupposing a certain amount of experience. In the present case, however, the length of service required
is merely intended to enable access to a higher wage grade without any alteration in the nature of the duties performed.
37.
It follows that the criterion of length of service, defined as time actually worked, needs objective
justification. The criterion will be justified where it is 734 clear that full-time employment is the only
solution to be adopted in order for the employee to obtain the requisite experience for his intended duties.
Otherwise, a different sort of justification will have to be found that will in any event satisfy the criteria laid
down by the court in Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607. It is clear
from that judgment, as far as concerns this dispute, that the objective pursued by the administration in
regulating its employees incremental steps must correspond to a real need on its part. Moreover, the
means chosen with a view to achieving it must be appropriate and necessary (see [1986] ECR 1607 (para
36)).
The third question
38.
That last area of inquiry is precisely that raised by the national courts third and last question. Is it, or is
it not, possible to regard the practice of making incremental steps depend on time actually worked as
objectively justified on the basis of factors other than the acquisition over time of a given level of skills and
experience?
39.
With regard to that question, the claimants argue that there is no justification whatsoever which is both
objective and necessary as required by the courts case law. For its part, the administration argues that
the Irish system is objectively justifiable on an implied series of grounds which satisfy the requirements
set out in the case law of the court20.
20
As stated in the order for reference (point 21), the administration has put forward the following reasons to justify its
rules: (a) the rules are in keeping with the standard practice of the civil service whereby incremental progression is
related to service and only actual paid service is credited; (b) this practice is valuable to the employer in that it gives
incentives to improve the quality of work performed; (c) to make an exception of job-sharing service would lead to
arbitrary and inequitable situations; (d) to make such an exception because the majority of job-sharers are women
would amount to discrimination in favour of women; (e) the present practice ensures that the incremental cost of job-
sharing staff is the same as that of full-time staff, thus making the cost of work done by job-sharers the same as the cost
of work done by full-time staff.
40.
It must be stated that the court has consistently held that
it is for the national court to determine whether and to what extent the grounds put forward
by an employer to explain the adoption of a pay practice may be regarded as objectively justified
economic grounds.
It is therefore for the national court to assess the grounds adduced in support of the criteria adopted by
the administration in the case pending before it. Once more referring to settled case law, the court may,
however, supply general and other more specific relevant guidance concerning the reasons put forward
by the administration during the proceedings21.
21
See Rinner-Khn and Nimz. See also the opinion of Advocate General Darmon in Nimz [1991] ECR I-297 (paras 10
11); the judgments in Secretary of State for Social Security v Thomas Case C-328/91 [1993] 4 All ER 556, [1993]
ECR I-1247 and Kuratorium fr Dialyse und Nierentransplantation eV v Lewark Case C-457/93 [1996] ECR I-243 (para
32); and the joint opinion in Gerster [1997] ECR I-5253 and Kording [1997] ECR I-5289 (para 43).
41.
With regard to the first justification relied onthat it is standard practice in the Irish civil service to
credit only actual paid serviceI fail to see how it can serve in the circumstances of the case. As the
court has held, generalisations about certain categories of workers are unacceptable unless they are
supported by objective criteria and are unrelated to any discrimination on grounds of sex (see Rinner-
Khn [1989] ECR 2743 (para 14)). The argument put forward by the Irish government has already been
refuted, in substance, in the judgment in 735 Nimz22. There the court rejected the proposition that
classification of part-time workers in a higher salary grade should depend solely on the number of hours
worked. That argument did not prevail in Nimz and it does not deserve to be upheld in this case.
22
See the opinion of Mr Darmon in Nimz [1991] ECR I-297 (para 14).
42.
To my mind, the second reason given by the administration is equally unconvincing. It argues that the
need to give staff sufficient incentives is objective justification. To maintain motivation and a sense of
vocation in the long term, or to raise the morale of staff, is a valid and laudable aim. All the more so when,
as the representative of the appellant administration observed at the hearing, the career of clerical
assistants is long and needs, if I may so express it, to be invigorated by continuing stimuli. However, it
seems to me that such an objective could be pursued even if the disparity in pay were abolished and
workers converting from job-sharing to full-time work could claim the length of service they had acquired
in their previous work experience. While it is of course for the national court to make a definitive
determination with regard to that point I for one cannot see how the equal treatment as regards pay
claimed by the workers concerned can possibly conflict with the administrations declared purpose. Nor,
therefore, do I understand how the requirement of need laid down in the case law referred to can be
regarded as satisfied in order to justify the discriminatory measure adopted in this case. In any event, it is
for the authority concerned to supply actual proof that there is a basis for the alleged justification.
43.
What is to be said of the discriminatory consequences which, according to the administration, would
be produced by the adoption of an ad hoc solution for a group, such as that of job-sharers, the majority of
whom are women? I have already explained that there is no discrimination in favour of women. On the
contrary. Those who have worked, and continue to work, full-timea group of which women do not form
the majorityreceive twice the pay. The disadvantaged group is the group, notable for the preponderance
of women over men, of those who have job-shared and move on to full-time work. The disadvantage can
only be removed by recognising their right to the incremental steps which they have previously accrued
while job-sharing, as I have already explained.
44.
Nor, lastly, am I persuaded by the justification concerning the administrations financial needs. That,
under the present system, the incremental cost of job-sharers is equal to that of full-time employees does
not strike me as a meritorious argument. It does not prove that the means chosen is necessary in order to
satisfy a real need on the authoritys part, as required by the judgment in Bilka. I cannot for my part
discover any reasons why the economic needs which the administration asserts cannot be appropriately
satisfied in a different manner, without discrimination as regards pay between one group and the group of
full-time workers. In short, the authority concerned must prove that the criterion adopted is justified, in
preference to and to the exclusion of that put forward by the claimants, by the expenditure effects of the
claimants increments.
45.
For the reasons set out above I propose that the Court of Justice should reply as follows to the
questions referred by the national court:
(1) Article 119 of the Treaty and the rules regarding equal pay must be interpreted as meaning
that, where a greater percentage of women than men are employed on a job-sharing basis, the pay
increments awarded by 736 reference to time actually worked to those exercising the right to move
from job-sharing to full-time work may not be organised in such a way that the individuals
concerned are placed at a lower grade in the pay scale than other workers on full time who have
the same length of service measured in years.
(2) Where an employer awards a pay increment on the basis of hours actually worked, it must
prove that that criterion corresponds to a real need on its part and is effective, necessary and
appropriate with a view to achieving the objectives pursued by the employer.
(3) It is for the national court to determine whether the practice of correlating pay increments
with time actually worked is objectively justified.
17 June 1998.
Costs
45.
The costs incurred by the UK government and the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the action pending before the national tribunal, the decision on costs is a
matter for that tribunal.
On those grounds, the Court of Justice (Sixth Chamber), in answer to the questions referred to it by
the Labour Court by order of 5 April 1995, hereby rules: art 119 of the EC Treaty and Council Directive
(EEC) 75/117 on the approximation of the laws of the member states relating to the application of the
principle of equal pay for men and women are to be interpreted as precluding legislation which provides
that, where a much higher percentage of female workers than male workers are engaged in job-sharing,
job-sharers who convert to full-time employment are given a point on the pay scale applicable to full-time
staff which is lower than that which those workers previously occupied on the pay scale applicable to job-
sharing staff due to the fact that the employer has applied the criterion of service calculated by the actual
length of time worked in a post, unless such legislation can be justified by objective criteria unrelated to
any discrimination on grounds of sex.
743
The plaintiff bank carried on a wide range of banking activities, including foreign exchange dealing. The
bid price at which the bank offered to buy a currency was typically slightly below the offer price at which
the bank would sell that currency, the difference between the prices being known as the spread. No
money was delivered physically in the foreign exchange transactions; what was delivered was the
availability of drawing on an account opened with a bank in the currency delivered. Moreover, the bank
did not charge transaction fees or commissions, but sought to make a profit, over a period of time, as a
result of the spread between its bid and offer quotes. The bank was partially exempt for value added tax
purposes, but did have the right to deduct input tax corresponding to transactions completed with counter-
parties outside the Community. In its return for the period from 1 May to 31 July 1994, the bank therefore
took into account the foreign exchange transactions which it had entered into with such counter-parties
over the relevant period and claimed a large input tax credit. However, the commissioners reduced the
input tax credit claimed by disallowing the portion corresponding to the foreign exchange transactions. On
appeal, the High Court stayed the proceedings and referred two questions to the Court of Justice of the
European Communities for a preliminary ruling to determine: (i) whether foreign exchange transactions,
as defined by the British Bankers Association1, constituted a supply of goods or services effected for
consideration within the meaning of art 2(1)2 of Council Directive 77/388 on the harmonisation of the rules
of the member states relating to turnover taxescommon system of 744 value added tax: uniform basis
of assessment; and (ii) if so, what was the taxable amount of such supplies within art 11A(1) 3.
1
The definition is set out at p 764 h, post
2
Article 2(1), so far as material, is set out at p 762 f, post
3
Article 11A(1), so far as material, is set out at p 763 j, post
Held (1) Since currencies exchanged against other currencies in a foreign exchange transaction were
used as legal tender, they could not be regarded as tangible property within art 5 of Directive 77/388.
They were not therefore supplies of goods, but were supplies of services within art 6 (see p 765 d, post).
(2) A supply of services was effected for consideration within art 2(1) and, as such, taxable only if
there was a legal relationship between the provider and recipient of the service pursuant to which there
was reciprocal performance, the remuneration received by the provider constituting the value actually
given in return for the service supplied to the recipient. In the instant case, it was clear that a bilateral
legal relationship existed between the bank and its counter-party under which the two parties gave
reciprocal undertakings to transfer amounts in a given currency and to receive the countervalue in
another currency. Apart from the actual exchange transaction, the service provided by the bank was
characterised by the banks preparedness to conclude such transactions in the currencies in which it
specialised; and the fact that no fees or commission were charged by the bank on a specific transaction
did not mean that no consideration was given. Accordingly, foreign exchange transactions, even when
performed without commission or direct fees, were supplies of services effected for consideration within
the meaning of art 2(1) of the directive (see p 765 e g to p 766 c and p 768 d, post); Tolsma v Inspecteur
der Omzetbelasting Leeuwarden Case C-16/93 [1994] STC 509 applied.
(3) Although they were the subject of a supply, the currencies transferred to the bank by its counter-
party could not be regarded as remuneration for the service of exchanging currencies for other currencies
or consequently as constituting remuneration for that service. Accordingly, in order to determine the
consideration, it was necessary to determine what the bank could actually take for itself. However, since
the bank carried out a large number of transactions relating to different amounts and involving different
currencies, the rates of which were in constant fluctuation, the amount which it could actually apply to its
own use had to be regarded as consisting of the net result of its transactions over a given period of time.
It followed, for the purposes of art 11(A)(1)(a), that the taxable amount was the net result of the
transactions of the supplier of the services over a given period of time (see p 767 c to g and p 768 a e,
post); H J Glawe Spiel- und Unterhaltungsgerte Aufstellungsgesellschaft mbH & Co KG v Finanzamt
Hamburg-Barmbek-Uhlenhorst Case C-38/93 [1994] STC 543 applied.
Cases cited
Apple and Pear Development Council v Customs and Excise Comrs Case 102/86 [1988] 2 All ER 922,
[1988] STC 221, [1988] ECR 1443, ECJ.
Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] STC 1359, [1997] QB 499,
[1996] ECR I-5311, ECJ.
Fischer v Finanzamt Donaueschingen Case C-283/95 [1998] All ER (EC) 567, [1998] STC 708, ECJ.
Glawe (H J) Spiel- und Unterhaltungsgerte Aufstellungsgesellschaft mbH & Co KG v Finanzamt
Hamburg-Barmbek-Uhlenhorst Case C-38/93 [1994] STC 543, [1994] ECR I-1679, ECJ.
745
Muys en De Winters Bouw-en Aannemingsbedrijf BV v Staatssecretaris van Financin Case C-281/91
[1997] STC 665, [1993] ECR I-5405, ECJ.
Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR
6365, ECJ.
Staatssecretaris van Financin v Coperatieve Aardappelenbewaarplaats GA Case 154/80 [1981] ECR
445.
Tolsma v Inspecteur der Omzetbelasting Leeuwarden Case C-16/93 [1994] STC 509, [1994] ECR I-743,
ECJ.
Reference
By order of 13 May 1996, the Queens Bench Division of the High Court) referred for a preliminary ruling
two questions (set out at p 764 f, post) on the interpretation of Council Directive (EEC) 77/388 on the
harmonisation of the rules of the member states relating to turnover taxescommon system of value
added tax: uniform basis of assessment. Those questions were raised in proceedings between First
National Bank of Chicago (the bank) and the Commissioners of Customs and Excise concerning
deduction of input tax on certain foreign exchange transactions. Written observations were submitted on
behalf of: the bank, by P Lasok QC; the United Kingdom government, by S Ridley, of the Treasury
Solicitors department, acting as agent, N Pleming QC and C Vajda, barristers; the French government,
by C de Salins, Deputy Director in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and G
Mignot, Foreign Affairs Secretary in that directorate, acting as agents; and the European Commission, by
P Oliver and E Traversa, of its legal service, acting as agents. Oral observations were submitted on behalf
of: the bank, represented by D Goy QC; the UK government, represented by J E Collins, Assistant
Treasury Solicitor, acting as agent, N Pleming QC and C Vajda; and the Commission, represented by P
Oliver. The language of the case was English. The facts are set out in the opinion of the Advocate
General.
16 September 1997.
AINTRODUCTION
1.
In this reference for a preliminary ruling, the Queens Bench Division of the High Court has referred
questions to the Court of Justice of the European Communities concerning the interpretation of Council
Directive (EEC) 77/388 on the harmonisation of the rules of the member states relating to turnover taxes
common system of value added tax: uniform basis of assessment (OJ 1977 L145 p 1) (the Sixth
Directive). The questions are concerned with the taxation of foreign exchange transactions and with
whether the London branch of the First National Bank of Chicago (the bank) is entitled to deduct input tax.
any transaction between the parties for the purchase by one party of an agreed amount in one
currency against the sale by it to the other of an agreed amount in another currency, both such
amounts being deliverable on the same value date, and in respect of which transaction the parties
have agreed (whether orally, electronically or in writing): the currencies involved, the amounts of
such currencies to be purchased and sold, which party will purchase which currency and the value
date. (See International Foreign Exchange Master Agreement (1993).)
8.
The London branch of the bank, a national banking association organised with limited liability under
federal laws of the United States of America, carries on a wide range of banking activities including
foreign exchange dealing. At the time of the order for reference, it employed approximately 440 staff, of
whom about 40 747were employed in its foreign exchange trading department, with further staff in the
back office providing support.
9.
The bank is a market maker. It is willing at all times to provide and receive those currencies in which
it specialises. It provides and receives currencies in transactions which are commonly described as those
of purchase and sale. In common with other market makers, the bank will quote prices at which it is willing
to trade as bid or offer prices. The banks bid rate is the exchange rate at which the bank is willing to
buy a currency. The bank at any one specific time will bid, that is to say offer to buy, at one price
expressed as a rate of exchange and at the same time will offer, that is to say offer to sell, the currency in
the same denomination and the same amount at a slightly higher price. The difference between the two
rates is known as the spread.
10.
The banks customers for its foreign exchange transactions fall into three categories. The first includes
corporate customers seeking to manage their foreign currency risks and needs through spot and forward
contracts and hedging. The second category covers fund managers, such as pension funds. Customers
in this group are typically organisations which manage other peoples money. The third category includes
other financial institutions.
11.
All three categories of customer enter into essentially the same types of foreign exchange transaction
with confirmatory documentation including similar information. These foreign exchange transactions
include spot and forward transactions. 65% of customer transactions entered into by the bank are spot
transactions, the remaining 35% being forward transactions.
12.
A spot transaction is the purchase of one currency against the sale of another currency, with the
delivery and sale normally being completed on the second following business day, which is known as the
settlement date or value date. Following agreement for a spot transaction, the bank will supply the other
party to the transaction with documentary confirmation of the terms of the transaction and how it is to be
effected. The confirmation will include statements of: the name and address of the customer; the
production date of the confirmation, which will be typically the date on which the deal was agreed; the
deal date, being the date on which the transaction was agreed; the currency and amount agreed to be
purchased by the bank from the customer; the value date for settlement of the transaction; the rate of
exchange applicable to the transaction; the foreign currency and amount agreed to be sold by the bank to
the customer; the bank account to which the customer will transfer the currency to be delivered by it to the
bank; and the bank account to which the bank will transfer the currency to be delivered by it to the
customer. The confirmation will show the one agreed rate of exchange for the particular transaction. It will
not show the two rates of bid and offer. However, the bid and offer rates will generally be known to the
customer, since he will commonly ask the bank to quote them.
13.
A customer for a spot transaction may, for example, be a manufacturer in the United States who has
shipped a product manufactured there to a customer in Germany and receives Deutschmarks abroad as
payment. As a rule, the customer will wish to exchange the Deutschmarks for US dollars. He will then
telephone the bank and ask for a price to sell Deutschmarks for US dollars for spot.
14.
In contrast a forward transaction is the purchase of one currency against the sale of another currency,
with delivery and sale being completed on a future value date. The amounts are fixed by reference to the
rate of exchange agreed on the deal date. Following agreement for a forward transaction, the bank will
748 supply the other party with similar documentary confirmation including the same information as that
included in a confirmation for a spot transaction. The essential difference from a spot transaction is that
the value date confirmed will be a future date more than two business days after the deal date.
15.
In the foreign exchange transactions entered into by the bank, no money is delivered physically in the
form of coin, bank notes or other chattels. What is delivered is the availability of drawing on a credit
opened with the bank in the currency delivered.
16.
These spot and forward transactions may be effected in a number of ways. On the one hand, a
computerised system is used, whereby the prices for the currency amounts to be exchanged are agreed
by the dealers for both parties by telephone and subsequently confirmed in writing. The confirmation
takes the form of a computer-printed note. The details required are keyed into the computer at the time
the transaction is agreed. Confirmation is given by pressing a single designated button on the keyboard.
In the case of transactions with corporate customers worldwide, a system is employed whereby the
dealers receive or provide their details and confirmations by telex. The bank also provides currency to
private customers. In this case the currency is obtained from a bank using the telex system. Confirmation
is then given by post.
17.
No transaction fee or commission is charged for or invoiced by the bank for any foreign exchange
transaction. Like any other market maker, the bank looks to make a profit out of its foreign exchange
dealings at least in part as a result of the spread between its bid and offer quotes. Generally speaking, the
greater the number of foreign exchange transactions the bank can make for the purchase and sale of
currencies at its bid and offer prices, the greater will be the possibility of profit on its foreign exchange
transactions. Each of its traders will have his or her own book of particular currencies and will be
expected to make a profit over appropriate periods. This profit is the result of all his or her dealings over
the period. Each transaction is entered into in the belief that it has value to the bank, but it is not the
banks practice to value each transaction individually.
18.
In any foreign exchange transaction, and in particular a forward contract, the bank will run at least two
risks. The first risk is that of default by the other party. A more significant risk is the risk that the market
rates will move against any position taken by the bank. The bid and offer rates quoted by the bank are
liable to change rapidly in the course of a business day. Thus, for example, where the bank has
contracted to pay Deutschmarks in a forward exchange contract against settlement by the bank in dollars
and the Deutschmark depreciates against the dollar, the bank runs the risk of a loss expressed in dollars.
The bank will therefore seek to limit its potential risk by seeking counterparties at relevant rates, value
dates and amounts. A significant proportion of these transactions will be initiated by other financial
institutions seeking the same protection for themselves.
19.
In order to maintain and increase the banks goodwill in the foreign exchange market, it publishes
circulars and information sheets which it circulates to its approved customers free of charge. For similar
reasons, it offers free advice to its corporate and fund manager customers.
BOPINION
IQuestion 1
24.
The wording of this question refers to art 2 of the Sixth Directive, which prescribes what activities are
subject to VAT. According to art 2(1), the activities in question are supplies of goods or services effected
for consideration within the territory of the country by a taxable person acting as such. The national
courts first question seeks to ascertain whether the aforementioned foreign exchange transactions of the
bank fall within the scope of the directive.
1. Tax exemptions under the Sixth Directive
25.
As has already been mentioned, such foreign exchange transactions normally have no bearing on
taxation, since, under art 13B(d)(4) of the Sixth Directive, they are exempt from VAT. However, under art
17(3)(c), input tax may be deducted in connection with such foreign exchange transactions where the
customer is resident outside the Community. The bank is seeking the benefit of such deduction of input
tax in this case. In order for it to be able to do so, it is first necessary, of course, that the banks foreign
exchange transactions should come within the scope of VAT and hence of the Sixth Directive.
26.
In my view, this is clear already from the fact that, under art 13B(d)(4), transactions concerning
currency are expressly exempted from VAT. Such exemption would be necessary and make sense only if
it were indeed possible to tax such transactions, that is to say if they fell within the scope of VAT. This is
further supported by the fact that, under art 13C(b), the member states may allow taxable persons a right
of option in respect of the taxation of such transactions.
750
The upshot is that, in certain circumstances, such foreign exchange transactions are in fact subject to
VAT. Lastly it would be completely incomprehensible if art 17(3)(c) were to grant the right to deduct input
tax in respect of transactions which did not fall within the scope of VAT. Accordingly, the bank and the
European Commission point out that the provisions in question would be completely superfluous and
meaningless if the foreign exchange transactionsas the United Kingdom arguesfell completely
outwith the scope of the Sixth Directive.
2. Concept of consideration
27.
In the United Kingdoms view, the relevant provisions of arts 13 and 17 of the directive do not apply to
the transactions at issue on the ground that no consideration is paid for the banks service. As has already
been described, the bank does not charge a fee for exchanging foreign currency, but obtains a profit at
least partly as a result of its fixing different bid and offer prices. The difference between the two prices,
that is to say the spread, does not, the United Kingdom maintains, constitute consideration within the
meaning of the Sixth Directive. For their part, the bank, the French government and the Commission take
a different view.
2.1 Comparison between commission and spread
28.
In the United Kingdoms view, the bank would be working for consideration only if it charged a
commission for exchanging foreign currency. In other words, where a bank made a charge of, say, 2% for
exchanging money, it would, in the United Kingdoms opinion, without doubt be supplying a service for
consideration within the meaning of the directive. At the hearing, the United Kingdom explained this using
the example of a bureau de change. There is no difference in principle between a bureau de change and
the bank, except that in the latter case the foreign exchange transactions are bigger and more complex.
29.
The United Kingdom contends that if the bureau de change or the bank makes no charge but seeks to
make a profit by buying and selling foreign exchange at different rates, it does not receive any
consideration within the meaning of the directive. It does not follow from the fact that over a given period
the bank makes a profit from various foreign exchange transactions that it supplies a service for
consideration in the case of each individual foreign exchange transaction.
30.
The United Kingdom further argued at the hearing, again using the example of a bureau de change,
that, even if the bureau de change were to make a charge for exchanging the money, it could effectuate
that exchange only if it were to offer to purchase foreign currencies at particular rates and to sell them at
other rates, in order thus to obtain the corresponding currencies. The selling price is invariably higher than
the purchase price and, as a result, a profit is made over a certain period of time. The bureau de change
is trading. It carries out foreign exchange transactions in the normal course of its economic activities. This
correspondson a small scaleto the activities of the bank.
31.
The United Kingdom goes on to argue that if that bureau de change were now to decide no longer to
charge commission, it would receive no consideration for exchanging currencies and hence would not be
supplying a service within the meaning of the directive.
32.
In such a case, the United Kingdom argues, the bureau de changeand also the bank in this case
would be working free of charge. In the Commissions contention, this is very improbable. The United
Kingdom itself points out that the 751 bank and the bureau de change are seeking to make a profit even
from these general foreign exchange transactions.
33.
If we now consider the two cases described by the United Kingdomthe general foreign exchange
transactions of the bank or of the bureau de change, on the one hand, and the additional charge of
commission as consideration for the exchange of foreign currencies, on the otherit proves that those
cases do not differ as fundamentally as the United Kingdom maintains they do. In its example of a bureau
de change which charges 2% commission for exchanging foreign currencies, the United Kingdom has
already affirmed that changing amounts of money into another currency constitutes a service within the
meaning of the Sixth Directive and hence not a supply of goods.
34.
Nothing changes where no commission is charged for this operation. It remains the case that the
customer goes to the bank or the bureau de change and asks for means of payment to be made available
to him or her in a particular currency in return for means of payment in another currency. Even in the
event that the bank charges no commission, it operates for the customer and supplies him with the
means of payment by enabling him or her to have recourse to a credit opened at a bank in the currency
supplied. Consequently the bank again supplies a service. Even ifas the United Kingdom argues
there is no consideration for that service, it nevertheless remains a service. It may possibly no longer fall
within the scope of the Sixth Directive. In any event, the bank tries to sell the means of payment at a
somewhat higher rate or price than the one at which it purchases it.
35.
As the United Kingdom itself concedes, the bank pays less than it hopes to obtain when it sells on the
currency. However, this means simply that it supplies commensurately less money in the foreign
currency and hence makes a profit. So, also in this case, the customer pays for the banks service. In the
course of this currency transaction, which, as has just been shown, still constitutes a service for the
customer, the bank is endeavouring to make a profit; this means that it is seeking to recover the costs of
the service and more besides. The costs of large-scale foreign exchange transactions as carried out by
the bank are very much higher than the costs incurred by a small bureau de change. As has already been
mentioned, the use of computers and technology on an extensive scale is necessary.
36.
In any event, the fact remains that the bank has to set its rates in such a way that it receives payment
for its service. This means that also where the bank seeks to make a profit only through the purchase and
sale of foreign currencies, it does not work free of charge contrary to the United Kingdoms contention but
makes the customer pay for its service and that payment takes the form of a smaller amount of
consideration being paid for currencies purchased and a higher amount of consideration for currencies
sold.
2.2 Case law of the Court of Justice
37.
The fact that income is actually received for an operation does not mean in every case that that
operation is effected for consideration within the meaning of the Sixth Directive (see my opinion in Tolsma
v Inspecteur der Omzetbelasting Leeuwarden Case C-16/93 [1994] STC 509, [1994] ECR I-743 (para
13)). Whether the requirement for consideration is satisfied can be ascertained from the case law of the
court, which has had to pronounce on this question on several occasions. Thus, in the judgment in
Tolsma the court held, referring to its judgments in Staatssecretaris van Financin v Coperatieve
Aardappelenbewaarplaats GA Case 154/ 75280 [1981] ECR 445 (para 12) and Naturally Yours
Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR 6365 (para 11)
that a provision of services is taxable only if there is a direct link between the service provided and the
consideration received (see Tolsma [1994] STC 509, [1994] ECR I-743 (para 13); see also Apple and
Pear Development Council v Customs and Excise Comrs Case 102/86 [1988] 2 All ER 922, [1988] STC
221, [1988] ECR 1443 (paras 1112)).
38.
The court concluded from this that
a supply of services is effected for consideration within the meaning of art 2(1) of the Sixth
Directive, and hence is taxable, only if there is a legal relationship between the provider of the
service and the recipient pursuant to which there is reciprocal performance, the remuneration
received by the provider of the service constituting the value actually given in return for the service
supplied to the recipient. (See Tolsma [1994] STC 509, [1994] ECR I-743 (para 14).)
39.
The Commission and the bank rightly argue that all those criteria are fulfilled in this case.
40.
There is a legal relationship between the provider of the service and the recipient pursuant to which
there is reciprocal performance. It appears from the information provided by the national court that, in the
course of negotiations on a given exchange, the customer and the bank agree that the customer should
place a specific amount of money in a particular currency in a precisely specified account, whilst the bank
commits itself for its part to deposit a certain sum of money in another currency in an account specified by
the customer. Consequently, the customer and the bank commit themselves to reciprocal performance.
41.
The question here is whether the remuneration received from the supplier of the service, here the
bank, constitutes the actual value given in return for the service supplied to the recipient.
42.
In Tolsma it was held that this was not the case. The question there was whether the receipts of a
musician who played a musical instrument on the public highway could be regarded as consideration for
the service provided by him of playing music. The court considered that there was no agreement in that
case between the parties, since the passers-by voluntarily made a donation, whose amount they
determined as they wished. In addition, the court found that there was no necessary link between the
musical service and the payments to which it gave rise, since the passers-by did not request music to be
played for them. Moreover, they paid sums which depended not on the musical service but on subjective
motives which might bring feelings of sympathy into play (see [1994] STC 509, [1994] ECR I-743 (para
17)).
43.
In the instant case the situation is different. It is the customer who approaches the bank and asks for a
service, namely the exchange of a foreign currency. According to the bank, the customer is aware that
that service will not be performed free of charge. This, moreover, is contested only by the United
Kingdom, which considers that the spread between the bid and offer price does not constitute
consideration for the service. On the other hand, the United Kingdom also states that customers generally
inquire at the bank about the two rates, that is to say also about the spread. Customers therefore know by
how much the selling price of foreign currencies exceeds the purchase price. Consequently, customers
know that they are paying for the service and are aware of how much they are paying.
753
44.
It is also absolutely clear to the bank itself, which constitutes the other party to the reciprocal
relationship, that its payment for the service of exchanging currencies results from its spread. This means
that there is no doubt as between the supplier and the recipient of the service that the service is effected
for consideration and that the consideration relates to the transaction in question.
45.
It remains to be noted therefore that, in the case of the rates at which the bank is prepared to
purchase currencies from customers and to sell currencies to customers, the spread resulting from the
difference in rates constitutes the payment for the service supplied by the bank. The bank fixes the rates
with that aim in mind. The United Kingdom itself confirmed at the hearing that where a charge is
concealed in the difference between the bid and the offer rate, but is capable of being identified, a
service is effected for consideration. In this case the charge is concealed in the spread in so far as it
constitutes the payment for the service and, to that extent, constitutes a charge. Accordingly, the charge is
also capable of being identified.
46.
For this reason, it is possible, as the Commission suggests, to divide the amount which the customer
pays in a given currency to the bank into the amount corresponding to the other currency supplied by the
bank and the consideration for the service, that is to say the spread.
47.
In the United Kingdoms view, however, it is impossible to determine a countervalue for the amount
paid by the bank on the ground that there is no corresponding market price which can be used to make
such a determination. There is just the bid and offer prices set by the bank.
48.
The Commission disagrees. It takes the view that there is a market price whose value is between the
bid and the offer price.
49.
To my mind, it is certainly conceivable that there are other possibilities for determining the value of a
given amount of money in terms of a countervalue in another currency apart from the bid and offer prices
fixed by the bank for its customers. I would point out in this connection simply that the individual
currencies are also traded on the stock exchange and that prices are fixed there. To what extent it is
actually feasible to determine a countervalue in another currency is a matter for the national court.
50.
Even if it should not be feasible to determine an exact countervalue on the basis of a market price, this
would not alter the fact that the banks service is paid for through the spread. As has been made clear
above, the bank calculates its prices in such a manner that its service is paid for in the case of each
transaction. This is because the spread is calculated for each exchange, which means that on each
transaction the customer receives less back from the bank than he pays. The bank stated at the hearing
that the customer paid a higher price for a foreign currency than he would obtain were he to sell that
currency back to the bank immediately.
51.
Consequently, the customer pays for the banks service in respect of each individual exchange via the
spread fixed between the bid and the offer price, with the result that whenever the customer makes an
exchange transaction he receives less back from the bank than he gave the bank. It is irrelevant in this
connection whether he may make ultimately a profit on a transaction as a result of currency fluctuations
occurring in the meantime. I shall explain this further (see para 73, below).
754
2.3 Necessity for a second transaction in order to obtain consideration
52.
The United Kingdom goes on, however, to name other reasons why, in its view, the banks receipts
derived from the spread cannot be regarded as consideration for the individual exchange. It argues first
that the profit from the different purchase and selling prices is invariably not realised until the next
transaction, that is to say when the bank sells on the money purchased from the customer to another
customer.
53.
As has already been made clear, however, in the case of every transaction the bank purchases a
particular currency. In so doing it supplies less to the customer than it receives from him. The bank and
the Commission also agree that for each transaction the customer does not receive the full countervalue
of the sum exchanged by him on account of the spread. The Commission cites in this connection the
decision of the value added tax tribunal ([1995] V&DR 306 at 325), which also assumed that the rate at
which the bank sells the currency to the customer includes the costs of the exchange, that is to say the
service.
2.4 Direct link between the service provided and the consideration received (individual valuation)
54.
The United Kingdom submits, as an additional argument in support of its view that the spread cannot
constitute the consideration for the service consisting of the exchange, that consideration within the
meaning of the Sixth Directive must be capable of being determined for each individual transaction. It
refers in this connection to the case law of the court, which has held that in order for a service to be
taxable, there must be a direct link between the service provided and the consideration received (see the
judgments in Naturally Yours Cosmetics Ltd [1988] STC 879, [1988] ECR 6365 (para 11) and
Coperatieve Aardappelenbewaarplaats [1981] ECR 445 (para 12)).
55.
It is clear from the parties submissions and from the order for reference that each of the banks
transactions is conducted in the belief that it will yield an advantage for the bank. In addition, however, it
emerges that it is not the banks practice to value each transaction individually. In other words, the bank
calculates its profit over a particular period. The United Kingdom argues that this is too imprecise to
ground the assumption that the banks service is effected for consideration in the case of each individual
transaction. It refers in this connection, inter alia, to the opinion in H J Glawe Spiel- und
Unterhaltungsgerte Aufstellungsgesellschaft mbH & Co KG v Finanzamt Hamburg-Barmbek-Uhlenhorst
Case C-38/93 [1994] STC 543 at 544, [1994] ECR I-1679 at 1681. Advocate General Jacobs stated in
that case that gaming transactions are ill-suited to VAT (see [1994] STC 543, [1994] ECR I-1679 (para
16)). Elsewhere in the opinion the Advocate General expressed the view that there may be some
theoretical difficulty in viewing, for example, a bookmakers net winnings as the consideration for services
(see para 22). In the United Kingdoms view, those difficulties and the lack of suitability to VAT apply a
fortiori in the present case of foreign exchange transactions, since here it is not only a question of
consideration being difficult to determine, but of no consideration at all.
56.
As has already been shown, it cannot be considered here that there is no consideration for the service
performed by the bank in relation to foreign exchange transactions. Nevertheless, it cannot be denied that
it is not entirely an easy matter to determine the consideration. As the United Kingdom rightly submits, the
banks receipts are the outcome of its involvement in a series of transactions, all of which are concluded
at different rates and under different 755 market conditions. Even if foreign exchange transactions are ill-
suited to VAT, this is perhaps the reason why they are exempt from tax under the Sixth Directive.
However, even after the opinion in Glawe, those difficulties in determining the consideration do not lead to
the conclusion that there is no consideration within the meaning of the directive and that foreign exchange
transactions consequently do not come within the scope of VAT. It is worth emphasising here once again
that the bank fixes a spread for each exchange. The spread is the difference between the rate agreed for
the transaction and the offer price (or, if one exists, the market price). However, the bank does not value
each transaction individually and hence also does not value every spread. The United Kingdom takes the
view that this is too imprecise, since the customer is not charged the spread. It further considers that in
principle the banks profit cannot be regarded as consideration for the purposes of the Sixth Directive.
57.
As to this, I would first say that it cannot be concluded simply from the fact that the bank does not
value each individual transaction that it is impossible to effect such an individual valuation. Perhaps the
bank does not carry out an individual valuation becauseand this is beyond doubtit would be very
complicated and is unnecessary for the bank. It is so complicated because, in order to determine how
much profit the bank has ultimately made, it is not sufficient to determine when which sum of money was
exchanged at which rate, the market situation at the relevant time must also be taken into account and
in the case of forward transactionsregard has to be paid to the subsequent development of the market.
For this reason, an individual valuation would only be possible after the event, if at all. The court does not
have sufficient information in order to judge whether it would be possible for the bank to carry out such an
individual valuation. It should be left to the national court to assess this if necessary.
2.5 Need for individual valuation (judgments in Glawe and Fischer)
58.
It must be considered, however, in the light of the judgment of the Court of Justice in the Glawe case
whether such an individual valuation is necessary for the purposes of charging VAT.
59.
The Glawe case was concerned with charging in respect of gaming machines in bars and restaurants.
The operation of such machines was regulated by law. They incorporated a reserve compartment holding
a stock of coins from which winnings were paid out, and a cash box compartment. If, following the
payment of winnings, the reserve was no longer full, the coins inserted by the players did not fall into the
cash box but entered the reserve. The machines were required to be set in such a way that they paid out
as winnings at least 60% of coins inserted by players (the stakes), with the remainder, some 40%, being
retained in the cash box.
60.
The court followed the proposal of Advocate General Jacobs and regarded the stakes as being divided
into two parts: one served to replenish the reserve, and thus to pay out winnings, and the remainder
entered the cash box (see [1994] STC 543, [1994] ECR I-1679 (para 11)).
61.
In his opinion, the Advocate General defined that remainder somewhat more precisely. He considered
that that remaining portion was the price paid for the services provided by the operator. He further
expressed the view that, over a given period, the two components would correspond to the amounts
collected respectively by the cash box and the reserve of the machine (see [1994] STC 543, [1994] ECR
I-1679 (para 29)).
756
62.
The court held that the proportion of the stakes which was paid out as winnings could not be regarded
as forming part of the consideration for the provision of the machine to the players, nor as the price for
any other service provided to the players, since it was mandatorily fixed in advance (see [1994] STC 543,
[1994] ECR I-1679 (para 12)). Consequently, the taxable amount was the takings of the operator of the
gaming machine, that is to say the coins contained in the cash box. Consequently, in that case, too, each
individual game was not evaluated in accordance with whether the gaming machine or the player had
won, but the takings of the operator, calculated over a period of time, were regarded as the taxable
amount.
63.
These issues have also been raised in Fischer v Finanzamt Donaueschingen Case C-283/95 [1998]
All ER (EC) 567, [1998] STC 708, which concerned the taxation of a game amounting to the game of
roulette. Similarly, players purchased chips which they could place on a table resembling a roulette table.
Here too, it was possible for a player to win several times his stake, the winnings being paid out in chips
after every game. Players wishing to discontinue the game could exchange their remaining chips for cash.
64.
In this case too, Advocate General Jacobs considered that each chip placed on the table comprised,
as a matter of legal analysis, two components: (a) the wager and (b) the consideration for the organisers
service, ie the price paid by players for the right to participate in the game and obtain the chance of
winning. That price, consisting in the advantage which the house reserved to itself by virtue of the odds
being in its favour, could be calculated precisely and was a standard percentage varying according to the
version of roulette played. It was paid by each player each time he placed a chip on the table. It would be
perfectly possible for an organiser to separate the two components by eliminating the advantage for the
house and replacing it with a separate charge to cover his costs and provide him with a profit (see [1998]
All ER (EC) 567, [1998] STC 708 (para 47)).
65.
The Advocate General ultimately reached the conclusion that in practice individual calculations based
on each chip placed on the table were unnecessary. The total of the amounts received by way of
consideration for individual transactions corresponded to the organisers net takings (after payment of
winnings) during a given period. Over a period the organisers net takings necessarily corresponded to
the advantage which he reserved to himself. The Advocate General further stated that the fact that there
was in practice an easier method of determining the taxable amount did not, however, mean that tax was
not levied on individual transactions (see [1998] All ER (EC) 567, [1998] STC 708 (para 49)).
66.
What of the present case? Here too it is possible to divide what the customer pays the bank into two
components. As we have already seen, one component is the countervalue of the amount of money
provided by the bank, whilst the second component is the consideration, that is, the price, for the service
of making the exchange. In the cases of Glawe and Fischer, that component was determined,
respectively, by the statutory percentage of winnings or by the odds determined by the house. In the
present case, the corresponding component is the spread. As in the case of Fischer that componentthe
spreadcould also have taken the form of a charge. It can therefore be considered, on the same lines as
in Glawe and Fischer, that, in the case of each individual transaction, part of what the customer pays may
also be regarded as the consideration for a service, and that that portion can be precisely determined.
757
67.
It must be considered, however, whether that price component is as precisely determined in this case
as it was in the cases of Glawe and Fischer. In the case of Glawe, for instance, it was clear from the
outset that the operator of the gaming machines would receive, in terms of his net takings, a given
percentage of the amounts inserted in the machines. It was in that case impossible to reconstruct after a
given period how much money had been inserted in the machines. Yet it was clear that the amount in the
cash box after a certain period of players winning and losing corresponded to a certain percentage of the
stakes. In other words, the percentage was fixed from the outset, but the exact amount could only be
determined after a certain period of time.
68.
In the instant case, the consideration is determined by the spread. At the time of the transaction the
spread is determinate, since it consists of the difference between the individual rates. However, its exact
amount may possibly not be realised until later, as, for example in the case of forward transactions. In my
view, it is irrelevant that the spread may vary from one transaction to another, provided that it may be
clearly determined for each transaction. This was also the view reached by the Advocate General in his
opinion in Glawe [1994] STC 543, [1994] ECR I-1679 (para 22) when he found that in the case of a
bookmaker, for example, the price which he receives for that service varies and depends partly on
chance and partly on his skill in setting the odds. This does not mean, however, that that service has to be
excluded from the scope of the directive.
69.
It should therefore be considered that the price component in the instant case is no less precisely
predetermined than it was in the cases of Glawe and Fischer. This means that it can be assumed, as in
those cases, that individual transactions are being taxed in this case. At the same time, I can see no
reason why it should not be possible to effect the calculation over a period of time, as was necessary in
the cases of Glawe and Fischer and as in fact is the banks practice in this case. It should therefore be
considered that in this case individual transactions are being taxed and that the banks calculation is
sufficient for the purposes of the taxation. Accordingly, it is clear that, in carrying out foreign exchange
transactions, the bank effects a service for consideration within the meaning of the Sixth Directive.
2.6 Comparison with typical cases of VAT
70.
Consequently, it is clear that in this casecontrary to the opinion of the United Kingdomthe banks
profit can be regarded as consideration for a service. As the Advocate General explained his opinion in
Fischer [1998] All ER (EC) 567, [1998] STC 708 (para 45), this approach produces results most closely
resembling typical cases of VAT. If, for example, a manufacturer sells a product for a given price plus VAT,
the amount remaining after deduction of VAT constitutes the amount covering his profit margin, his
material costs and all other overheads. The tax is precisely proportional to the price, since the ratio
between the price, ie the aggregate takings, and the VAT correspond to the statutory rate of VAT. In the
instant case, the banks profit, that is to say its takings, constitute the amount covering the profit-margin,
the costs of carrying out the transaction and the costs of operating the bank and the foreign exchange
department. It should be noted in this connection that it is not the banks pure profit which is to be taken
into account here, but everything which it receives by way of spread.
71.
I would further point out that, also in typical service transactions, what is taxed is what the supplier
obtains as consideration for his service. As the Commission states, it is also compatible with the case
hardly conceivable in 758 practicein which the bank makes a loss over a given period and then has to
pay no tax.
72.
In a case in which a bank made both a charge and purchased and sold foreign currencies at different
rates, the consideration for the banks service would consist, not only of the charge, but also of the
spread, as the Commission rightly suggests.
2.7 Exchange of means of payment distinguished
73.
Neither can the United Kingdoms submission that a foreign exchange transaction is nothing more than
the exchange of one means of payment for another alter the fact that the spread is to be regarded as the
banks consideration. Exchanging dollars for Deutschmarks, for example, is more than exchanging a
banknote for coins of the same currency. In exchanging different currencies, an exchange rate must be
fixed. Even if in the case of a fixed exchange rate the exchange of currencies ceases to differ from the
transaction of exchanging a banknote for coins, it must be borne in mind in this connection that in the
case of the banks foreign exchange transactions the exchange rate must first be agreed, taking into
account the situation on the foreign exchange market, and that the exchange rate is then confirmed
electronically. The United Kingdom itself refers to buying and selling in connection with foreign exchange
transactions, which points to the fact that more is being done than merely exchanging means of payment.
2.8 Consideration in the event of losses on the part of the bank
74.
The outcome is not altered either by the fact that the bank may make losses on individual transactions.
Also in the case of games of chance, the house may incur very heavy losses. Yet this does not alter the
fact that as mentioned above one component of each individual stake represents the payment for the
house. This can be illustrated for the purposes of the present case by the fact that even if the bank made
losses on transactions, the losses would be even higher if the bank had not calculated a spread but
instead had paid the full countervalue. If the bank has charged a spread, it does not take the full
countervalue as the basis for determining its losses.
2.9 Simple games of chance distinguished
75.
Lastly, I would consider a further argument put forward by the United Kingdom, which once again
refers to the opinion in Glawe. In that case, the Advocate General stated that gambling for money in its
simplest form does not give rise to consumption of goods or services, even though it does entail
expenditure by gamblers. This would be the case with a private bet, where both gamblers place their
stakes on the table. The placing of the bets, although it involves the outlay of money, does not constitute,
the Advocate General considered, the consumption of goods or services which is the taxable event under
the VAT system (see [1994] STC 543, [1994] ECR I-1679 (para 20)). Referring to that passage of the
opinion, the United Kingdom submits that also in this case there is only a movement of money from the
bank to the customer and from the customer to the bank. It cannot be concluded from this that there is a
consumption of services within the meaning of the system.
76.
The Advocate General further considered that commercial gambling is different in so far as the person
organising the gambling arranges matters in such a way that on average his winnings are sufficient to
meet his costs in organising 759 the gambling and to provide him with a reasonable profit. He gave as an
example a bookmaker who sets the odds for bets on horse-racing at a level intended to ensure that he
makes an overall profit on bets placed. To that extent the person organising the gambling may perhaps be
regarded as not only taking part in the gambling himself but as also providing a service to the other
gamblers consisting in organising the gambling (see [1994] STC 543, [1994] ECR I-1679 (para 21)). The
position is no different in this case. The bank will fix the rates for its foreign exchange transactions in such
a way as to ensure that it obtains a profit from the transactions which it concludes, taken as a whole. The
United Kingdom does not contest this. On this ground, it should be considered that the banks activities in
connection with foreign exchange transactions cannot be compared to gambling in a simple form, which
does not involve any consumption of services within the meaning of the system. Moreover, the bank takes
this view.
77.
It must therefore be considered that, in engaging in foreign exchange transactions, the bank effects
services for consideration within the meaning of the Sixth Directive. Consequently, those services come
within the scope of the directive and mayeven if they are exempt from taxentitle the bank to deduct
input tax in accordance with art 17(3)(c) in connection with transactions with counterparties resident
outside the Community. The consideration therefore may be precisely determined and imputed to
individual transactions, even if it is not calculated for each individual transaction.
IIQuestion 2
1. Need to answer the question
78.
Given that in the course of answering the first question referred for a preliminary ruling it was already
necessary precisely to determine the consideration, the second question has already been answered.
However, it was not unnecessary to answer the second questionas the bank suggestedsince, in my
view, it cannot be proved that there is consideration within the meaning of the Sixth Directive without
precisely defining that consideration.
2. Consideration of the counter-arguments
79.
Since my answer to the second question does not accord with the approach proposed by the bank, I
would now briefly consider the counter-arguments put forward by the bank. In the banks view the total
amount of foreign currency paid by the customer should be taxed as the consideration. Its grounds for
arguing this are that VAT is a tax on turnover and not a tax on profit. It refers in this connection to art
11A(1)(a) of the Sixth Directive, which provides that the taxable amount in respect of supplies of services
is everything which constitutes the value of the consideration which the provider of services receives for
the transaction from the recipient of the services. The bank infers from this that the taxable amount is
everything which the bank receives from the customer.
2.1 Wording of art 11A(1)(a)
80.
As the Commission and the United Kingdom rightly submit, art 11 does not support this argument. It
provides merely that the taxable amount is everything obtained by way of consideration. That cannot be
equated with everything which the provider of services receives. Consequently, the amount of the
consideration still has to be determined.
760
2.2 VAT as turnover tax
81.
As far as concerns the submission that VAT as a turnover tax may not be charged on a taxable
amount consisting of the banks profit, the bank itself refers to the judgment in Glawe and concludes that
the approach taken there, that is to say that the takings of the operator of the gambling machines
constitute the taxable amount, may be regarded as correct. As I have already mentioned, it appears from
the opinion in Fischer [1998] All ER (EC) 567, [1998] STC 708 (para 45) that the approach taken in Glawe
is the one which most closely approximates to the normal case of VAT.
2.3 Practical effects of the banks approach
82.
This becomes clear if the approach advocated by the bank is taken a stage further. If the bank had to
tax everything which it received from the customerthat is to say the total amount of foreign currencyit
would have to pay disproportionately high tax in relation to its earningswhich are constituted only by the
spread. As I have already shown above, in the case of VAT the price of a service, that is to say that which
the provider receives, is taxed. The banks approach would therefore distort the VAT system and, in this
case, would result in the bank being able to claim a disproportionately high amount of input tax 4.
4
Whether that would be the actual consequence in this case is questionable sinceas the bank statesunder the
special method of partial exemption agreed with the commissioners, not turnover, but only the number of foreign
transactions are used in order to calculate VAT and the input tax deducted.
CCONCLUSION
87.
I therefore propose that the questions referred for a preliminary ruling be answered as follows:
(1) In relation to foreign exchange transactions as defined by the British Bankers Association
(see para 7, above), the bank effects a service for consideration within the meaning of Council
Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to turnover
taxescommon system of value added tax: uniform basis of assessment, where that service is not
paid for by a charge but by the spread between the bid and offer rates.
(2) The consideration for the service is what the bank receives by way of spread between the
bid and offer rates.
14 July 1998.
Costs
51.
The costs incurred by the UK and French governments and the European Commission, which have
submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, for the
parties to the main proceedings, a step in the proceedings pending before the national court, the decision
on costs is a matter for that court.
On those grounds, the Court of Justice (Fifth Chamber), in answer to the questions referred to it by the
Queens Bench Division of the High Court, by order of 13 May 1996, hereby rules: (1) Transactions
between parties for the purchase by one party of an agreed amount in one currency against the sale by it
to the other party of an agreed amount in another currency, both such amounts being deliverable on the
same value date, and in respect of which transactions the parties have agreed (whether orally,
electronically or in writing) the currencies involved, the amounts of such currencies to be purchased and
sold, which party will purchase which currency and the value date, constitute supplies of services effected
for consideration within the meaning of art 2(1) of Council Directive (EEC) 77/388 on the harmonisation of
the laws of the member states relating to turnover taxescommon system of value added tax: uniform
basis of assessment. (2) Article 11A(1)(a) of Directive 77/388 must be construed as meaning that, in
foreign exchange transactions in which no fees or commission are calculated with regard to certain
specific transactions, the taxable amount is the net result of the transactions of the supplier of the
services over a given period of time.
768
(2) The directive required member states to implement provisions enabling a proprietor whose trade
mark rights were infringed to obtain an order restraining third parties from making use of his mark.
However, that requirement was imposed, not by art 7, but by art 5 of the directive. Accordingly, subject to
the national courts duty to interpret, as far as possible, domestic law in conformity with Community law,
art 7(1) of the directive could not be interpreted as meaning that the proprietor of a trade mark was
entitled, on the basis of that provision alone, to obtain an order restraining a third party from using his
trade mark for products which had been put on the market outside the EEA under that mark by the
proprietor or with his consent (see p 789 j and p 790 c g, post).
Notes
For the free movement of goods and trade marks, see 52 Halsburys Laws (4th edn) para 12108.
Cases cited
Centrafarm BV v Winthrop BV Case 16/74 [1974] ECR 1183.
EMI Records Ltd v CBS UK Ltd Case 51/75 [1976] ECR 811.
Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325, ECJ.
Factortame Ltd v Secretary of State for Transport (No 2) Case C-213/89 [1991] 1 All ER 70, [1991] 1 AC
603, [1990] 3 WLR 818, [1990] ECR I-2433, ECJ.
Herms International v FHT Marketing Choice BV Case C-53/96 (1997) Transcript (opinion), 13
November.
Javico International v Yves Saint Laurent Parfums SA Case C-306/96 (1997) Transcript (opinion) 6
November, ECJ.
Mag Instrument Inc v California Trading Co Norway, Ulsteen Case E-2/97 [1997] Report of the EFTA
Court 129.
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135.
MPA Pharma GmbH v Rhne-Poulenc Pharma GmbH Case C-232/94 [1996] ECR I-3671.
Opinion 1/91 [1991] ECR I-6079.
Opinion 1/94 [1994] ECR I-5267.
Polydor Ltd v Harlequin Record Shops Ltd Case 270/80 [1982] ECR 329.
Van Schijndel v Stichting Pensioenfonds voor Fysiotherapeuten Joined cases C-430431/93 [1996] All
ER (EC) 259, [1995] ECR I-4705, ECJ.
Reference
By order of 15 October 1996, the Oberster Gerichtshof referred to the Court of Justice of the European
Communities for a preliminary ruling under art 177 of the EC Treaty two questions (set out at p 787 b,
post) on the interpretation of art 7 of 770 Council Directive (EEC) 89/104 to approximate the laws of the
member states relating to trade marks, as amended by the Agreement on the European Economic Area
(Oporto, 2 May 1992; TS26 (1995); Cm 2847; OJ 1994 L1 p 3). Those questions arose in proceedings
between two Austrian companies, Silhouette International Schmied GmbH & Co KG and Hartlauer
Handelsgesellschaft mbH. Written observations were submitted on behalf of: Silhouette, by K Haslinger,
Rechtsanwalt, Linz; Hartlauer, by W Mller, Rechtsanwalt, Linz; the Austrian government, by W Okresek,
Ministerialrat in the Chancellors Office, acting as agent; the German government, by A Dittrich,
Regierungsdirektor in the Federal Ministry of Justice, and B Kloke, Oberregierungsrat in the Federal
Ministry of Economic Affairs, acting as agents; the French government, by C de Salins, Head of Sub-
directorate in the Legal Affairs directorate of the Ministry of Foreign Affairs, and P Martinet, Secretary in
the same directorate, acting as agents; the Italian government, by U Leanza, Head of the Legal Service in
the Ministry of Foreign Affairs, acting as agent, and O Fiumara, Avvocato dello Stato; the Swedish
government, by E Brattgrd, Departementsrd in the Foreign Trade Department of the Ministry of Foreign
Affairs, T Norstrm, Kanslird in the same ministry, and I Simfors, Hovrtts- assessor in the same
ministry, acting as agents; the UK government, by L Nicoll, of the Treasury Solicitors Department, acting
as agent, and by M Silverleaf, Barrister; and the European Commission, by J Grunwald, Legal Adviser,
and B J Drijber, of its Legal Service, acting as agents. Oral observations were made by Silhouette,
represented by K Haslinger; Hartlauer, represented by W Mller; the Italian government, represented by
O Fiumara; and the Commission, represented by J Grunwald. The language of the case was German.
The facts are set out in the opinion of the Advocate General.
29 January 1998.
2.
Article 7(1) of Council Directive (EEC) 89/104 to approximate the laws of the member states relating to
trade marks (OJ 1989 L40 p 1) (the trade marks directive) gives effect to the principle of Community
exhaustion as developed by the courts case law. It provides that a trade mark does not entitle the
proprietor to prohibit its use in relation to goods which have been put on the market in the Community
under that trade mark by the proprietor or with his consent. Subsequently the principle was extended, by
virtue of the Agreement on the European Economic Area (the EEA agreement) (Oporto, 2 May 1992; TS
26 (1995); Cm 2847; OJ 1994 L1, p 3), to the territory of the EEA, now consisting of the Community on
the one hand and Iceland, Liechtenstein and Norway on the other hand. But can the trade mark owner
prevent a third party from using the mark in the Community or in the EEA for goods which have been put
on the 771 market under that mark, by or with the consent of the owner, outside the EEA? The question
comes by way of a request for a preliminary ruling from the Oberster Gerichtshof (the Supreme Court),
Austria.
3.
The issue therefore is whether Community law requires member states to provide for exhaustion only
when the goods have been marketed in the EEA, or whether member states may (or perhaps even must)
provide for exhaustion when the goods have been marketed in a third countrya principle of international
(ie worldwide) exhaustion.
Member States will be able to maintain or introduce into their legislation grounds of refusal or
invalidity linked to conditions for obtaining 772 and continuing to hold a trade mark for which there
is no provision of approximation, concerning, for example, the eligibility for the grant of a trade
mark, the renewal of the trade mark or rules on fees, or related to the non-compliance with
procedural rules.
The directive also leaves to the member states matters such as the procedure concerning the
registration, revocation and invalidity of trade marks (fifth recital), the protection of unregistered trade
marks (fourth recital) and provisions relating to unfair competition, civil liability and consumer protection
(sixth recital).
8.
The most important provisions in relation to the present case are arts 5 and 7, entitled, respectively,
Rights conferred by a trade mark and Exhaustion of the rights conferred by a trade mark.
9.
Article 5 provides:
(1) The registered trade mark shall confer on the proprietor exclusive rights therein. The
proprietor shall be entitled to prevent all third parties not having his consent from using in the
course of trade: (a) any sign which is identical with the trade mark in relation to goods or services
which are identical with those for which the trade mark is registered; (b) any sign where, because of
its identity with, or similarity to, the trade mark and the identity or similarity of the goods or services
covered by the trade mark and the sign, there exists a likelihood of confusion on the part of the
public, which includes the likelihood of association between the sign and the trade mark (3) The
following, inter alia, may be prohibited under paragraphs 1 and 2: (a) affixing the sign to the goods
or to the packaging thereof; (b) offering the goods, or putting them on the market or stocking them
for these purposes under that sign, or offering or supplying services thereunder; (c) importing or
exporting the goods under the sign; (d) using the sign on business papers and in advertising.
10.
Article 7 provides:
(1) The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which
have been put on the market in the Community under that trade mark by the proprietor or with his
consent. (2) Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to
oppose further commercialization of the goods, especially where the condition of the goods is
changed or impaired after they have been put on the market.
11.
Provisions on exhaustion of similar effect to those contained in art 7 have been included in other
Community instruments on intellectual property rights5. The most relevant in that respect is Council
Regulation (EC) 40/94 on the Community trade mark (OJ 1994 L11 p 1), which I consider below.
5
See eg art 9(2) of Council Directive (EC) 92/100 on rental right and lending right and on certain rights related to
copyright in the field of intellectual property (OJ 1992 L346 p 61). The European Commission considers that those
provisions also have the effect of excluding international exhaustion: see its answer to a written question in the
European Parliament (OJ 1994 C340 p 37).
THE FACTS
14.
The plaintiff, Silhouette International Schmied Gesellschaft mbH & Co KG (Silhouette), is an Austrian
company which produces fashion spectacles in the higher price ranges. It distributes the spectacles
worldwide under the word and picture trade mark Silhouette, which is registered in Austria and in most
countries of the world, as well as internationally. In Austria Silhouette supplies the spectacles to specialist
opticians; in other countries it has subsidiary companies or distributors.
15.
The defendant, Hartlauer Handelsgesellschaft mbH (Hartlauer), sells spectacles in numerous
branches in Austria and solicits customers mainly by its low prices. It is not supplied by Silhouette
because Silhouette considers sales by Hartlauer to be harmful to the image which Silhouette has created
for its products as fashionable spectacles of special quality.
16.
In October 1995 Silhouette sold 21,000 spectacle frames of an outdated model which had expired to a
firm called Union Trading for $261,450. The transaction was arranged by Silhouettes sales representative
for the Middle East. Silhouette directed him to instruct the purchaser to sell the frames in Bulgaria or the
states of the former Soviet Union only and not to export them to other countries. The sales representative
informed Silhouette that he had instructed the purchaser accordingly. The Oberster Gerichtshof observes
that it has not been possible to ascertain whether that actually happened.
17.
Silhouette delivered the goods to Union Trading in Sofia in November 1995. Hartlauer subsequently
acquired the goods (according to the Oberster Gerichtshof, it has not been possible to ascertain from
whom) and offered them for sale in Austria from December 1995. It announced in a press campaign that,
although it had not been supplied by Silhouette, it had succeeded in purchasing 21,000 Silhouette frames
from abroad. In its observations, Hartlauer maintains that when it acquired the products it was assured
that there would be no obstacle to importing them into Austria.
774
18.
Silhouette objects to the sale of its frames by Hartlauer in Austria and seeks an order prohibiting
Hartlauer from marketing under its trade mark spectacles or spectacle frames which were not put on the
market in the EEA by it or with its consent. It argues that it has not exhausted its trade mark rights
because the directive provides that such rights can be exhausted only by reason of marketing within the
EEA by the trade mark owner or with his consent. It bases its claim not only on para 10a of the
Markenschutzgesetz (the law on protection of trade marks), but also on paras 1 and 9 of the Gesetz
gegen den unlauteren Wettbewerb (the UWG) (the law on unfair competition), and art 43 of the
Allgemeines Brgerliches Gesetzbuch (the ABGB) (the Civil Code).
19.
Hartlauer contends that Silhouette did not sell the frames subject to the instruction that any import into
the Community was excluded and that Silhouettes application should be dismissed.
20.
Silhouettes action failed before the Landgericht Steyr (the Steyr Regional Court) and on appeal to the
Oberlandesgericht Linz (the Linz Higher Regional Court). The current reference is made in the context of
an appeal by Silhouette to the Oberster Gerichtshof against the decision of the Oberlandesgericht Linz.
21.
Article 7 of the trade marks directive was implemented into Austrian law almost word for word by the
1992 amendments to the Markenschutzgesetz. Paragraph 10a of the Markenschutzgesetz provides that
the trade mark does not entitle the owner of the trade mark to prohibit a third party from using the mark for
goods which have been put on the market in the EEA under that mark by the owner or with his consent.
22.
The Oberster Gerichtshof explains that, prior to the implementation of the trade marks directive, the
principle of international exhaustion had been applied by the Austrian courts. It refers to the decision of
the Oberster Gerichtshof in the case of Agfa6. The position subsequent to implementation of the directive,
however, is unclear. According to the explanatory memorandum it was intended that the question of the
validity of the principle of international exhaustion should be settled by legal practice 7.
6
See (1971) SZ 43/219.
7
See 669 BlgNR 18 GP5.
23.
The Oberster Gerichtshof accordingly wishes to ascertain whether the directive allows member states
to apply a rule of international exhaustion. It also poses a second question concerning the remedies
which should be made available to the trade mark owner under the directive.
24.
The Oberster Gerichtshof has submitted the following questions to the Court of Justice:
Is Article 7(1) of the First Council Directive 89/104/EEC of 21 December 1988 to approximate
the laws of the Member States relating to trade marks (the trade marks directive) to be interpreted
as meaning that the trade mark entitles its proprietor to prohibit a third party from using the mark for
goods which have been put on the market under that mark in a State which is not a Contracting
State? May the proprietor of the trade mark on the basis of Article 7(1) of the Trade Marks Directive
alone seek an order that the third party cease using the trade mark for goods which have been put
on the market under that mark in a State which is not a Contracting State?
The reference to a contracting state is to be understood as referring to a contracting party to the EEA
agreement, ie on the European Free Trade 775 Association (EFTA) side, those EFTA states which are
parties to the agreement (currently Iceland, Liechtenstein and Norway), and on the Community side, the
Community and/or the EC member states (see art 2(c)). Hence the questions are concerned with goods
put on the market outside the EEA. It is unnecessary to consider what the position would be in relation to
goods marketed within the EEA and subsequently imported into the Community. For convenience I shall
refer in what follows to importing into the Community goods marketed outside the EEA.
25.
Written observations have been submitted by Silhouette, Hartlauer, the Austrian, French, German,
Italian, Swedish, and UK governments, and the European Commission. At the hearing oral submissions
were made by Silhouette, Hartlauer, the Italian government, and the Commission.
QUESTION 1
26.
By its first question, the Oberster Gerichtshof asks whether art 7(1) of the trade marks directive is to
be interpreted as meaning that the proprietor of a trade mark is entitled to prohibit a third party from using
the mark for goods which have been put on the market under that mark in a state which is not a member
of the EEA. It is not specified in the question whether the trade mark owner consented to such marketing
in the non-EEA state. However, it is clear from the order for reference that Silhouette did consent to
marketing in Bulgaria since it is stated that Silhouette gave directions for the sale of the goods there and
delivered them to the purchaser in Sofia. The question should accordingly be addressed on the
assumption that the trade mark owner consented to the marketing of his products outside the EEA.
27.
It should also be assumed for present purposes that Silhouette did not consent to its products being
resold within the EEA. That is so even though the national court expresses some doubt as to whether the
restrictions upon resale were passed on to the purchaser. If Silhouette had consented to marketing in the
EEA, the answer to the first question referred would clearly be that Silhouette could not oppose the import
of its products into Austria.
28.
The Oberster Gerichtshof has not suggested that there are any legitimate reasons within the meaning
of art 7(2) of the directive for Silhouette to oppose the resale of its spectacles in Austria.
29.
Thus, in the present case, the Court of Justice is faced squarely with the question whether the trade
marks directive, in referring to the exhaustion of trade mark rights following marketing in the Community,
requires member states to allow a trade mark owner to oppose the import into the Community of products
placed on the market outside the EEA by him or with his consent simply because he has not consented to
the marketing of those products within the Community: ie whether it precludes member states from
adopting the principle of international exhaustion.
33.
As to whether the directive precludes international exhaustion, or leaves that open, the language of art
7(1) inclines me to the former view. Article 7(1) spells out the circumstances in which the trade mark rights
are exhausted: it is naturally read as doing so exhaustively. In providing that the rights are exhausted
when the goods are marketed in the Community, art 7(1) is naturally understood as meaning that the
rights are not exhausted when the goods are marketed in a third country. It is true that the directive does
not specifically preclude international exhaustion, but that effect can reasonably be inferred from the
language. I accept that there are arguments which go the other way, but those arguments derive little
support from the language of the directive.
34.
My view of the effect of the language of art 7(1) is supported by the structure of the directive. Article
7(1) is a derogation from the rights conferred on the trade mark owner by art 5(1). In general derogations
should not be construed broadly. Here art 7(1) cannot be construed more broadly than as providing for
Community exhaustion. It would be necessary to read into the directive a further, implied derogation
leaving open the possibility of provision for international exhaustion, which seems contrary to the structure
of the directive.
52.
As regards price competition and the benefit to consumers, such benefits again have to be set against
the threat to the integrity of the internal market. That 780 integrity would be severely prejudiced if one
member state provided for international exhaustion while another did not. Only consumers in the first
state would benefit from the lower prices of imports from third countries. Price competition within the
internal market would be distorted.
53.
As regards the Communitys competition policy, the ruling to be given by the court on international
exhaustion will in no way limit the possible application of the competition rules of the Treaty. It will not
exclude the possibility that arts 85 and 86 of the Treaty may apply to agreements between undertakings,
or to unilateral behaviour by a dominant undertaking, seeking to divide up the markets 10.
10
For the possible application of art 85, see eg EMI Records Ltd v CBS UK Ltd Case 51/75 [1976] ECR 811, and most
recently the opinion of Advocate General Tesauro in Javico International v Yves Saint Laurent Parfums SA Case C-
306/96 (1997) ECJ Transcript (opinion), 6 November.
54.
Finally, it should be recalled that some member states, and some third countries, do not practise
international exhaustion, and that that has not been held to be contrary to the General Agreement on
Tariffs and Trade (the GATT). The situation is not changed in that respect by the WTO agreement. Annex
1C, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (Marakesh, 15 April
1994; TS 10 (1996); Cm 3046; OJ 1994 L336 p 213), provides by art 6 that, for the purposes of dispute
settlement under that agreement, nothing in the agreement (subject to certain provisions) shall be used to
address the issue of the exhaustion of intellectual property rights 11.
11
On art 50 of TRIPs, which relates to provisional measures, see the opinion of Advocate General Tesauro in Herms
International v FHT Marketing Choice BV Case C-53/96 (1997) ECJ Transcript (opinion), 13 November.
QUESTION 2
64.
By its second question the Oberster Gerichtshof seeks to ascertain whether art 7(1) of the directive
can alone constitute the basis for the grant of an injunction in support of a trade mark owner seeking to
prohibit the sale of his goods which are circulating in the Community without his consent. It appears from
the order 782 for reference and from a subsequent communication from the referring court that that
question arises for the following reasons.
65.
Under Austrian trade mark law there is no right to a prohibitory injunction in respect of trade mark
infringement: an injunction to cease a trade mark infringement can however be sought under para 9 of the
UWG (the law on unfair competition). Under para 9(1) of the UWG, a prohibitory order may be made
against a person who in the course of business uses a name, a trading name or the particular designation
of an undertaking in a manner which is liable to cause confusion with the name, trading name or particular
designation which another person makes use of with authority. A registered trade mark qualifies as a
particular designation within the meaning of that provision (para 9(3) UWG). However, it appears that
under Austrian law injunctions cannot be obtained on the basis of art 9 of the UWG to prevent parallel
imports since the Oberster Gerichtshof states that the marketing of genuine goods cannot cause
confusion within the meaning of that provision when the goods in issue are original products of the trade
mark owner.
66.
Although there are two other bases in Austrian law upon which a prohibitory injunction may be based,
the Oberster Gerichtshof appears to consider that neither is applicable to the present case. Those
additional provisions are para 1 of the UWG and art 43 of the ABGB (the Civil Code). Pursuant to the
former, a prohibitory order may be made against a person who in the course of business for purposes of
competition performs acts which are against public policy. A breach of the law may be against public
policy within the meaning of that provision. However, the breach must be subjectively reprehensible and
liable to give the person acting illegally an advantage over his law-abiding competitors. Article 43 of the
ABGB allows a claim for a prohibitory injunction where a persons right to use his name is disputed or
where he is adversely affected by the unauthorised use of his name (or pseudonym).
67.
Since the Oberster Gerichtshof considers that none of the above provisions provides the foundation
for an injunction in the present case, it believes that it will be unable to grant an injunction to Silhouette
unless the right to an injunction flows from the wording of art 7(1) of the trade marks directive. It reasons
that, if art 7(1) can be interpreted in that way, it will be able to issue an injunction on the basis of para 10a
of the Markenschutzgesetz since the two provisions are in virtually identical terms. It observes that the
issue is not whether that provision of the directive can have direct effect, since the provision has been
copied almost verbatim into Austrian law. Rather it wishes to elucidate the correct interpretation of that
provision. Although it is art 5 of the directive, rather than art 7, which confers the substantive rights upon
the trade mark owner, it appears that the Oberster Gerichtshof is considering only the interpretation of the
latter provision since art 5(1)(a) has not been implemented in Austrian law.
68.
It is well established that, whether or not the specific provisions of a directive have been implemented
in national law, and independently of the possible direct effect of those provisionswhich, if not
implemented, can be invoked only against the state or a public bodythe national courts are under a duty
to take account of all provisions of national law so as to ensure, wherever possible, that the result
prescribed by the directive is attained (see the judgment in Marleasing SA v La Comercial Internacional
de Alimentacin SA Case C-106/89 [1990] ECR I-4135). That duty applies as regards not only national
legislation specifically introduced in order to implement a directive but also other provisions 783 of
national law, including those adopted before the directive. As the Court of Justice stated in relation to the
very provision in issue in the present case (MPA Pharma GmbH v Rhne-Poulenc Pharma GmbH Case
C-232/94 [1996] ECR I-3671 (para 12)):
when applying national law, whether adopted before or after the directive, the national court
that has to interpret that law must do so, as far as possible, in the light of the wording and the
purpose of the directive so as to achieve the result that it has in view and thereby comply with the
third paragraph of Article 189 of the EC Treaty.
69.
It follows that, whether or not the national legislation relating to trade marks has been amended to give
effect to all the provisions of the directive, that legislation must be interpreted consistently with the
directive. Provided that the legislation is capable of being interpreted in that way, the national courts are
under a duty to give trade marks the same protection as if each of the provisions of the directive had been
specifically and explicitly transposed into national law.
70.
Thus although in the present case it appears that art 5(1)(a) of the directive, which confers exclusive
rights on the trade mark owner, has not been implemented in Austrian law, nevertheless the courts are
required, as far as possible, to interpret the Austrian legislation in the light of art 5(1)(a). Article 5(1) states
that the proprietor of the mark shall be entitled to prevent all third parties not having his consent from
using the mark. The terms of art 5(1) thus envisage that he shall be entitled to a court order prohibiting
the use of the mark. Where such an order is available under national legislation, whether under the
legislation on trade marks or under other legislation such as that on unfair competition, it must therefore
also be made available in the case of infringement of trade mark rights as defined by art 5(1) of the
directive.
71.
Moreover the case law of the Court of Justice recognises, as a general principle of law, that the
national courts must provide effective remedies for the enforcement of Community rights. The case law
has established two principles in particular: first that national rules governing remedies for the exercise of
Community rights must not be less favourable than those available for rights arising under national law;
and secondly that the exercise of Community rights must not in any event be rendered impossible in
practice or excessively difficult (see eg Van Schijndel v Stichting Pensioenfonds voor Fysiotherapeuten
Joined cases C-430431/93 [1996] All ER (EC) 259, [1995] ECR I-4705). It may well be that the refusal of
the remedy which is in issue in the present case, namely an injunction, would, in the circumstances of this
case, contravene both those requirements.
72.
So far as interlocutory injunctions are concerned, the court has held that national courts may be
required to afford interim relief for the protection of Community rights even in cases where they would be
unable to do so under national law (see the judgment in Factortame Ltd v Secretary of State for Transport
(No 2) Case C-213/89 [1991] 1 All ER 70, [1990] ECR I-2433). The court stated that the full effectiveness
of Community law would be impaired if a rule of national law could prevent a national court from granting
interim relief pending the national courts final judgment (see [1991] 1 All ER 70, [1990] ECR I-2433 (para
21)). It seems clear that the same applies to a final injunction: that remedy also must be ensured by the
national court where it is necessary to ensure the effective protection of the rights conferred by
Community law.
784
CONCLUSION
73.
Accordingly I am of the opinion that the questions referred by the Oberster Gerichtshof should be
answered as follows:
(1) Article 7(1) of Council Directive (EEC) 89/104 to approximate the laws of the member states
relating to trade marks must be interpreted as meaning that the proprietor of a trade mark is entitled
to prevent a third party from using the mark for goods which have been put on the market under
that mark outside the European Economic Area.
(2) Even where art 7(1) alone of the relevant provisions of the directive has been specifically
transposed into national law, the proprietor of the trade mark is entitled to obtain an order
prohibiting the third party from using the mark for goods which have been put on the market under
that mark outside the European Economic Area.
16 July 1998.
Question 1
15.
By its first question the Oberster Gerichtshof is in substance asking whether national rules providing
for exhaustion of trade mark rights in respect of products put on the market outside the EEA under that
mark by the proprietor or with his consent are contrary to art 7(1) of the directive.
16.
It is to be noted at the outset that art 5 of the directive defines the rights conferred by a trade mark
and art 7 contains the rule concerning exhaustion of the rights conferred by a trade mark.
17.
According to art 5(1) of the directive, the registered trade mark confers on the proprietor exclusive
rights therein. In addition, art 5(1)(a) provides that those exclusive rights entitle the proprietor to prevent
all third parties not having his consent from use in the course of trade of, inter alia, any sign identical with
the trade mark in relation to goods or services which are identical to those for which the trade mark is
registered. Article 5(3) sets out a non-exhaustive list of the kinds of practice which the proprietor is entitled
to prohibit under art 5(1), including, in particular, importing or exporting goods under the trade mark
concerned.
18.
Like the rules laid down in art 6 of the directive, which set certain limits to the effects of a trade mark,
art 7 states that, in the circumstances which it specifies, the exclusive rights conferred by the trade mark
are exhausted, with the result that the proprietor is no longer entitled to prohibit use of the mark.
Exhaustion is subject first of all to the condition that the goods have been put on the market by the
proprietor or with his consent. According to the text of the directive itself, exhaustion occurs only where
the products have been put on the market in the Community (in the EEA since the EEA agreement
entered into force).
19.
No argument has been presented to the court that the directive could be interpreted as providing for
the exhaustion of the rights conferred by a trade mark in respect of goods put on the market by the
proprietor or with his consent irrespective of where they were put on the market.
20.
On the contrary, Hartlauer and the Swedish government have maintained that the directive left the
member states free to provide in their national law for exhaustion, not only in respect of products put on
the market in the EEA but also of those put on the market in non-member countries.
21.
The interpretation of the directive proposed by Hartlauer and the Swedish government assumes,
having regard to the wording of art 7, that the directive, like the courts case law concerning arts 30 and
36 of the EC Treaty, is limited to requiring the member states to provide for exhaustion within the
Community, but that art 7 does not comprehensively resolve the question of exhaustion of 787 rights
conferred by the trade mark, thus leaving it open to the member states to adopt rules on exhaustion going
further than those explicitly laid down in art 7 of the directive.
22.
As Silhouette, the Austrian, French, German, Italian and UK governments and the European
Commission have all argued, such an interpretation is contrary to the wording of art 7 and to the scheme
and purpose of the rules of the directive concerning the rights which a trade mark confers on its
proprietor.
23.
In that respect, although the third recital in the preamble to the directive states that it does not appear
to be necessary at present to undertake full-scale approximation of the trade mark laws of the Member
States, the directive none the less provides for harmonisation in relation to substantive rules of central
importance in this sphere, that is to say, according to that same recital, the rules concerning those
provisions of national law which most directly affect the functioning of the internal market, and that that
recital does not preclude the harmonisation relating to those rules from being complete.
24.
The first recital in the preamble to the directive notes that the trade mark laws applicable in the
member states contain disparities which may impede the free movement of goods and freedom to provide
services and may distort competition within the common market, so that it is necessary, in view of the
establishment and functioning of the internal market, to approximate the laws of member states. The ninth
recital emphasises that it is fundamental, in order to facilitate the free movement of goods and services, to
ensure that registered trade marks enjoy the same protection under the legal systems of all the member
states, but that this should not prevent member states from granting at their option extensive protection to
those trade marks which have a reputation.
25.
In the light of those recitals, arts 5 to 7 of the directive must be construed as embodying a complete
harmonisation of the rules relating to the rights conferred by a trade mark. That interpretation, it may be
added, is borne out by the fact that art 5 expressly leaves it open to the member states to maintain or
introduce certain rules specifically defined by the Community legislature. Thus, in accordance with art
5(2), to which the ninth recital refers, the member states have the option to grant more extensive
protection to trade marks with a reputation.
26.
Accordingly, the directive cannot be interpreted as leaving it open to the member states to provide in
their domestic law for exhaustion of the rights conferred by a trade mark in respect of products put on the
market in non-member countries.
27.
This, moreover, is the only interpretation which is fully capable of ensuring that the purpose of the
directive is achieved, namely to safeguard the functioning of the internal market. A situation in which some
member states could provide for international exhaustion while others provided for Community exhaustion
only would inevitably give rise to barriers to the free movement of goods and the freedom to provide
services.
28.
Contrary to the arguments of the Swedish government, it is no objection to that interpretation that
since the directive was adopted on the basis of art 100a of the EC Treaty, which governs the
approximation of the laws of the member states concerning the functioning of the internal market, it
cannot regulate relations between the member states and non-member countries, with the result that art 7
is to be interpreted as meaning that the directive applies only to intra-Community relations.
788
29.
Even if art 100a of the Treaty were to be construed in the sense argued for by the Swedish
government, the fact remains that art 7, as has been pointed out in this judgment, is not intended to
regulate relations between member states and non-member countries but to define the rights of
proprietors of trade marks in the Community.
30.
Finally, the Community authorities could always extend the exhaustion provided for by art 7 to
products put on the market in non-member countries by entering into international agreements in that
sphere, as was done in the context of the EEA agreement.
31.
In the light of the foregoing, the answer to be given to the first question must be that national rules
providing for exhaustion of trade mark rights in respect of products put on the market outside the EEA
under that mark by the proprietor or with his consent are contrary to art 7(1) of the directive, as amended
by the EEA agreement.
Question 2
32.
By its second question the Oberster Gerichtshof is in substance asking whether art 7(1) of the
directive can be construed as meaning that the proprietor of a trade mark is entitled, on the basis of that
provision alone, to obtain an order restraining a third party from using its mark for products which have
been put on the market outside the EEA under that mark by the proprietor or with his consent.
33.
In its order for reference, as clarified subsequently by letter, the Oberster Gerichtshof has pointed out:
that the second question was put because the Markenschutzgesetz does not provide for any right to
obtain a prohibitory injunction, nor does it contain any provision corresponding to art 5(1)(a) of the
directive. A prohibitory injunction may be sought in respect of a trade mark infringement only if there is at
the same time a breach of para 9 of the UWG, the application of which presupposes the risk of confusion,
which is not the case where the original products of the trade mark proprietor are concerned; in Austrian
law, at least according to current academic legal writing, the proprietor of a trade mark has no right to
obtain a prohibitory injunction against a person who makes parallel imports or re-imports of trademarked
goods, unless the right to a prohibitory injunction is already available under para 10a(1) of the
Markenschutzgesetz. The question thus arises, under Austrian law, whether art 7(1) of the trade marks
directive, which has the same content as para 10a(1) of the Markenschutzgesetz, provides for such a
right to apply for a prohibitory injunction and whether the proprietor of the trade mark can therefore seek,
solely on the basis of that provision, an order that a third party cease using the trade mark for goods
which have been put on the market under that mark outside the EEA.
34.
Under the scheme of the directive the rights conferred by a trade mark are defined by art 5, while art 7
contains an important qualification with respect to that definition, in that it provides that the rights
conferred by art 5 do not entitle the proprietor to prohibit the use of the trade mark where the conditions
laid down in that provision are satisfied.
35.
Accordingly, while it is undeniable that the directive requires member states to implement provisions
on the basis of which the proprietor of a trade mark, when his rights are infringed, must be able to obtain
an order restraining third parties from making use of his mark, that requirement is imposed, not by art 7,
but by art 5 of the directive.
789
36.
That being so, it is to be remembered, first, that, according to settled case law of the court, a directive
cannot of itself impose obligations on an individual and cannot therefore be relied upon as such against
an individual. Second, according to the same case law, when applying domestic law, whether adopted
before or after the directive, the national court that has to interpret that law must do so, as far as possible,
in the light of the wording and the purpose of the directive so as to achieve the result it has in view and
thereby comply with the third paragraph of art 189 of the Treaty (see, inter alia, the judgments in
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135
(paras 6, 8) and Faccini Dori v Recreb Srl Case C-91/92 [1995] All ER (EC) 1, [1994] ECR I-3325 (paras
20, 26)).
37.
The answer to be given to the second question must therefore be that, subject to the national courts
duty to interpret, so far as possible, domestic law in conformity with Community law, art 7(1) of the
directive cannot be interpreted as meaning that the proprietor of a trade mark is entitled, on the basis of
that provision alone, to obtain an order restraining a third party from using his trade mark for products
which have been put on the market outside the EEA under that mark by the proprietor or with his consent.
Costs
38.
The costs incurred by the Austrian, French, German, Italian, Swedish and UK governments and by the
European Commission, which have submitted observations to the Court of Justice, are not recoverable.
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before
the national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Oberster
Gerichtshof by order of 15 October 1996, hereby rules: (1) National rules providing for exhaustion of trade
mark rights in respect of products put on the market outside the European Economic Area under that
mark by the proprietor or with its consent are contrary to art 7(1) of Council Directive (EEC) 89/104 to
approximate the laws of the member states relating to trade marks, as amended by Agreement on the
European Economic Area (Oporto, 2 May 1992; TS26 (1995); Cm 2847; OJ 1994 L1 p 3). (2) Article 7(1)
of Directive 89/104 cannot be interpreted as meaning that the proprietor of a trade mark is entitled, on the
basis of that provision alone, to obtain an order restraining a third party from using his trade mark for
products which have been put on the market outside the European Economic Area under that mark by the
proprietor or with his consent.
790
In August 1990 the applicant informed her employer that she was pregnant. She subsequently suffered a
succession of pregnancy-related disorders and did not work again after mid-August. The applicants
contract of employment provided that employees could be dismissed if they were continuously absent
from work due to sickness for more than 26 weeks and she had not yet gained the two years continuous
employment necessary to benefit from statutory maternity leave, which allowed a pregnant employee to
absent herself from work without risk of dismissal from the beginning of the eleventh week before her
expected date of confinement. In February 1991, therefore, the applicant was duly dismissed; and her
child was born in March. The applicant brought a sex discrimination action before the Industrial Tribunal,
which held that where absence through pregnancy-related illness began long before the statutory
maternity provisions could apply and subsisted continuously thereafter, subsequent dismissal did not fall
into the category of dismissals which had to be automatically considered discriminatory because they
were due to pregnancy. On appeal from the dismissal of her appeal to the Employment Appeal Tribunal,
the Court of Session held that since there was a clear distinction between pregnancy and illness due to
pregnancy, the applicant, whose absence was due to illness and who had been dismissed on that basis,
could not succeed. On a further appeal, the House of Lords stayed the proceedings and referred to the
Court of Justice of the European Communities for a preliminary ruling the questions, inter alia, whether
arts 2(1)1 and 5(1)2 of Council Directive (EEC) 76/207 on the implementation of the principle of equal
treatment for men and women as regards access to employment, vocational training and working
conditions precluded the dismissal of a female employee at any time during her pregnancy, as a result of
absence through illness arising from that pregnancy and whether the answer was affected by a
contractual provision such as that at issue, which 791 applied irrespective of gender to employees who
were continuously for more than a specified period.
1
Article 2(1), so far as material, is set out at p 795 f, post
2
Article 5(1), so far as material, is set out at p 795 gh, post
Held The dismissal of a pregnant worker for absences due to incapacity for work resulting from her
pregnancy was linked to the occurrence of risks inherent in pregnancy and had therefore to be regarded
as essentially based on the fact of pregnancy. Such a dismissal therefore constituted direct discrimination
on grounds of sex. It followed that arts 2(1) and 5(1) of Directive 76/207 precluded the dismissal of a
female worker at any time from the beginning of her pregnancy to the end of her maternity leave for
absences due to incapacity for work caused by illness resulting from that pregnancy. Moreover, the fact
that a female worker had been dismissed on the basis of a contractual term allowing the employer to
dismiss employees after a stipulated period of continuous absence did not alter that position (see p 823 j
to p 824 b and p 825 d e, post).
Larsson v Ftex Supermarked A/S Case C-400/95 [1997] ECR I-2757 overruled; Dekker v Stichting
Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990] ECR I-3941
applied.
Per curiam. Where pathological conditions caused by pregnancy or childbirth arise after the end of
maternity leave, they are covered by the general rules applicable in the event of illness, and any resulting
absence should be treated in the same way as a mans absence of the same duration through incapacity
for work (see p 824 c, post); Handels- og Kontor- funktionaerernes Foribund i Danmark v Dansk
Arbejdsgiverforening Case C-179/88 [1990] ECR I-3979 applied.
Notes
For equal treatment in access to employment, see 52 Halsburys Laws (4th edn) para 2113.
Cases cited
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990]
ECR I-3941.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Gillespie v Northern Health and Social Services Board Case C-342/93 [1996] All ER (EC) 284, [1996]
ECR I-475, ECJ.
Habermann-Beltermann v Arbeiterwohlfahrt, Bezirksverband Ndb/Opf-eV Case C-421/92 [1994] ECR I-
1657.
Handels- og Kontorfunktionaerernes Foribund i Danmark v Dansk Arbejdsgiver- forening Case C-179/88
[1990] ECR I-3979.
Hofmann v Barmer Ersatzkasse Case 184/83 [1984] ECR 3047.
Larsson v Ftex Supermarked A/S Case C-400/95 [1997] ECR I-2757.
Lavery v Plessey Telecommunications Ltd [1982] ICR 373, [1982] IRLR 180.
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135.
Wagner Miret v Fondo de Garanta Salarial Case C-334/92 [1993] ECR I-6911.
Webb v EMO Air Cargo (UK) Ltd Case C-32/93 [1994] 4 All ER 115, [1994] QB 718, [1994] 1 WLR 941,
[1994] ECR I-3567, ECJ.
792
Reference
By order of 28 November 1996, the House of Lords referred to the Court of Justice of the European
Communities for a preliminary ruling under art 177 of the EC Treaty two questions (set out at p 821 j to p
822 b, post) on the interpretation of arts 2(1) and 5(1) of Council Directive (EEC) 76/207 on the
implementation of the principle of equal treatment for men and women as regards access to employment,
vocational training and promotion, and working conditions. Those questions arose in proceedings brought
by Mary Brown against Rentokil Ltd in connection with her dismissal whilst pregnant. Written observations
were submitted on behalf of: Mrs Brown, by C McEachran QC, and I Truscott, Advocate, instructed by
Mackay Simon, Solicitors; Rentokil, by J Hand QC, and Gerard F McDermott, Barrister, instructed by G T
Brown, Solicitor; the United Kingdom government, by S Ridley, of the Treasury Solicitors Department,
acting as agent, and D Rose, Barrister; and the European Commission, by P J Kuyper, Legal Adviser, and
M Wolfcarius, of its Legal Service, acting as agents. Oral observations were made by Mrs Brown,
Rentokil, the UK government and the Commission. The language of the case was English. The facts are
set out in the opinion of the Advocate General.
5 February 1998.
A. Opening remarks
18.
Before considering the problems raised by the questions, I wish to make a number of observations.
19.
The first concerns the order for reference, which is particularly laconic in its account of the facts of the
main proceedings. There is no indication, for example, of how long Mrs Brown had been pregnant when
she became unfit for work or of the expected date of confinement or whether her pregnancy was in any
way subject to high risks. I also consider that the reasons which, it appears, were given in the successive
medical certificates, namely symptoms of pregnancy, bleeding in pregnancy and pregnant backache, if
they were 799 the only ones, seem, especially in the case of the first and third, not to constitute very
cogent reasons for a doctor to have repeatedly certified unfitness for work for a continuous period of 26
weeks. Nor are we told whether Mrs Brown underwent the independent medical examination scheduled
for the end of the 26 weeks or, if so, what the result was.
I imagine that the purpose of that examination was for the company to obtain an independent opinion
as to the workers chances of recovery, with a view to her returning to work sooner or later, dismissal
being the appropriate course if the result of the examination suggested that she would not return to work
in the short or medium term. If that were not the case, the dismissal would appear to be a disciplinary
dismissal on grounds of illness rather than dismissal justified by a situation in which the employer had to
bear an excessive burden.
If Mrs Browns unfitness for work was actually caused by her pregnancy, and there is no reason to
think that the position was otherwise, it would seem logical to assume that she would cease to be unfit
when she gave birth. Why, therefore, was she dismissed one-and-a-half months before she gave birth?
Simply because she had by then been away for 26 weeks, or was it rather because national law gave her
no right to be re-instated after her confinement because her length of service with the company was less
than two years?
Those are, of course, matters of fact to be assessed by the national court in the light of the
interpretation of Community law given by the Court of Justice. I must point out, however, that it would
have been useful for those facts to have been disclosed.
20.
The second observation relates to the need to define, once and for all, the respective fields of
application of Directives 76/207 and 92/85, in the light of their provisions and their purposes 4. The
respondent states that the repercussions of the judgment to be given in this case will be very limited since
Directive 92/85 requires the member states to prohibit, with effect from no later than 19 October 1994,
dismissal of a worker who is pregnant, has recently given birth or is breastfeeding. In its opinion, Mrs
Brown was merely unlucky since, when she was dismissed, that directive had not been adopted.
4
That need was pointed out when Directive 92/85 was merely planned, by Shaw Pregnancy discrimination in sex
discrimination (1991) ELRev 313320 esp at 318.
I cannot agree with that view, since the provisions of the two directives differ and the aims which they
pursue are also different.
21.
Directive 76/207, whose legal basis is art 235 of the EC Treaty, represents Community action
considered necessary, at the relevant time, in order to achieve the principle of equal treatment for men
and women in respect of access to employment, vocational training and promotion and in respect of other
working conditions (third recital in the preamble). The only exceptions allowed to the principle of equal
treatment are to be found in art 2(2), (3) and (4), specifically relating to occupational activities for which,
by reason of their nature, the sex of the worker constitutes a determining factor; provisions relating to
protection of women, particularly in relation to pregnancy and maternity; and measures to promote equal
opportunity for men and women, in particular by removing any existing inequalities which affect womens
opportunities in the areas covered by the directive. In all cases, the measures involved, as Community
law stands at present, are a matter for the member states.
800
22.
Directive 92/85, on the other hand, has as its legal basis art 118a of the Treaty, which requires the
Council to adopt, by means of directives, minimum provisions to encourage improvements, especially in
the working environment, as regards the health and safety of workers; it is the tenth individual directive
adopted under art 16(1) of Council Directive (EEC) 89/91 on the introduction of measures to encourage
improvements in the safety and health of workers at work (OJ 1989 L183 p 1), art 15 of which provides
that particularly sensitive risk groups must be protected against the dangers which specifically affect
them.
The purpose of Directive 92/85 is to apply measures to encourage improvements to health and safety
at work for workers who are pregnant, have recently given birth or are breastfeeding. It is thus clearly
concerned with protection, providing for different treatment for women in any of those situations. The
legislature itself recognises, in the ninth recital in the preamble, that such protection should not treat
women on the labour market unfavourably or work to the detriment of directives concerning equal
treatment for men and women.
As the Court of Justice stated in its judgment in Webb [1994] 4 All ER 115, [1994] ECR I-3567 (paras
2122), in view of the effects which the risks of dismissal may have on the physical and mental state of
women who are pregnant, have recently given birth or are breastfeeding, including the particularly serious
risk that pregnant women may be prompted voluntarily to terminate their pregnancy, the Community
legislature provided, pursuant to art 10 of Directive 92/85, for special protection to be given to women by
prohibiting dismissal during the period from the beginning of their pregnancy to the end of their maternity
leave, and that there is to be no exception to that prohibition during that period save in exceptional cases
not connected with the condition of the person concerned.
23.
It is true that, once the prohibition of dismissal laid down in art 10 of Directive 92/85 is incorporated in
the domestic law of the member states, it will become unnecessary to apply art 5 of Directive 76/207,
which lays down the principle of equal treatment for men and women with regard to working conditions,
including the conditions governing dismissal, to cases in which a woman has been dismissed whilst
pregnant.
However, the prohibition of dismissal in art 10 of Directive 92/85 does not resolve the problem of a
woman who, having returned to work on an entirely normal basis after her maternity leave, is then
dismissed for having been intermittently unfit for work during the previous year for the number of weeks
laid down by national legislation; in such circumstances, is the woman dismissed on the same terms as a
man who has been ill for the same number of weeks, when for the female worker account is taken of the
period for which she was confined to bed on doctors orders because, for example, her pregnancy
displayed a risk of miscarriage?
That is why art 5 of Directive 76/207 and the courts case law interpreting it will continue to be
essential in order to clarify the question whether the periods for which a pregnant woman has been
prevented from working because of her pregnancy may be added to the periods preceding her pregnancy
and following her maternity leave, for the purpose of calculating absences from work such as to justify
dismissal.
24.
My third observation relates to the case law of this court interpreting the principle of equal treatment
laid down by Directive 76/207, where the 801 employment rights of workers who are pregnant or have
recently given birth are involved. It might not at first sight seem extraordinary that the only four judgments
on this subject delivered before the expiry date of the period for submitting written observations in this
case, namely the judgments in Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-
Centrum) Plus Case C-177/88 [1990] ECR I-3941, the Hertz case, Habermann-Beltermann v
Arbeiterwohlfahrt, Bezirksverband Ndb/Opf-eV Case C-421/92 [1994] ECR I-1657 and the Webb case,
enabled the parties to the main proceedings, the UK government and the Commission to defend such
conflicting positions. What is surprising, and indeed worrying, is that all rely on the same paragraphs in
support of their views.
I believe therefore that, as well as answering the preliminary questions from the House of Lords, the
court must clarify the existing case law, in order to ensure legal certainty. From my part, I shall review
those judgments and suggest how I think they should be interpreted.
B. The case law of the Court of Justice on the application of employment rights governed by
Directive 76/207 to workers who are pregnant or who have recently given birth
(1) The judgments in the Dekker and Hertz cases, in which the court held that it was
discriminatory to refuse to engage a pregnant woman but not to dismiss her because of
incapacity for work commencing after maternity leave, even though the illness was caused by the
confinement
25.
On 8 November 1990, this court delivered two judgments which have had a considerable impact in the
area of Community social law concerned with application of the principle of equal treatment for men and
women in matters of employment. They were the first in which the interpretation of Directive 76/207 was
in issue and, more specifically, the right of access to employment or the right to maintain a post in relation
to situations as exclusive to women as pregnancy and maternity. Both illustrate well the thesis of Lucinda
M Finley, which can be summarised in the following statement: The fact that women bear children and
men do not has been the major impediment to women becoming fully integrated into the public world of
the workplace (see Finley Transcending Equality Theory: A Way out of the Maternity and the Workplace
Debate 86 Columbia Law Review 1118 at 1119).
26.
They are the judgments in the Dekker and Hertz cases. In the first, the court gave a preliminary ruling
on a question from the Hoge Raad der Nederlanden (the Supreme Court of the Netherlands), dealing with
a case in which Mrs Dekker, a candidate for a post of instructor in a training centre for young adults, who
had informed the selection committee that she was three-months pregnant and who had been
recommended by the committee as the most suitable candidate for the duties involved, objected to the
employers refusal to engage her on the ground that she was already pregnant when she submitted her
application. That refusal came after the employer established that its insurer would not reimburse the
daily benefit that it would have to pay the worker during her absence on account of pregnancy and
confinement. The applicable national law allowed the insurer to refuse wholly or in part to refund daily
benefits to the employer where the employees incapacity for 802 work had arisen within the six months
following recruitment, provided that, at that time, the workers state of health was such that the
emergence of incapacity within that period could be foreseen. Since no exception was made for
pregnancy, incapacity for work by reason of maternity was treated in the same way as incapacity for work
because of a foreseeable sickness.
The national courts question, so far as relevant to this case, was whether the employers refusal to
engage the worker in those circumstances was contrary to the principle of equal treatment laid down in
Directive 76/207.
27.
In the second case, the preliminary ruling was sought by the Hjesteret (the Supreme Court),
Denmark, to enable it to give judgment in the proceedings before it, brought by Mrs Hertz against her
former employer, Aldi-Marked K/S. Mrs Hertz had been recruited in July 1982 as a part-time cashier and
saleswoman. In June 1983, after a pregnancy marked by complications, for most of which, with the
consent of her employer, she was on sick leave, she gave birth to a son. Towards the end of 1983, at the
end of her maternity leave, Mrs Hertz returned to work and did not take any more sick leave until June
1984. In the course of the next year she was on sick leave for 100 working days, for which reason she
was dismissed: the company claimed that it was normal practice to dismiss workers who were ill
frequently. It was common ground between the parties that the plaintiffs absences between June 1984
and June 1985 were a consequence of her confinement in 1983.
The national court asked whether art 5(1), in conjunction with art 2(1), of Directive 76/207 covered
dismissals as a consequence of absences due to illness attributable to pregnancy or confinement and, if
so, whether protection against dismissal due to illness caused by pregnancy or confinement was
unlimited in time.
28.
Advocate General Darmon, who delivered an opinion covering both cases, carried out a general and
invaluable review of the question of motherhood and the place which it should occupy, in the light of the
principle of equal treatment for men and women, in the economic and social life of European societies,
which is still up to date today (see the joint opinion of Advocate General Darmon in the Hertz and Dekker
cases: [1990] ECR I-3956 (esp para 21)). After considering whether there was any event more closely
connected to the specific nature of womanhood, and whether it was conceivable to treat female workers
on an equal footing with their male counterparts without taking account of motherhood, he took the view,
in the Dekker case, that the refusal to employ the candidate on account of forthcoming motherhood,
thereby taking into consideration an event which affected only female workers, constituted direct
discrimination on grounds of sex.
29.
The Hertz case, he said, involved in a perhaps more pressing way the difficult task of reconciling the
principle of equal treatment with the demands of economic life. And he added ([1990] ECR I-3956 (para
40)):
How are periods of sickness occurring after maternity leave but directly attributable to
pregnancy and confinement to be viewed? Should it or should it not be subject to what might be
termed the ordinary rules governing absences for reasons of health?
The conclusion which he reaches in that case is the opposite of that in Dekker, namely that the dismissal
of a worker outside periods of maternity leave 803 because of absences due to illness attributable to
pregnancy or confinement does not constitute discrimination directly based on sex.
30.
I must make it clear, however, that that bare statement is the consequence of reasoning which
incorporates throughout the idea that the workers absences were justified by illness originating from
pregnancy or confinement, which occur after the expiry of the maternity leave. In fact he says ([1990]
ECR I-3956 (para 43)):
I have to confess that I was tempted to propose a solution whereby medical conditions which
were directly, definitely and preponderantly due to pregnancy or confinement would enjoy
immunity, in the sense that the principle of equality of treatment would restrain the employer from
dismissing his employee for a reasonable period after the event in question. (My emphasis.)
In para 45, he says If complications resulting from a confinement are severe, a female worker may
remain unable to work for several years, without her employers being able to dismiss her. In para 46, he
explains that an expedient protecting a few women affected by severe post-natal problemsin statistical
terms, fortunately a minute percentage of casesmay jeopardize the chances of all women wishing to
enter the labour market (my emphasis).
In the next paragraph, when he considers what criteria the court could adopt in order to decide in
which cases a medical condition must fall within the protection demanded by maternity and what the
duration of such protection should be, the underlying idea continues to be that the principle of equal
treatment applies once the woman has come to the end of her maternity leave.
And, in para 48, the solution he suggests is to draw a distinction between the normal risks of
pregnancy and confinement, which he defines as the common attendant complications sometimes
leading to the grant of additional maternity leaverisks which, in his opinion, should qualify for
Community protection inasmuch as they are specific to motherhoodand medical conditions which are
not associated with the ordinary risks of pregnancy and should therefore be treated on the same footing
as ordinary sickness, adding that
in the absence of national legal provisions conferring special protection on women, the
employer must be able to dismiss his employee at the end of maternity leave Thus, once a
female worker has exhausted her entitlement to the various types of maternity leave, her periods of
absence for reasons of sickness, even if those reasons can be traced back to pregnancy or
confinement, cannot be attributed to the normal risks of maternity and must accordingly be viewed
in the same light as the absences of any other worker, unless the national legislature provides
special protection pursuant to Article 2(3) of the Directive. (My emphasis.)
31.
Both judgments were delivered by the full court, which adopted the solution proposed by the Advocate
General. The hearings were held on 3 October 1989 and the opinion was delivered on 14 November of
the same year. The fact that the judgments came a year later is indicative, in my opinion, of the difficulties
involved in those cases, in particular the Hertz case, as the court itself acknowledges, which may account
for the sparse nature of the reasoning of both judgments (see [1990] ECR I-3979 (para 7)).
804
32.
In the judgment in Dekker [1990] ECR I-3941 (para 21), the court took the view that only women can
be refused employment on account of pregnancy and such refusal therefore constitutes direct
discrimination on grounds of sex, that a refusal of employment on account of the financial consequences
of absence due to pregnancy is essentially based on the fact of pregnancy, and that such discrimination
cannot be justified on grounds relating to the financial loss which an employer who appointed a pregnant
woman would suffer for the duration of her maternity leave.
33.
The grounds and operative part of the judgment in Hertz, however, deserve special attention. It should
be remembered that the positions of the parties were that some claimed that the dismissal of a woman on
account of pregnancy, confinement or repeated periods of absence due to an illness attributable to
pregnancy or confinement is, irrespective of the time when the illness occurs, contrary to the principle of
equal treatment, since a male worker is not subject to such disorders and hence cannot be dismissed on
that ground. The others maintained that an employer cannot be prohibited from dismissing a female
worker on account of her frequent periods of sick leave solely because her illness is attributable to
pregnancy or confinement. Such a prohibition, which would affect the employer for many years after the
confinement, would be liable to entail not only administrative difficulties and unfair consequences for
employers but also negative repercussions on the employment of women (see [1990] ECR I-3979 (paras
89)).
34.
That judgment is of fundamental importance when it comes to reconciling the principle of equal
treatment for men and women in matters of employment with the role of women in the reproductive
process. Indeed, it states ([1990] ECR I-3979 (paras 1315)):
(13) It follows from the provisions of the Directive that the dismissal of a female worker on
account of pregnancy constitutes direct discrimination on grounds of sex, as is a refusal to appoint
a pregnant woman
(14) On the other hand, the dismissal of a female worker on account of repeated periods of sick
leave which are not attributable to pregnancy or confinement does not constitute direct
discrimination on grounds of sex, inasmuch as such periods of sick leave lead to the dismissal of a
male worker in the same circumstances.
(15) The Directive does not envisage the case of an illness attributable to pregnancy or
confinement. It does, however, admit of national provisions guaranteeing womens specific rights
on account of pregnancy and maternity, such as maternity leave. During the maternity leave
accorded to her pursuant to national law, a woman is accordingly protected against dismissal due
to absence. It is for every Member State to fix periods of maternity leave in such a way as to enable
female workers to absent themselves during the period in which the disorders inherent in
pregnancy and confinement occur.
35.
It is paras 16 and 17, which, in my opinion, indicate the direction to be taken in interpreting that
judgment. In them, the court expressly states that:
(16) In the case of an illness manifesting itself after the maternity leave, there is no reason to
distinguish an illness attributable to pregnancy or confinement from any other illness. Such a
pathological condition is therefore covered by the general rules applicable in the event of illness.
805
(17) Male and female workers are equally exposed to illness. Although certain disorders are, it is
true, specific to one or other sex, the only question is whether a woman is dismissed on account of
absence due to illness in the same circumstances as a man; if that is the case, then there is no
direct discrimination on grounds of sex.
36.
However, the difficulty which arises in interpreting the scope of that judgment lies in the fact that the
clarification concerning the time at which the illness emerges does not appear in the operative part, in
which an answer is given that corresponds precisely to the question, as submittedand the court adopts
the exact wording thereofin the following terms ([1990] ECR I-3979 (operative part)):
Without prejudice to the provisions of national law adopted pursuant to Article 2(3) of Council
Directive 76/207 Article 5(1) of that directive, in conjunction with Article 2(1) thereof, does not
preclude dismissals which are the result of absences due to an illness attributable to pregnancy or
confinement.
That apparent incongruity, which is easily accounted for by the fact that, in paras 16 and 17, the court
is very mindful of the circumstances in which the dispute before the national court arose, whereas, in the
operative part, the answer strictly matches the preliminary question, as phrased by the national court 5, is
what has given rise to the divergent interpretations underlying the views of the parties in these
proceedings.
5
The question is worded as follows: Do the provisions of Article 5(1), in conjunction with Article 2(1), of Directive
76/207 encompass dismissal as a consequence of absence due to illness which is attributable to pregnancy or
confinement?
37.
I am in no doubt whatsoever that that judgment cannot be interpreted solely by reference to the
operative part: it must be borne in mind that, in para 16, the court states in absolutely clear terms that, if
the illness manifests itself after the maternity leave, there is no reason to distinguish an illness attributable
to pregnancy or confinement from any other illness.
That is certainly the construction adopted by academic authors commenting on that judgment: all the
commentaries I have read stress, more or less disapprovingly, the fact that the court, when stating that art
5(1), in conjunction with art 2(1), of Directive 76/207 does not preclude dismissals which are the result of
absences due to an illness attributable to pregnancy or confinement, is referring to absences occurring
after maternity leave6.
6
See Jaeqmain Chroniques de droit social (1991) pp 4950 (para 4); Devos (1991) Journal des tribunaux du travail 121
122 (para 3); Shaw Pregnancy discrimination in sex discrimination (1991) ELRev 313 at 317; Traversa (1991) Revue
trimestrielle de droit europen 425 at 436; Kilpatrick How long is a piece of string? Regulation of the Post-Birth Period
in Sex Equality Law in the European Union (1996) pp 81ff, esp at p 84; Burrows & Mair European Social Law (1996) p
155; Nielsen (1992) CMLRev 160 at 164; More Reflections on pregnancy discrimination under European Community
law (1992) The Journal of Social Welfare and Family Law 48 at 5354; Bolger Discrimination on Grounds of Pregnancy
as Sex Discrimination in Gazette of the Incorporated Law Society of Ireland p 383; Rodrguez-Piero Discriminacin
por razn de sexo y embarazo de la trabajadora (1991) I Relaciones Laborales 3 at 8; Flynn Pregnancy and Dismissal:
Rejecting the Sick Male comparison (1994) ILT 257; Van Kraay The Difference Between Pregnant Women and Sick
Men (1995) 29 Law Teacher 92ff, esp at 93; McGlynn Webb v EMO: a hope for the Future (1995) Northern Ireland
Legal Quarterly 50ff, esp at 54; Boch (1995) CML Rev 547ff, esp at 558; Hervey Justifications for Sex Discrimination in
Employment (1993) p 67; Szyszczak Community Law on Pregnancy and Maternity Sex Equality Law in the European
Union (1996) pp 51ff, esp p 54 and Bolger (1994) ILT Jo 6566.
806
38.
That is also the interpretation of the judgment in Hertz adopted by Advocate General Tesauro in his
opinion in Webb [1994] 4 All ER 115, [1994] ECR I-3567. In para 13, he states that the Court of Justice
considered, in that judgment, that the dismissal of a female employee on account of repeated absences
through illness, attributable to pregnancy or confinement, does not constitute direct discrimination on
grounds of sex if those absences occur after the period of maternity leave 7 and he adds that:
7
Advocate General Tesauro expresses the same view in his opinion in Habermann-Beltermann [1994] ECR I-1657.
That judgment may certainly not be construed as meaning that the court has recognised as
permissible (or even justifiable) the dismissal of a woman who is absent from work for a reason
(illness) connected with pregnancy. Closer examination reveals that the courts decision turned on
the fact that Mrs Hertzs illness began after her return to work at the end of her maternity leave.
And he lays stress, in para 14, on the fact that
To the extent to which that judgment holds that it is not discriminatory to dismiss an employee
on account of absences through an illness which, while it may be attributable to pregnancy or
confinement, began after the end of the maternity leave, it follows a fortiori that the pregnancy may
not be equated with illness.
39.
The contradiction between the judgments in the Dekker and Hertz cases, emphasised by some
authors8, lies in the fact that, in the former, the court described as direct discrimination a refusal to make
an appointment owing to pregnancy, since that can apply only to women, whereas, in the latter, it stated
that, for the purposes of dismissal, if an illness manifests itself after maternity leave, there is no reason to
distinguish an illness attributable to pregnancy or confinement from any other illnesswhen it is clear that
only women can suffer an illness which is attributable to pregnancy or confinementand that
contradiction can be resolved in my opinion only if it is concluded that the reason for that distinction lies in
the fact that, once a woman has given birth and returned from maternity leave, her physiological state is
no different from that of male workers and, from that time, it is inappropriate to draw a distinction by
reference to the origin of the illness. If, as a result of having given birth at any time in their lives, women
could claim what amounted to a sort of insurance against dismissal for the rest of their working life, as a
result of which no account would be taken for such purposes of periods of incapacity for work following
maternity leave, whose origin might be attributable to their pregnancy or confinement, that would amount
to a privilege contrary to the principle of equal treatment.
8
See Jaeqmain Chroniques de droit social (1991) p 50; More (1992) The Journal of Social Welfare and Family Law 48 at
55; Shaw (1991) ELRev 313 at 320; Traversa (1991) Revue trimestrielle de droit europen 425 at 436; McGlynn (1995)
Northern Ireland Legal Quarterly 50 at 5455; Boch (1995) CML Rev 547 at 559; Kilpatrick How long is a piece of
string? Regulation of the Post-Birth Period in Sex Equality Law in the European Union (1996) p 85; Szyszczak
Community Law on Pregnancy and Maternity Sex Equality Law in the European Union (1996) p 54; and Burrows &
Mair European Social Law (1996) p 155.
807
(2) The judgment in the Habermann-Beltermann case, in which the court considered it
discriminatory for a contract of employment to be declared void or avoided by virtue of the legal
prohibition of night work for pregnant women
40.
In its judgment of 5 May 1994 in Habermann-Beltermann [1994] ECR I-1657, the Court of Justice
answered preliminary questions from the Arbeitsgericht (the Labour Court) Regensburg concerning an
employment contract of indeterminate duration entered into by an employer and a pregnant employee.
When they signed the contract, which required night work, both parties were unaware of the pregnancy.
The national court wished to know whether art 2(1), in conjunction with art 3(1) and art 5(1), of Directive
76/207 precluded that contract from being declared void as a result of the prohibition of night work which
applied, under national law, during pregnancy and breast-feeding, and from being avoided by the
employer on account of a mistake as to the essential personal characteristics of the other contracting
party when the contract was concluded.
The Court of Justice observed that, in the case of a contract of indeterminate duration, the prohibition
of night work by pregnant women takes effect only for a limited period in relation to the total length of the
contract, and reached the conclusion that, in those circumstances, it would be contrary to the objective of
protection pursued by art 2(3) of Directive 76/207 and would deprive that provision of its effectiveness to
allow a contract to be declared void or be avoided because the pregnant worker was temporarily
prevented from performing the night work for which she was taken on. The specific answer which it gave
to the national court was that the provisions of Directive 76/207 preclude an employment contract for an
indefinite period for the performance of night-time work concluded between an employer and a pregnant
employee, both of whom were unaware of the pregnancy, from being held to be void on account of the
statutory prohibition on night-time work which applies, by virtue of national law, during pregnancy and
breast-feeding, or from being avoided by the employer on account of a mistake on his part as to the
essential personal characteristics of the woman at the time when the contract was concluded.
(3) The judgment in the Webb case, in which the court held that the situation of a pregnant
woman, who is unfit to carry out work for which she was recruited, cannot be compared with that
of a man who suffers the same incapacity for medical or other reasons
41.
On 14 July 1994 the Court of Justice gave judgment in Webb [1994] 4 All ER 115, [1994] ECR I-3567,
in response to a request submitted by the House of Lords for a preliminary ruling on the interpretation of
Directive 76/207 to resolve a dispute before it between an employer and a female worker, recruited for an
indeterminate period, who had been dismissed when the employer discovered she was pregnant on the
ground that he had engaged her for the specific purposeinitiallyof replacing another employee during
the latters maternity leave. In that judgment the Court of Justice stated that it was not appropriate to
consider, as requested by the national court, whether the situation of a woman who is incapable of
performing the task for which she was recruited, owing to a pregnancy of which she became aware very
soon after signing the employment contract, can be compared with that of a man 808 who suffers the
same incapacity for medical or other reasons. It states ([1994] 4 All ER 115, [1994] ECR I-3567 (para
25)):
pregnancy is not in any way comparable with a pathological condition, and even less so with
unavailability for work on non-medical grounds, both of which are situations that may justify the
dismissal of a woman without discriminating on grounds of sex. Moreover, in the Hertz case the
court drew a clear distinction between pregnancy and illness, even where the illness is attributable
to pregnancy but manifests itself after the maternity leave.
The conclusion reached by the court was that, in circumstances such as those of Mrs Webb,
termination of a contract for an indefinite period on account of the womans pregnancy cannot be justified
by the fact that she is prevented, on a purely temporary basis, from performing the work for which she has
been engaged (see [1994] 4 All ER 115, [1994] ECR I-3567 (para 27)).
(4) The judgment in the Larsson case, in which the court appears to have taken the view that it is
not discriminatory to take account, for the purposes of dismissal, of a womans incapacity for
work, attributable to pregnancy before commencement of maternity leave.
42.
Against that background, on 29 May 19979 the Court of Justice gave judgment in Larsson v Ftex
Supermarked A/S Case C-400/95 [1997] ECR I-2757. The court was again asked, this time by the S- og
Handelsretten (the Maritime and Commercial Court), Denmark, to interpret art 5(1) and art 2(1) of
Directive 76/207, as applied to a worker who had been dismissed after her maternity leave owing to
relatively long periods of sick leave attributable to her condition, most of which occurred during pregnancy
and were covered by medical certificates. I shall consider that judgment in some detail.
9
At which time the period for submitting observations in the present case had expired.
Mrs Larsson had been employed by Ftex Supermarked A/S in March 1990. In August the following
year she informed her employer that she was pregnant. During her pregnancy she took sick leave twice.
The first absence was for 18 days. The second was on account of a pelvic prolapse attributable to the
pregnancy, and lasted about four-and-a-half months. The birth took place on 2 April 1992. Her maternity
leave, of 24 weeks, ended on 18 September 1992. She then took annual leave until 16 October. During
her maternity leave and holidays, Mrs Larsson continued to receive treatment for the pelvic prolapse. She
remained on sick leave at the end of her holidays and was not declared fit for work until 4 January 1993.
On 10 November 1992less than a month after the end of her annual holidaysher employer informed
her by letter that she was to be dismissed with effect from the end of December. The reason for dismissal
was the long periods of absence from work, together with the fact that it is highly unlikelyfor health
reasonsthat in the future you will recover the ability to perform your work in a satisfactory manner.
43.
The national court asked whether the above-mentioned provisions of Directive 76/207 covered
dismissals on account of absence following the end of maternity leave if the absence was attributable to
an illness which arose during pregnancy and after maternity leave, it being assumed that the dismissal
took place after the end of the maternity leave. It should be noted 809 that the national courts question
concerned dismissals for absences following the end of maternity leave.
44.
In the opinion which I delivered in that case I suggested that the Court of Justice declare, on the basis
of the judgments in Hertz, Webb and Habermann-Beltermann, that, for application of the principle of equal
treatment for men and women in relation to conditions of employment, including those governing
dismissal, laid down in art 5(1) of Directive 76/207, a line should be drawn at the end of the maternity
period (see [1997] ECR I-2759). Thereafter, any illness suffered by a woman, whether or not obstetric in
origin, will be covered by the general regime applicable to all workers. Conversely, periods of sick leave
for health problems attributable to pregnancy, before confinement, cannot be equated, for the purposes of
dismissal, with a mans absences through sickness.
My proposed answer to the question from the national court was as follows: art 5(1), in conjunction
with art 2(1) of Directive 76/207, does not preclude a woman from being dismissed as a result of periods
of absence subsequent to her maternity leave, where those periods of absence are due to an illness
which arose during pregnancy and has continued both during and after the maternity leave, unless, when
calculating the periods of absence for the purposes of dismissal, account is taken of periods of absence
on medical grounds for health problems attributable to pregnancy prior to childbirth.
45.
In response to the arguments of the plaintiff in the main proceedings, who maintained that, in the Hertz
judgment, a distinction had been established by reference to the moment of onset or first appearance of
the illness, the Court of Justice stated in Larsson [1997] ECR I-2757 (para 17) that on that occasion
It merely held that, in the factual situation submitted to it on that occasion, there was no reason
to distinguish, from the point of view of the principle of equal treatment enshrined in the directive,
between an illness attributable to pregnancy or confinement and any other illness. That
interpretation is confirmed, moreover, by the absence of any reference in the operative part of the
Hertz judgment to the moment of onset or first appearance of the illness.
46.
Later on in the judgment, details are given of the position of the plaintiff in the main proceedings, the
Danish government and the Commission, to the effect that it was contrary to Community law for an
employer, in calculating the period justifying dismissal under national law, to be able to take account both
of absences occurring between the beginning of the pregnancy and the beginning of maternity leave and
also the duration of the maternity leave. Indeed, it was apparent from the documents in the main
proceedings that, if those periods and the four weeks which she took as leave were discounted, Mrs
Larsson had been unfit for work for less than four weeks when she was dismissed.
47.
As regards maternity leave taken under national law, the court considered that a woman is protected
against dismissal due to absence and to allow absence during such a period to be taken into account as
grounds for a subsequent dismissal would be contrary to the objective of permitting national measures
concerning the protection of women, particularly as regards pregnancy and maternity, pursued by art 2(3)
of the directive (see [1997] ECR 810 I-2757 (para 22)). Outside the period of maternity leave provided for
by the member states and in the absence of national or Community provisions affording women specific
protection, female workers do not enjoy, under Directive 76/207, protection against dismissal for absence
due to an illness originating in pregnancy.
48.
The court inferred from those statements that
The principle of equal treatment enshrined in the directive does not, therefore, preclude account
being taken of a womans absence from work between the beginning of her pregnancy and the
beginning of her maternity leave when calculating the period providing grounds for her dismissal
under national law,
and stated in reply to the national court that, without prejudice to the provisions of national law adopted
pursuant to art 2(3) of the directive, art 5(1), in conjunction with art 2(1), of that Directive does not
preclude dismissals which are the result of absences due to an illness attributable to pregnancy or
confinement, even where that illness arose during pregnancy and continued during and after maternity
leave (see [1997] ECR I-2757 (paras 24, 26)).
49.
I confess that I find it rather difficult to reconcile those statements with the line taken in the case law
developed by the Court of Justice up to the time of that judgment, as set out in the foregoing paragraphs.
The court appears not only to maintain in Larsson a position contrary to what is to be inferred from a brief
examination of its earlier judgments, but also directly to contradict the reading of those judgments which
has been propounded over time both by its Advocates General and by the numerous authors who have
commented on the judgments.
I note, once again with a degree of preoccupation, that in para 20, where it states that the directive
does not preclude dismissal on the ground of periods of absence due to an illness attributable to
pregnancy or confinement, even where such illness first appeared during pregnancy and continued during
and after the period of maternity leave, the court does not indicate at what time the absences occurred.
Furthermore, where, in para 23, it states that, outside the period of maternity leave, in the absence of
national Community provisions, a female worker does not enjoy under art 76/207 any protection against
dismissal due to absences attributable to an illness arising during pregnancy, the court likewise fails to
make clear at what time the absences occurred.
Similarly, in para 24, when it concludes that the principle of equal treatment enshrined in the directive
does not preclude account being taken, for calculation of the period justifying dismissal, of absences
occurring between commencement of the pregnancy and commencement of maternity leave, the court
does not say that the absences were caused by an illness attributable to pregnancy.
Finally, the operative part of the judgment does not give a complete answer to the question from the
national court, which was concerned with dismissals arising as a result of absence following the end of
maternity leave if the absence is attributable to an illness which arose during pregnancy and continued
during and after maternity leave, it being assumed that the dismissal took place after the end of the
maternity leave, whereas the court answered that the provisions of the 811 directive do not preclude
dismissals which are the result of absences due to an illness attributable to pregnancy or confinement,
even where the illness arose during pregnancy and continued during and after maternity leave. Thus, the
answer does not mention either the time at which the absences occurred or the time at which the
dismissal occurred.
50.
I consider that, in view of its shortcomings, the judgment in Larsson does not provide a sufficient basis
for the view that the Court of Justice wished to make a U-turn in its case law. I believe, therefore, that
there is very good reason, for the sake of legal certainty, for the court to give a clear ruling on the principle
of equal treatment for men and women in relation to dismissals of female workers occurring during
pregnancy or after maternity leave, where account was taken of periods of unavailability for work caused
by pregnancy, before the commencement of maternity leave. That was precisely what happened in Mrs
Browns case.
51.
What is involved here, ultimately, is the duty incumbent upon us all of progressively removing all traces
of the discrimination which women have suffered over the centuries 10, a duty to which the institutions of
the European Union are so deeply committed.
10
For example, Miguel de Cervantes Saavedra, in Ch LI of the first part of his work The Adventures of Don Quijote of la
Mancha (1950) translation by J M Cohen, pp 449450), has the goatherd refer, when relating the story of Leandra, to
frivolity and failings natural to woman-kind, who are generally ill-balanced and unsteady. He then takes an easier and,
according to him, more proper course, which is to curse the fickleness of women, their inconstancy, their double-
dealing, their unkept promises, their broken faith, and last of all, the lack of judgment they show in their choice of objects
for their desires and affections.
C. The first question from the House of Lords: dismissal of a pregnant woman through
incapacity for work attributable to pregnancy
52.
By this question, the national court wishes to ascertain whether it is contrary to the principle of equal
treatment laid down by Directive 76/207 to dismiss a worker, while she is pregnant, for absence due to
incapacity for work attributable to pregnancy and whether the answer to the question is affected by the
fact that the dismissal is based on a contractual provision entitling the employer to dismiss employees,
irrespective of gender, after a stipulated number of weeks of continued absence.
53.
There is no doubt that the application of Community law would have precluded Mrs Browns dismissal
if, when complications arose in her pregnancy, the period prescribed for transposition of Directive 92/85
into national law had ended. However, that directive had not even been adopted. As a result, Directive
76/207 contains the only applicable Community law.
54.
It will be remembered that art 5 of Directive 76/207 provides that application of the principle of equal
treatment with regard to working conditions, including the conditions governing dismissal, means that men
and women are to be guaranteed the same conditions without discrimination on grounds of sex.
Starting from the premiss that equality, as defined by the Constitutional Court of one of the member
states, is not a reality or an abstract mathematical concept but rather unequal treatment of that which is
unequal or equal treatment of that which is similar or alike11 and having regard to the settled 812 case law
of the Court of Justice to the effect that discrimination can arise only through the application of different
rules to comparable situations or the application of the same rule to different situations 12, I shall now
consider whether the dismissal of a pregnant woman on grounds of incapacity for work arising from her
condition occurs under the same conditions as dismissal of a man for incapacity for work of the same
duration, arising from an illness.
11
See the judgment of the Spanish Constitutional Court 29/1987 of 6 March, para 5(b) (BOE of 24 March 1987).
12
See the judgment in Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-
225 (para 30).
55.
By contrast with the situation of Mrs Hertz, whose unfitness for work, which was of obstetric origin,
commenced some time after the end of her maternity leave, the complications attendant upon Mrs
Browns pregnancy, which prevented her from working for much of that period, became apparent at a very
early stage. It is clear from the documents before the court that she was unfit for work for the period of 26
weeks which allowed her to be dismissed pursuant to the condition included by Rentokil in employment
contracts and that she did not give birth until six weeks later. In view of the fact that the average term of
human gestation is 38 weeks, I calculate that she was able to work for only the first five or six.
56.
I wonder whether it is still necessary, at this stage, to repeat the self-evident fact that pregnancy is a
situation which affects only women, since only they can become pregnant. Pregnancy, besides being a
biological situation pertaining exclusively to women, is a period limited in time, during which there may
occur not only the well-known phenomenon of morning sickness but also complications such as risks of
miscarriage or premature contractions associated with stress, which may compel the woman to rest
absolutely for periods which may extend from two or three months to the whole of the period of
pregnancy.
57.
This court emphatically stated, in the judgment in Hertz [1990] ECR I-3979 (para 14), that
the dismissal of a female worker on account of repeated periods of sick leave which are not
attributed to pregnancy or confinement does not constitute direct discrimination on grounds of sex,
inasmuch as such periods of sick leave would lead to the dismissal of a male worker in the same
circumstances. (My emphasis.)
58.
Can it be said, however, that the dismissal of a pregnant woman on account of repeated periods of
sick leave attributable to pregnancy occurs under the same conditions as the dismissal of a man who has
been on sick leave for the same period? In my opinion the answer is no.
59.
Without wishing to meddle in matters which are the province of doctors, I should make it clear that,
although, as this court stated in Webb [1994] 4 All ER 115, [1994] ECR I-3567 (para 25), pregnancy is not
in any way comparable with a pathological condition, no one is unaware of the existence of high-risk
pregnancies which occurthe following being examples, not an exhaustive listwhen there is a history
of premature or still-births, when the placenta is lower than normal, when the woman has undergone in
vitro fertilisation treatment, and in cases where the woman suffers from a heart condition or diabetes. The
main characteristic of such pregnancies is not that they cause the woman to be ill but that, normally, they
require her to remain 813 under strict medical supervision and, in some of the cases mentioned above, to
rest absolutely for several months or, sometimes, throughout her pregnancy 13.
13
Women whose pregnancy causes unfitness for work of such a duration are, fortunately, few in number: it is calculated
that they represent 10 to 15% of cases.
I cannot share the view that, in situations of that kind, where the woman is not suffering from any
illness but is simply pregnant, it can be said that, in the event of dismissal for repeated absences, she is
dismissed under the same conditions as a man who has been absent through illness for the same period
of time. The same reasoning will apply where the incapacity for work derives from the fact that pregnancy
has aggravated an existing illness or brought about conditions which may be classified as real illness.
60.
Whilst the situation of a pregnant worker whose pregnancy prevents her from working and that of a
male worker who is ill coincide in so far as neither of them can, for a period, carry out the tasks involved in
her or his employment, important differences distinguish them: only women may find themselves at some
time during their working life in a situation where they are prevented from working because of incapacity
arising from a pregnancy; and, in most cases, a womans incapacity for work arising from pregnancy will
end on a date known in advance with more or less accuracy, when she gives birth.
61.
These factors appear to have been taken into account by the domestic law applicable in most member
states at the time of the material events in this case, which was fairly similaronly the legislation in the
United Kingdom and Ireland differed radically.
Thus, in Germany there was specific protection for women from the start of pregnancy until after
confinement, whereby in that period dismissal was subject to administrative authorisation; in Denmark,
the Ministry of Employment considered it discriminatory to take account, for the purposes of dismissal, of
absences due to incapacity for work attributable to pregnancy, before a woman gave birth; in France, the
employer could not dismiss a woman during pregnancy, during maternity leave or during the four weeks
thereafter; in Greece, it was prohibited to dismiss a worker during pregnancy or within a year after she
gave birth and she could not be dismissed for absences due to unfitness for work attributable to
pregnancy or confinement; in Italy, the prohibition of dismissal extended from the start of the pregnancy
until the end of the first year of the childs life, the rule having been interpreted by case law to the effect
that, during that period, a woman likewise could not be dismissed for exceeding the maximum permitted
number of days sick leave; in the Netherlands, it was prohibited to dismiss a woman during pregnancy or
maternity leave or within six weeks thereafter; in Portugal, it was only possible to dismiss a worker
through incapacity for work in cases of absolute and definitive incapacity and, as regards the rules
applicable to pregnant women, dismissal was prohibited where their incapacity for work was attributable
to pregnancy or an illness associated with it. Finally, although in Spain there was no specific legislation for
the protection of pregnant women against dismissal, the effect of the case law was that a woman could
not be dismissed for absences arising from unfitness for work attributable to difficult pregnancies or
illnesses associated with pregnancy.
As regards the three new member states, in Austria specific protection existed for women from the
start of the pregnancy until after confinement, 814whereby during that period dismissal was subject to
judicial authorisation; in Finland, for a worker to be dismissed on account of incapacity for work, there had
to be a substantial and permanent reduction of her ability to work; finally, in Sweden, incapacity for work
through illness did not justify dismissal if it was probable that the worker would recover and a woman
could not be dismissed on account of unfitness for work resulting from pregnancy.
62.
The respondent in the main proceedings contends that Mrs Browns dismissal was due to the
abnormal nature of her pregnancy. It maintains that to treat her, on account of the origin of her unfitness
for work, differently from pregnant women whose pregnancy did not prevent them from working or from
other employees who were ill would constitute positive discrimination applicable only to a particular
section of women.
I cannot agree with that assertion for two reasons. First, because it must be borne in mind that
Directive 76/207 establishes the principle of equal treatment for men and women regarding working
conditions, including conditions governing dismissal, and that, in seeking a basis of comparison, it is
inappropriate to draw parallels or distinctions between two pregnant women experiencing more or less
easy or problematical pregnancies the point of reference continues to be the male worker. Secondly,
because, as I indicated in the foregoing paragraph, for the purposes of dismissal the situation of a
pregnant woman whose pregnancy prevents her from working and that of a man who is unwell are not
comparable, in the light of the principle of equal treatment laid down by that directive.
63.
Nor do I agree with the position of the United Kingdom, which proposes distinguishing between, on the
one hand, dismissal on account of ordinary risks and disorders normally inherent in pregnancy and
confinement, the examples given by it being absence from work for routine medical examinations and
minor absences for ailments such as morning sickness, and, on the other hand, dismissal of a woman on
account of an illness, whether or not linked with pregnancy. I think the origin of that suggested
differentiation is Advocate General Darmons opinion in the Dekker and Hertz cases, where he
considered, in the Hertz case, the possibility of determining the duration of protection linked with maternity
(see [1990] ECR I-3956 (paras 4748)).
64.
In my opinion, quite apart from the fact that it is doubtful whether a woman would be dismissed on
account of absences from work attributable to routine medical examinations or minor absences due to
morning sickness14, the position taken by the United Kingdom was arrived at by interpreting that part of
the opinion out of context. As I have already stated in para 30, above, Mr Darmon in fact suggested
distinguishing between, on the one hand, normal risks of pregnancy and confinement, namely the usual
complications accompanying such events, which sometimes result in the grant of an additional period of
maternity leave, and should qualify for Community protection inasmuch as they are specific to
motherhood, and, on the other, medical conditions which are not associated with the ordinary risks of
pregnancy and should be treated in the same way as ordinary sickness.
14
Morning sickness may be violent and extend beyond the first three months, requiring hospitalisation in some cases.
Now, it must not be forgotten that Mrs Hertz had been dismissed on account of incapacity for work
which, although caused by her confinement, did not prevent her from working until one year after the end
of her maternity 815 leave. To my mind, that is why the Advocate General adds, at a later stage, that,
where a female worker has exhausted her entitlement to all legally prescribed types of maternity leave,
periods of absence through sickness, even though they may be traced back to her pregnancy or
confinement, cannot be regarded as included among the normal risks of maternity.
65.
I consider, therefore, that, if one wishes to draw a distinction between the normal risks of pregnancy
and confinement and medical conditions which do not reflect the ordinary risks of pregnancy, it is
necessary to take a chronological approach: the former will, necessarily, be those which arise while the
woman is in one of those situations, that is to say whilst she is pregnant or on maternity leave, whereas
the latter will be all those which arise after maternity leave, even though their cause may be traceable
back to the pregnancy or confinement.
66.
For the reasons given above, I consider that the dismissal of a woman whilst she is pregnant, on
account of unfitness for work caused by her pregnancy, by taking into consideration a situation in which
only women can find themselves, constitutes direct discrimination contrary to art 5(1) of Directive 76/207.
67.
I wish to make it clear that the interpretation I propose is, in my opinion, the only possible interpretation
of art 5(1), in conjunction with art 2(1), of Directive 76/207 and of the line followed in the case law of the
Court of Justice until the judgment in Larsson. If that were not the case, and the future of an employed
woman, on becoming pregnant, could depend on whether or not her pregnancy involved excessive
complications, I would be obliged to state, paraphrasing Papinian, that despite the passage of the
centuries there are many points in our [Community] law in which the condition of females is inferior to that
of males (see Papinianus libro trigensimo primo quaestionum. In multis iuris nostri articulis deterior est
condicio feminarum quam masculorum. The Digest of Justinian, Vol I, Book One (Human Status), p 16).
68.
The national court also asks whether that answer is affected by the fact that the dismissal is based on
a contractual provision entitling the employer to dismiss a worker, regardless of gender, after a specific
number of weeks of continued absence.
69.
I believe it can be inferred from the foregoing reasoning that the fact that the dismissal is based on a
contractual provision entitling the employer to dismiss a worker, regardless of gender, after a specific
period of sick leave, has no impact on the foregoing answer.
That contractual provision, which applies to men and women alike, by simply assimilating incapacity
for work attributable to pregnancy to incapacity for work attributable to an illness, introduces direct
discrimination on grounds of sex, by applying the same rule to different situations, in that it takes into
consideration, for calculation of periods of incapacity for work justifying dismissal, an obstacle to work
which can affect only women.
70.
The fact that the provision is contained in the employment contract is irrelevant for the present
purposes. First, art 5(2)(b) of Directive 76/207 requires the member states to ensure that any provisions
contrary to the principle of equal treatment which are included, inter alia, in individual contracts of
employment are, or may be, declared null and void. Secondly, the Court of Justice has held that when it
interprets and applies national law, every national court must presume that the state had the intention of
fulfilling 816 entirely the obligations arising from the directive concerned (see Wagner Miret v Fondo de
Garanta Salarial Case C-334/92 [1993] ECR I-6911 (para 20)). Finally, the member states obligation, by
virtue of a directive, to achieve the result pursued by it, and its duty under art 5 of the Treaty to take all
appropriate measures, whether general or particular, to ensure fulfilment of that obligation, apply to all the
authorities of the member states, including, within their jurisdiction, judicial authorities. It follows that, in
applying national law, whether the provisions in question were adopted before or after the directive, the
national court called upon to interpret it is required to do so, as far as possible, in the light of the wording
and the purpose of the directive in order to achieve the result pursued by the latter and thereby comply
with the third paragraph of art 189 of the Treaty (see Marleasing SA v La Comercial Internacional de
Alimentacin SA Case C-106/89 [1990] ECR I-4135 (para 8)).
71.
In view of the answer which I propose be given to the national court in response to the first question, it
is unnecessary to answer the second. I shall nevertheless examine it, in case the court does not share my
view.
D. The second question from the House of Lords: dismissal of a pregnant woman during the
period in which, had she fulfilled the requirements laid down by national law, she could
have absented herself from work on account of pregnancy and confinement
72.
By its second question, the national court asks whether it is contrary to the principle of equal treatment
laid down by Directive 76/207 to dismiss a female employee as a result of absence through illness arising
from pregnancy who does not qualify for the right to absent herself from work on account of pregnancy or
confinement for the period specified by national law because of insufficient length of service, where
dismissal takes place during that period, and whether it makes any difference to the answer to be given to
that question that the employee was dismissed under a contractual provision entitling the employer to
dismiss any employee, irrespective of gender, after a stipulated number of weeks of continued absence.
73.
From the information in the order for reference, I infer that what the national court wishes to ascertain,
by asking that question, is whether Directive 76/207 must be construed as having imposed on member
states the obligation to provide, in domestic law, that female workers must be entitled to a period of
absence from work merely because they have given birth, and that no other conditions may be imposed
on them in that regard.
74.
The purpose of Directive 76/207 is to apply in the member states the principle of equal treatment for
men and women regarding access to employment, vocational training and promotion and working
conditions. However, by virtue of art 2(3) of the directive, its provisions are to be without prejudice to the
grant by member states of specific rights for women as regards pregnancy or maternity. It thus only
contemplates the adoption of measures for the protection of women in such circumstances as an
exception to that principle; it does not oblige the member states to legislate to that effect, nor does it
specify what the rights in question must be or the conditions which may be imposed for them to be
exercised.
75.
The course followed by this court has been to take the view that art 2(3) of Directive 76/207, by
reserving to member states the right to retain or introduce provisions intended to protect women in
connection with pregnancy and maternity, recognises the legitimacy, in terms of the principle 817 of
equal treatment, of protecting a womans biological condition during pregnancy and thereafter, and of
protecting the special relationship between a woman and her child over the period which follows
pregnancy and childbirth (see the judgments in Hofmann v Barmer Ersatzkasse Case 184/83 [1984] ECR
3047 (para 25), Habermann-Beltermann [1994] ECR I-1657 (para 21) and Webb [1994] 4 All ER 115,
[1994] ECR I-3567 (para 20)).
76.
It is also important to bear in mind that the court held in Hertz [1990] ECR I-3979 (para 15) that
Directive 76/207
does not envisage the case of an illness attributable to pregnancy or confinement. It does,
however, admit of national provisions guaranteeing women specific rights on account of pregnancy
and maternity, such as maternity leave. During the maternity leave accorded to her pursuant to a
national law, a woman is accordingly protected against dismissal due to absence. It is for every
Member State to fix periods of maternity leave in such a way as to enable female workers to absent
themselves during the period in which the disorders inherent in pregnancy and confinement occur.
77.
The United Kingdom legislation applicable at the material time gave a worker the right to absent
herself from work from the beginning of the eleventh week before confinement and the right to return to
work within the 29 weeks following childbirth, if she fulfilled certain conditions, namely, that she had been
employed in the company until the beginning of that eleventh week; that at that time she had been
continuously employed for a period of not less than two years; that she had observed the prescribed
procedure for notification to her employer; and, at the latters request, that she had supplied a medical
certificate indicating the expected week of confinement 15.
15
The legislation concerned is extraordinarily complex, so much so that the Employment Appeal Tribunal exclaimed, in
Lavery v Plessey Telecommunications Ltd [1982] ICR 373 at 379, [1982] IRLR 180 at 182: These statutory provisions
[on maternity rights] are of inordinate complexity exceeding the worst excesses of a taxing statute; we find that
especially regrettable bearing in mind that they are regulating the every-day rights of ordinary employers and
employees. We feel no confidence that, even with the assistance of detailed arguments from skilled advocates, we have
now correctly understood them: it is difficult to see how an ordinary employer or employee is expected to do so.
According to the documents before the court, if Mrs Brown had been working for Rentokil for two years
at the beginning of the eleventh week before the expected week of her confinement, she would have
been able to absent herself from work on account of her approaching maternity before accumulating an
absence totalling 26 weeks which, in her case, gave rise to dismissal. It must therefore be assumed that if
her right to absent herself had not been conditional upon fulfilment of the requirements mentioned above,
she would have given birth and, within the 29 weeks following her confinement, would have been able to
return to work.
Moreover, it has become apparent in the course of the proceedings that Mrs Brown was entitled to
receive maternity benefit from the state at the lower rate.
78.
I wonder whether it must be considered that a woman who is close to giving birth is protected from
dismissal on account of absence because, under national legislation, her contract is suspended for a
specific period of time, which necessarily implies that she is entitled to return to her previous job, or 818
whether it is sufficient that she can cease working and be entitled to receive a benefit from the state,
without any entitlement to re-engagement.
79.
In my opinion, the only period that can be regarded as maternity leave within the meaning of the case
law of the court, that is to say the period in which a woman is in a specific situation requiring her to be
afforded special protection, which is not comparable either with that of a man or with that of a woman who
is actually working16 and in which she is protected against dismissal on account of absence, is the period
laid down by national law as a specific employment right enabling the woman to cease working for a
period of a specified duration, during which she is entitled to receive all or part of her remuneration or to
receive certain income in the form of a social security benefit, without thereby losing her job.
16
See the judgment in Gillespie v Northern Health and Social Services Board Case C-342/93 [1996] All ER (EC)
284, [1996] ECR I-475 (para 17).
80.
However, the simple right available to Mrs Brown or to any other female worker who, like her, did not
fulfil the necessary conditions to secure suspension of her employment contract, to receive for a
maximum period of 18 weeks a maternity benefit from the state if she stopped work in order to give birth,
without the possibility of re-engagement, does not constitute, in relation to the principle of equality, a
specific employment right intended to protect the biological condition of a woman or the relationship
between mother and child in the period following confinement.
Indeed, the right to cease working for an indefinite time, receiving for a limited period a financial
benefit from the state, is not reserved to women, nor is it necessary to be pregnant or to have given birth
in order to exercise it.
81.
Therefore, the eleven-week period preceding the expected date of confinement, in which, had she
fulfilled the requisite conditions, Mrs Brown could have exercised her right to absent herself from work,
cannot in my view be regarded as a period during which she was protected against dismissal on account
of absence.
82.
Furthermore, Directive 92/85, which lays down specific measures of protection within the Community
for workers who are pregnant, have recently given birth or are breast-feeding, and requires the member
states to provide in their legislation for a continuous period of maternity leave of at least 14 weeks, of
which at least two weeks must be compulsory, being allocated before or after confinement, had not been
adopted at the material time.
83.
For those reasons, in the event of this court considering that it is not discriminatory to dismiss a
pregnant woman on account of absences arising from an illness attributable to pregnancy, it will have to
be concluded that Directive 76/207 does not preclude dismissal of such a person when she is not entitled
to absent herself from work on account of pregnancy or confinement for the period specified by national
law because of insufficient length of service, where dismissal takes place during that period.
84.
Finally, the fact that the womans dismissal is based on a contractual provision entitling the employer
to dismiss any worker, regardless of gender, after a stipulated number of weeks of continued absence
makes no difference to the answer which I suggest for the second question.
819
VIICONCLUSION
In view of the foregoing considerations, I propose that the Court of Justice answer the first question
from the House of Lords as follows:
(1)(a) Dismissal of a woman whilst she is pregnant, on account of her incapacity for work as a
result of pregnancy, is contrary to art 5(1) in conjunction with art 2(1) of Council Directive (EEC)
76/207 on the implementation of the principle of equal treatment for men and women as regards
access to employment, vocational training and promotion, and working conditions. (b) The fact that
the dismissal is based on a contractual provision entitling the employer to dismiss an employee,
regardless of gender, after a stipulated number of weeks of continued absence does not affect the
foregoing answer in any way.
In the event that, on the contrary, the Court of Justice considers that it is not discriminatory to dismiss a
pregnant woman on account of incapacity for work attributable to her pregnancy, I suggest the following
answer to the second question:
(2)(a) Article 5(1), in conjunction with art 2(1), of Directive 76/207 does not preclude dismissal of
a pregnant woman who is not entitled to absent herself from work on account of pregnancy or
confinement for the period specified by national law because of insufficient length of service where
dismissal takes place during that period. (b) The fact that the dismissal is based on a contractual
provision entitling the employer to dismiss an employee, regardless of gender, after a stipulated
number of weeks of continued absence does not affect the foregoing answer in any way.
30 June 1998.
Costs
35.
The costs incurred by the UK government and by the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the proceedings pending before the national court, the decision on costs
is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the House of Lords
by order of 28 November 1996, hereby rules: arts 2(1) and 5(1) of Council Directive (EEC) 76/207 on the
implementation of the principle of equal treatment for men and women as regards access to employment,
vocational training and promotion, and working conditions, preclude dismissal of a female worker at any
time during her pregnancy for absences due to incapacity for work caused by illness resulting from that
pregnancy. The fact that a female worker has been dismissed during her pregnancy on the basis of a
contractual term providing that the employer may dismiss employees of either sex after a stipulated
number of weeks of continuous absence does not affect the answer given.
825
The applicants, Mr and Mrs G, lived in France, near the German border. Since Mrs G, a German national
who had also acquired French nationality by marriage, taught in a state school across the border in
Germany, her income was taxed in accordance with a Franco-German convention for the avoidance of
double taxation. Under arts 131 and 142 of that convention Mrs Gs teaching income was taxable in
Germany, since she was a public sector employee in that state and also had German as well as French
nationality. Under art 203 of the convention, the fact that Mrs Gs income was taxed in Germany entitled
her to a tax credit in France (where she and her husband were taxed as a couple) equal to the amount of
the French tax on the relevant income. Since the German tax rates were more progressive than French
ones, it was possible for the amount of the French tax credit to be less than the tax actually paid in
Germany. Mrs Gs income was taxed in accordance with those rules from 1989 to 1993. Thereafter, she
and her husband brought proceedings before the Tribunal Administratif, Strasbourg, contending that the
application of the convention had led to unjustified, discriminatory and excessive taxation, which was
incompatible with, inter alia, art 484 of the EC Treaty (free movement of workers). The tribunal stayed the
proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling the
questions whether art 48 precluded the application to frontier workers of (i) a tax regime which differed
depending on whether they worked in the public or private sector, where they worked in the public sector
and whether or not they had only the nationality of the state employing them or not; and (ii) a tax credit
mechanism such as that provided for in art 20 of the convention.
1
Article 13, so far as material, is set out at p 848 e to h, post
2
Article 14, so far as material, is set out at p 848 j to p 849 a, post
3
Article 20, so far as material, is set out at p 849 d e, post
4
Article 48, so far as material, is set out at p 832 f, post
826
Held (1) Although the abolition of double taxation within the Community was one of the objectives of the
Treaty, no unifying or harmonising measure for the elimination of double taxation had been adopted at
Community level, nor had the members states yet concluded any multilateral convention to that effect
under art 2205 of the Treaty. Member states were therefore competent to determine the criteria for
taxation on income and wealth with a view to eliminating double taxation by means of international
agreement. It followed that art 48 of the Treaty did not preclude the application of the provisions such as
those in arts 13 and 14 of the convention (see p 851 j to p 853 b, p 853 f and p 856 c d, post).
5
Article 220, so far as material, is set out at p 832 g, post
(2) The object of a convention such as that at issue was to prevent the same income from being taxed
in each of the two states and not to ensure that the tax to which the taxpayer was subject in one state was
no higher than that to which he would be subject in the other. Indeed, if the state of residence were
required to accord a tax credit greater than the fraction of its national tax corresponding to the income
from abroad, it would have to reduce its tax in respect of the remaining income, which would entail a loss
of tax revenue for it and would thus encroach on its sovereignty in matters of direct taxation. Moreover,
the fact that, in allocating powers of taxation between them, the contracting parties had chosen various
connecting factors, in particular nationality with regard to public service remuneration received in the state
other than the state of residence, could not in itself constitute discrimination prohibited by Community law.
It followed that art 48 of the Treaty did not preclude the application of a tax credit mechanism such as that
provided for in art 20 of the convention (see p 854 j, p 855 b h j and p 856 e, post).
Notes
For the prohibition of discrimination on grounds of nationality, see 52 Halsburys Laws (4th edn) 1513.
For the EC Treaty, art 48, see 50 Halsburys Statutes (4th edn) 283.
Cases cited
Asscher v Staatssecretaris van Financien Case C-107/94 [1996] All ER (EC) 757, [1996] I-3089, ECJ.
Biehl v Administration des Contributions du Grand-Duch de Luxembourg Case C-175/88 [1991] STC
575, [1990] ECR I-1779, ECJ.
Dias v Director da Alfndega do Porto Case C-343/90 [1992] ECR I-4673.
Durighello v Istituto Nazionale Della Previdenza Sociale (INPS) Case C-186/90 [1991] ECR I-5773.
EC Commission v France Case 270/83 [1986] ECR 273.
EC Commission v Luxembourg Case C-111/91 [1993] ECR I-817.
Esso Espaola v Administracin de la Comunidad Autnoma de Canarias Case C-134/94 [1995] ECR I-
4223.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Foglia v Novello Case 244/80 [1981] ECR 3045.
Futura Participations SA v Administration des Contributions Case C-250/95 [1997] ECR I-2471.
827
Gullung v Conseils de lordre des avocats du barreau de Colmar et de Saverne Case 292/86 [1988] ECR
111.
Kontogeorgas v Kartonpak AE Case C-104/95 [1996] ECR I-6643.
Matteucci v Communaut franaise de Belgique Case 238/87 [1988] ECR 5589.
Meilicke v ADV/ORGA AG Case C-83/91 [1992] ECR I-4871.
Ministre public v Mutsch Case 137/84 [1985] ECR 2861.
Mora Romero v Landesversicherungsanstalt Rheinprovinz Case C-131/96 [1997] ECR I-3659.
Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347.
Robards v Insurance Officer Case 149/82 [1983] ECR 171.
Ruiz Bernldez (Criminal proceedings against) Case C-129/94 [1996] All ER (EC) 741, [1996] ECR I-
1829, ECJ.
Salonia v Poidomani Case 126/80 [1981] ECR 1563.
Scholz v Opera Universitaria di Cagliari Case C-419/92 [1994] ECR I-505.
Skanavi (Criminal proceedings against) Case C-193/94 [1996] All ER (EC) 435, [1996] ECR I-929, ECJ.
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER
(EC) 97, [1995] ECR I-4921, ECJ.
USSL No 47 di Biella v Istituto Nazionale per lAssicurazione contro gli Infortuni sul Lavoro (Inail) Case C-
134/95 [1997] ECR I-195.
Wielockx v Inspecteur der Directe Belastingen Case C-80/94 [1995] All ER (EC) 679, [1995] ECR I-2493,
ECJ.
Reference
By judgment of 10 October 1996, the Tribunal Administratif (the Administrative Court), Strasbourg,
referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the
EC Treaty six questions (set out at p 850 b to j, post) on the interpretation of arts 6, 48 and 220 of that
Treaty. Those questions were raised in the context of various proceedings brought by Mr and Mrs Gilly
against the Director of Tax Services for the dpartement of Bas-Rhin, concerning the calculation of their
personal income tax pursuant to the Convention between the French Republic and the Federal Republic
of Germany for the avoidance of double taxation and the establishment of rules for mutual legal and
administrative assistance in the field of income and wealth tax and in the field of business tax and land tax
(Paris, 21 July 1959). Written observations were submitted by: Mr and Mrs Gilly, the applicants in the
main proceedings; the French government, represented by C de Salins, Head of Sub-directorate in the
Legal Directorate of the Ministry of Foreign Affairs, and G Mignot, Foreign Affairs Secretary in the same
directorate, acting as agents; the Belgian government, represented by J Devadder, General Adviser in the
Ministry of Foreign Affairs, Trade and Co-operation with Developing Countries, acting as agent; the
Danish government, represented by P Biering, Legal Adviser, Head of Division in the Ministry of Foreign
Affairs, acting as agent; on behalf of the German government, by E Rder, Ministerialrat in the Federal
Ministry of Economic Affairs, acting as agent; the Italian government, represented by Prof U Leanza,
Head of the Legal Department of the Ministry of Foreign Affairs, acting as agent, assisted by G De Bellis,
Avvocato dello Stato; the Finnish government, represented by H Rotkirch, Ambassador, Head of the Legal
Department of the Ministry of Foreign Affairs, acting as agent; the Swedish government, represented by E
Brattgrd, Departmentsrd in the Foreign Trade Department of the Ministry of Foreign Affairs, acting as
agent; 828the United Kingdom government, represented by J E Collins, Assistant Treasury Solicitor,
acting as agent; and the European Commission, represented by H Michard and E Traversa, of its Legal
Service, acting as agents. Oral observations were made by: Mr Gilly; the French government,
represented by G Mignot; the Danish government, represented by J Molde, Legal Adviser, Head of
Division in the Ministry of Foreign Affairs, acting as agent; the Italian government, represented by G De
Bellis; the Netherlands government, represented by M Fierstra, Deputy Legal Adviser in the Ministry of
Foreign Affairs, acting as agent; the UK government, represented by R Singh, of the Treasury Solicitors
Department, acting as agent; and of the Commission, represented by H Michard. The language of the
case was French. The facts are set out in the opinion of the Advocate General.
20 November 1998.
6
Amended by art G(8) of the Treaty on European Union (Maastricht, 7 February 1992; TS 12 (1994); Cmnd 2485).
(4) on whether the principle of freedom of movement for workers, as embodied in the Treaty, is
contravened by tax rules which are liable to affect the choice made by teachers in the contracting
states as to whether to work on a more or less long-term basis in another State having regard to
the differences, based on the duration of employment, in the tax regimes of the States in question;
(5) on whether the objective of abolishing double taxation laid down in Article 220 of the Treaty
must be regarded, in view of the time which the Member States have had to implement it, as now
having the status of a directly applicable rule under which double taxation may no longer take place
and, secondly, whether the objective of avoiding double taxation assigned to the Member States by
Article 220 is contravened by a tax convention under which the tax regime applicable to frontier
workers of States party to the convention varies according to their nationality and the 830 public or
private nature of the post held and whether a tax credit regime applicable to a household living in
one State which does not take into account the exact amount of the tax paid in another State but
only a tax credit, which may be lower, meets the objective assigned to the Member States of
abolishing double taxation; and
(6) on whether Article 48 must be interpreted as meaning that nationals of a member state who
are frontier workers in another Member State may not, by reason of a tax credit mechanism of the
type provided for by the Franco-German Convention, be taxed more heavily than persons whose
occupational activity is pursued in their State of residence.
On that basis, the Commission considers that in Germany Mrs Gillys liability to tax should have regard
to her marital status, so that her husbands income in France should be taken into account. That would
certainly ensure consistency in each state with regard to application of the progressive scale of its tax.
21.
The Commission goes on to discuss art 20(2)(a)(cc) of the Franco-German convention in the light of
art 220 of the Treaty. It submits that art 220 imposes on the member states an obligation to act, namely to
enter into negotiations if necessary, but not an obligation to achieve a specific result, and that bilateral
conventions for the avoidance of double taxation meet the objective of art 220. The Commission adds
that, in its opinion, the machinery of the convention avoids double taxation and that Community law does
not prevent Mr and Mrs Gilly from being subject to a higher tax burden in so far as this is due to the higher
rate of tax in Germany.
22.
It concludes that the application of French law to the couples total income and of German law to Mrs
Gillys income in Germany constitutes, by reason of the way in which her marital status is taken into
account, an obstacle which is incompatible with the principles governing the freedom of movement of
workers.
Preliminary observations
23.
Before discussing the questions referred by the Tribunal Administratif, Strasbourg, I think it is
necessary to comment on the following points. (A) The courts jurisdiction, in the framework of the
procedure laid down by art 177, to 834 give a ruling on the compatibility of the Franco-German convention
with Community law. (B) The admissibility of the fourth question from the national court, asking whether
the principle of freedom of movement for workers, as embodied in the Treaty, is contravened by tax rules
which are liable to affect the choice made by teachers in the contracting states as to whether to work on a
more or less long-term basis in another state. (C) The provisions of Community law applicable to the main
proceedings in relation to the prohibition of discrimination on the ground of nationality with regard to
freedom of movement for workers.
24.
I shall examine these questions in that order.
A. The court s jurisdiction, in the framework of the procedure laid down by art 177, to give a
ruling on the compatibility of the Franco-German convention with Community law
25.
On this point I take the view that, just as the court does not, within the framework of these
proceedings, have jurisdiction to give a ruling on the compatibility of a national measure with Community
law (see the judgment in USSL No 47 di Biella v Istituto Nazionale per lAssicurazione contro gli Infortuni
sul Lavoro (Inail) Case C-134/95 [1997] ECR I-195 (para 17)), nor can it give a ruling on the compatibility
with Community law of the provisions of an international treaty concluded by two member states for the
avoidance of double taxation.
Moreover, as the treaty in question is a bilateral convention on a matter such as direct taxation which
is outside the Communitys competence and which is regulated exclusively by the member states, the
court could not even undertake to interpret it.
However, the rules governing freedom of movement for workers are within the ambit of Community law
and the parties to the main proceedings are the tax authority of one of the member states and a
Community national who has exercised her freedom of movement and who considers herself a victim of
discrimination arising from the provisions of a bilateral convention for the avoidance of double taxation. In
those circumstances, the court may give the national court guidance on the interpretation of the area of
Community law which will enable it to give judgment in the main proceedings (see the judgment in
Matteucci v Communaut franaise de Belgique Case 238/87 [1988] ECR 5589 (para 14)).
I therefore propose that the Court of Justice reformulate the questions from the national court.
B. The admissibility of the fourth question from the national court, asking whether art 48
precludes a provision of the nature of art 16 of the Franco-German convention
26.
Under art 16 of the Franco-German convention, teachers habitually residing in one of the contracting
states who, in the course of a temporary stay not exceeding two years in the other state, receive
remuneration for teaching in a university, college, school or other teaching establishment are taxable on
that remuneration only in the first state.
Mr and Mrs Gilly consider that this provision gives rise to discrimination in tax matters between
teachers, contrary to the freedom to move between France and Germany, because teachers who reside
in one of those states and teach in the other for a limited period have the status of frontier workers without
having to reside or work in the frontier area, and thus pay less tax than teachers who, 835like Mrs Gilly,
reside in France and decide to teach in Germany for more than two years.
27.
In my opinion, the plaintiffs purpose in advancing this argument, which is echoed in the national
courts observation, in the order for reference, that art 16 may influence the choice made by teachers in
the contracting states as to whether to work on a more or less long-term basis in another state, is not so
much to support a particular interpretation of the principle of freedom of movement for workers within the
Community, as to obtain from the court a ruling against art 16 of the Franco-German convention, which
has not been applied to them.
28.
In actual fact, it is not clear from the order for reference whether Mr and Mrs Gilly were in the situation
to which art 16 refers. According to the national court, Mr Gilly teaches in the French state education
system and it does not appear that he has taught in Germany for a period either greater or less than two
years. His wife teaches in the German state education system, in a post which she has held continuously
for more than two years and again there is no indication that she previously taught in France for less than
two years while resident in Germany. In reply to my question at the hearing, the plaintiffs confirmed these
points.
29.
There is a body of settled case law concerning the respective roles of the national courts and the
Court of Justice in the framework of the co-operation procedure provided for by art 177 of the Treaty.
According to that case law, the national court, which alone has direct knowledge of the facts of the case,
is in the best position to assess, having regard to the particular features of the case, whether a
preliminary ruling is necessary to enable it to give judgment and the relevance of the questions to be put
to the court8, whereas it is a matter for the Court of Justice, in order to determine whether it has
jurisdiction, to examine the conditions under which the case is referred to it by the national court. The
spirit of co-operation which must prevail in the preliminary ruling procedure requires the national court to
have regard to the function entrusted to the Court of Justice, which is to assist in the administration of
justice in the member states and not to deliver opinions on general or hypothetical questions (see the
judgment in Robards v Insurance Officer Case 149/82 [1983] ECR 171 (para 17)).
8
See the judgments in Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347 (para 25), Durighello v Istituto
Nazionale Della Previdenza Sociale (INPS) Case C-186/90 [1991] ECR I-5773 (para 8) and Dias v Director da
Alfndega do Porto Case C-343/90 [1992] ECR I-4673 (para 15).
30.
Taking account of this function, the Court of Justice has held that it could not give a ruling on a
question from a national court where the request for interpretation or examination of the validity of a rule
of Community law bore no relation to the actual nature of the case or to the subject matter of the main
proceedings9, or where it was asked to give a ruling on a hypothetical problem without having before it the
matters of fact or law necessary to give a useful answer to the questions submitted to it (see the judgment
in Meilicke v ADV/ORGA AG Case C-83/91 [1992] ECR I-4871 (paras 3233)).
9
See the judgments in Salonia v Poidomani Case 126/80 [1981] ECR 1563 (para 6), Durighello [1991] ECR I-5773 (para
9), Criminal proceedings against Ruiz Bernldez Case C-129/94 [1996] All ER (EC) 741, [1996] ECR I-1829 (para
7) and Kontogeorgas v Kartonpak AE Case C-104/95 [1996] ECR I-6643 (para 11).
First question: the possible direct effect of art 220, second indent, of the Treaty
34.
The national courts question here concerns the direct applicability of this provision, which states that
the member states are to enter, so far as is necessary, into negotiations with each other with a view to
securing for the benefit of their nationals the abolition of double taxation within the Community.
I think the very wording of this provision shows that it is not sufficiently clear and unconditional for
direct effect to be attributed to it and that it thus cannot give rise to rights in favour of individuals which the
national courts must safeguard. I agree with the Commission that the second indent of art 220 imposes
on the member states an obligation to act, namely to enter into negotiations so far as is necessary, but
not an obligation to achieve a specific result.
35.
I consider that the Court of Justices case law relating to the first indent of art 220which requires the
member states, so far as is necessary, to enter into negotiations with each other with a view to securing
for the benefit of their nationals the protection of persons and the enjoyment and protection of rights under
the same conditions as those accorded by each state to its own nationalsshould be applied to the
second indent. The court has stated that art 220 is not intended to lay down a legal rule directly applicable
as such, but merely defines a number of matters on which the member states are to enter into
negotiations with each other so far as is necessary (see the judgment in Ministre public v Mutsch Case
137/84 [1985] ECR 2861 (para 11)).
Furthermore the provision, as worded, does not lay down an absolute obligation but leaves the
member states a wide discretion to decide whether to enter into negotiations. France and Germany
exercised that discretion when, in 1959, they signed the Franco-German convention, which abrogated the
1934 convention on the same subject, and also when they amended it by successive additional protocols
in 1969 and 1989. By signing such a convention, France and 838 Germany shared between them the
power to tax income received by their respective residents which is earned in or paid by the other
contracting state.
Second question: equal treatment of workers as regards taxation and the provisions of the
Franco-German convention laying down criteria for the taxation of income from
employment
36.
To reply to this question, I must consider in some detail art 13(1) and (5) and art 14 of the Franco-
German convention, which lay down the criteria for the taxation of income from employment which may
affect Mrs Gillys tax situation directly or indirectly and, by extension, that of members of her household in
so far as, because they reside in France, their aggregate income is taken into account under French law
and they cannot be taxed separately.
37.
In referring the questions, the national court appears to assume that Mrs Gilly must be deemed to
have the status of a frontier worker because she is domiciled in the French frontier area and her place of
work is situated in the German frontier area.
The term frontier worker is defined in art 13(5)(a) as covering those who work in the frontier area of
one contracting state and have their permanent home in the frontier area of the other contracting state to
which they normally return each day. Frontier area is defined in art 13(5)(b) and (c).
Under art 13(5)(a), the income received by a frontier worker in the state of employment is taxed only in
the state where he or she resides. Mrs Gilly seeks the status of a frontier worker and, in that way, her
salary would not be taxed in Germany, but in France, where tax rates are lower.
38.
However, a systematic examination of the contested provisions of the convention shows that, firstly,
the general rule is laid down by art 13(1) that income from employment is taxable in the state of
employment, and taxation of the income of frontier workers only in the state where they reside is an
exception to that general rule.
Secondly, art 14(1) of the convention lays down a lex specialis applying to public service
remuneration. That is to say, remuneration paid by a state, a local or regional authority or a public entity.
This lex specialis consists in turn of a general rule and an exception. The general rule is set out in the first
sentence of art 14(1) and states that, if the employer is a legal person governed by public law and if the
employee resides in the other state, remuneration and retirement pensions paid in consideration for
administrative or military services are taxable in the state paying them. The exception is given in the
second sentence, which is to the effect that this above-mentioned rule does not apply where the
remuneration is paid to persons who have the nationality of the other state but are not at the same time
nationals of the first state, in which case the remuneration is taxable only in the state where they are
resident.
For example, the remuneration paid by the German state to a person residing in France is taxable in
Germany. If, in the same situation, the recipient possesses French nationality, the remuneration will be
taxable in France. If, like Mrs Gilly, the recipient is a national of both states, the right of the paying state to
tax the remuneration prevails.
39.
Community law does not require the member states to lay down a different criterion for taxing the
income from employment of frontier workers from that applying to other employed persons, state
employees and persons treated as such, nor is this customary when concluding conventions for the 839
avoidance of double taxation10. Moreover, a recent comparative study of the bilateral tax conventions
concluded by France shows that, where a special tax regime is laid down for frontier workers, income is
not always taxed in the state where the worker resides11.
10
According to the report on frontier workers presented to the French National Assembly on 22 January 1997 (Rapport
dinformation No 3307) by Mr D Jacquat, a deput, on behalf of the Committee for Cultural, Family and Social Affairs,
apart from Greece, which has no common frontiers with other member states, and France, only six of the conventions
concluded between the other member states contain provisions relating to the remuneration of frontier workers. These
are the convention of 11 April 1967 between Germany and Belgium, that of 4 October 1954 between Germany and
Austria, that of 29 June 1981 between Austria and Italy, that of 26 October 1993 between Spain and Portugal, that of 16
November 1973 between Sweden and Denmark, and that of 27 June 1993 between Sweden and Finland.
11
Ibid p 31. Among the bilateral tax conventions signed by France, only five contain special provisions for frontier workers.
These are the conventions with Germany, Belgium, Spain, Italy and Switzerland. The first four provide that income is to
be taxed in the state of residence whereas, in the case of Switzerland, for the canton of Geneva, where a frontier area
has not been demarcated, income is taxable at the place where the work is done and, for the other cantons, at the place
of residence.
40.
Nor does Community law prohibit the member states from laying down rules for frontier workers which
differ from those applying to workers in general, employees of public authorities and persons treated as
such, provided that this does not entail discrimination against workers who are nationals of other member
states, by comparison with national workers. Furthermore, such a practice is not unknown in Community
law itself.
For example, in Council Regulation (EEC) 1408/71 on the application of social security schemes to
employed persons, to self-employed persons and to members of their families moving within the
Community, as amended and updated by Council Regulation (EEC) 2001/83 (OJ 1983 L230 p 6) adopted
by the EC Council pursuant to its obligation under art 51 of the Treaty, workers in general are, apart from
certain exceptions, subject to the social security legislation of the state where they work, whereas civil
servants and persons treated as such are subject to the social security legislation of the state to which the
authority employing them belongs. For frontier workers, the regulation has a whole catalogue of special
measures in chapters such as those relating to sickness insurance, accidents at work and occupational
illnesses, unemployment and family benefits.
41.
There is a special criterion for the taxation of public service remuneration in art 19 of the 1992 version
of the OECDs model double taxation convention on income and on capital (the model convention), which
forms the basis of the bilateral conventions for the avoidance of double taxation concluded by the
member states12.
12
As a recent example, I may cite art 19 of the Convention between the Kingdom of Spain and the French Republic for the
avoidance of double taxation and the prevention of fraud and evasion with regard to taxes on income and assets
(Madrid, 10 October 1995; (1997) Boletin Oficial del Estado 140), which contains the same rule for the taxation of public
remuneration as art 14 of the Franco-German convention.
The member states which have submitted written observations in this case point out that this provision
is based on the comity of nations and mutual respect for the sovereignty of each state. The commentary
on art 19 of the model convention points out that the principle of giving the exclusive right of taxation to
the paying state is contained in so many of the existing conventions between OECD member states that it
can be said to be already internationally 840 accepted. With regard to the exception, the same
commentary adds that it originates from the Vienna Convention on Diplomatic Relations (Vienna, 18 April
1961; Cmnd 2565) and the Vienna Convention on Consular Relations (Vienna, 24 April 1963; TS 14
(1973); Cmnd 5219), under which the host state has the right to tax the remuneration of the members of
certain categories of the staff of foreign consular and diplomatic missions who reside permanently in that
state or who are nationals thereof.
42.
It is not disputed that, as it stands at present, Community law does not regulate direct taxation. The tax
provisions in arts 95 to 99 of the EC Treaty relate only to indirect taxation. In secondary legislation, very
few Community measures dealing with the direct taxation of natural persons have been adopted hitherto.
Of these, the only one which is binding is Council Directive (EEC) 77/799 concerning mutual assistance
by the competent authorities of the member states in the field of direct taxation (OJ 1977 L336 p 15). The
others are merely a proposal for a Council directive concerning the harmonisation of income taxation
provisions with respect to freedom of movement for workers within the Community (OJ 1980 C21 p 6) and
Commission Recommendation (EC) 94/79 on the taxation of certain items of income received by non-
residents in a member state other than that in which they are resident (OJ 1994 L39 p 22).
43.
Therefore direct taxation still fails within the competence of the member states, as the court has found
in its past judgments on the subject. However, the states must exercise that competence consistently with
Community law, refraining from any overt or covert discrimination on grounds of nationality 13. In the
present case it is necessary to ascertain whether, in signing the convention, the member states exercised
that competence consistently with Community law and, in particular, with the provisions governing the
freedom of movement of workers within the Community.
13
See the judgments in EC Commission v France Case 270/83 [1986] ECR 273 (para 24), Finanzamt Kln-Altstadt v
Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225 (para 21), Wielockx v Inspecteur der
Directe Belastingen Case C-80/94 [1995] All ER (EC) 679, [1995] ECR I-2493 (para 16), Asscher v
Staatssecretaris van Financien Case C-107/94 [1996] All ER (EC) 757, [1996] I-3089 (para 36) and Futura
Participations SA v Administration des Contributions Case C-250/95 [1997] ECR I-2471 (para 19).
44.
By signing a bilateral convention for the avoidance of double taxation, the two states concerned agree
to limit their fiscal sovereignty and to waive part of it. It is not surprising that, when sharing the power to
tax the income of their respective residents from employment in the other state, they use criteria such as
those in art 13(1) and (5) and art 14 of the Franco-German convention, namely the place where the work
is performed, fulfilment of the conditions necessary for being deemed a frontier worker, whether the
employer is a public law entity and, if so, whether the taxpayer is a national of one state or the other. Nor
are there many other possibilities.
In my opinion, those criteria, which have the purpose only of determining the power to tax certain
income, are neutral with regard to freedom of movement for workers because, in the two states
concerned, they do not, in tax matters, treat workers of other member states less favourably than or
differently from their own nationals who are in the same situation.
45.
It cannot be branded as discriminatory to provide that the remuneration of an employed person is
taxable in the state where he works or in the state where he resides or by the state paying the
remuneration, even if, in the case of public service remuneration, it is necessary in the final analysis to
refer to the 841 criterion of the recipients nationality in order to decide which of the two states is to tax it,
because for this purpose that is as neutral a criterion as the others. At the stage of applying the criteria for
taxation, it is only necessary to decide in each case which of the two states is to tax the income. Then the
state where the taxpayer resides and to which it falls to tax his total income will apply the legal procedure
agreed upon with the other state in order, when calculating the tax payable under its own law, to avoid
taxing once again the income from employment which has already been taxed in the other state. I shall
discuss the legal procedure applied by France in more detail when examining the third question.
46.
There is no doubt that, once the state which is to tax the income from employment has been
determined, the tax payable will vary depending on which state it is. In Mrs Gillys case, the tax she pays
in Germany on the income from her employment is more than she would pay if she received the income
in France or if, although received in Germany, it were taxable in France.
47.
However, that difference does not arise from the taxation criteria in the Franco-German convention,
but from German tax law, which specifies a higher rate of tax on such income than the rate in France,
while in addition the tax systems and the progressive nature of the tax differ considerably in the two
states.
Such differences will remain until the Council adopts directives for harmonising fiscal provisions
applying to direct taxes. As art 100a(2) of the Treaty provides that art 100a(1), which regulates the
adoption of measures by a qualified majority, is not to apply to, inter alia, fiscal provisions, this is unlikely
to happen in the short or medium term.
Third question: whether art 20(2)(a)(cc) of the Franco-German convention is contrary to arts
48 and 220 of the Treaty and art 7(2) of Regulation 1612/68
48.
This question refers to the procedure laid down in the convention, whereby France avoids taxing once
again income originating in Germany received by French residents after having borne tax in Germany.
The procedure applies, inter alia, to remuneration covered by the general rule of taxation in the state
where the work is performed, in accordance with art 13(1), and public service remuneration within the
meaning of art 14. Under art 20(2)(a)(cc), the procedure consists, firstly, in aggregating the income from
employment earned in Germany with the taxable income calculated in accordance with French tax law,
and then granting a tax credit in respect of the tax paid abroad, equal to the amount of the French tax on
the relevant income.
49.
Mrs Gilly contends that the application of this provision to the circumstances of her own case gives
rise to discrimination on grounds of nationality, contrary to art 48 of the Treaty and art 7(2) of Regulation
1612/68, because the income tax which she has to pay in France, which is where all the income of her tax
household is taxed, is greater than she would have had to pay if it had fallen to France to tax her income
received in Germany.
That would be the case if, for example, she had the status of a frontier worker or if she possessed
French nationality only and not dual nationality. She considers that the above-mentioned provisions mean
that a worker who exercises the right to freedom of movement should not be penalised by a greater tax
liability than if that right had not been exercised.
50.
As interpreted by the court in accordance with art 48(2) of the Treaty, freedom of movement for
workers entails the abolition of all discrimination 842 based on nationality between workers of the member
states, particularly with regard to remuneration. The principle of equal treatment with regard to
remuneration would be rendered ineffective if it could be undermined by discriminatory national provisions
on income tax. For that reason the Council laid down, in art 7 of Regulation 1612/68, that workers who
are nationals of a member state are to enjoy, in the territory of another member state, the same tax
advantages as national workers (see the judgment in Biehl v Administration des Contributions du Grand-
Duch de Luxembourg Case C-175/88 [1991] STC 575, [1990] ECR I-1779 (paras 1112)).
The court has also repeatedly held that art 48 of the Treaty prohibits not only overt discrimination by
reason of nationality but also all covert forms of discrimination which, by the application of other
distinguishing criteria, lead in fact to the same result (see the judgments in EC Commission v
Luxembourg Case C-111/91 [1993] ECR I-817 (para 9) and Scholz [1994] ECR I-505 (para 9)).
51.
To find the existence of discrimination within the meaning of Community law in Mrs Gillys case, it
would be necessary to show that, by applying to her the provision in question, France, where she resides
and where all her income is taxable together with that of her husband, treats her less favourably in
respect of tax than a worker in the same situation who has French nationality. In this connection it is
irrelevant that Mrs Gilly is also a national of the state to which she attributes discriminatory treatment
because, as the court has observed, any Community national who, irrespective of his place of residence
and his nationality, has exercised the right to freedom of movement for workers and who has been
employed in another member state, falls within the scope of art 48 of the Treaty (see the judgment in
Scholz [1994] ECR I-505 (para 9)).
52.
It must also be borne in mind that, according to the definition given by the court, discrimination can
arise only through the application of different rules to comparable situations or the application of the same
rule to different situations (see the judgment in Finanzamt Kln-Altstadt v Schumacker Case C-279/93
[1995] All ER (EC) 319, [1995] ECR I-225 (para 30)).
53.
When must a worker of French nationality be deemed to be in a situation comparable, for tax
purposes, to that of Mrs Gilly? It all depends on what is meant by comparable situation. Of course, it is
possible to proceed by assuming that all the circumstances are the same and changing only the
nationality of the person who is claimed to be the victim of discrimination. On that basis, the equivalent for
comparison with Mrs Gilly would be a French worker who is not at the same time a German national, who
receives remuneration from the German state for work in Germany, who resides in France, who is married
and, who in relation to his or her spouse, contributes to the family income in the same proportion as Mrs
Gilly. In practice, the public service remuneration of such a person would be taxable in France, there
would be no reason for using the procedure for avoiding double taxation and the amount paid by the
couple as income tax in France would be less than the total tax paid by Mrs Gilly in Germany and her tax
household in France. That is the reasoning of the plaintiffs in the main proceedings to show that Mrs Gilly
suffers discrimination.
54.
However, there is another method, which consists in making the comparison with a worker of French
nationality whose remuneration is taxed in Germany under art 13(1) of the Franco-German convention
and who resides in France, where he or she is liable to income tax on all his or her income. Such 843
would be the case, for example, of a married worker employed in a private undertaking in Germany,
residing in France and with a spouse who resides and works in France, provided that the two spouses
contribute to the family income in the same proportion as Mr and Mrs Gilly. In that situation, even after
being taxed in Germany, the income from employment will be aggregated with the French taxable income
and then a credit will be given for the tax paid in Germany, equal to the French tax appropriate to that
income.
55.
In my opinion, there are a number of reasons why the second method is the correct one for
determining whether a provision such as that in question here is contrary to art 48: (a) Firstly, because,
before applying art 20(2)(a)(cc) of the convention, which lays down the procedure whereby France, as the
state to which it falls to tax the total income of its residents, avoids the double taxation of income which
has already been taxed in Germany, it is necessary, as a first and essential step, to determine, by
applying the taxation criteria of the convention, which of the two states should tax income from
employment. As I have mentioned when discussing the national courts second question, these criteria,
which are the place where the work is done, fulfilment of the conditions for being deemed a frontier
worker, whether the remuneration is public service remuneration and, if so, whether the taxpayer is a
national of one state or the other, are neutral from the viewpoint of the Community law relating to freedom
of movement for workers. (b) Secondly, because, after the different items of the taxpayers income have
been taxed in one or the other state, the state of residence must apply the procedure agreed upon with
the other state in order to avoid a further tax charge on that income. The result will be more or less
favourable to the employee, depending on the national tax legislation and the personal and family
situation of each taxpayer.
56.
If the second method is used, a perfect parallel is obtained from the outset: income from work as an
employee received in Germany by a person resident in France and taxed in Germany, the person being in
the same family situation as Mrs Gilly. In this way it can be shown that her tax treatment in France is the
same as that of a French person in the same situation.
If the first method is used, however, the starting-point is the result obtained after application of the
system for avoiding double taxation. In other words, Mrs Gilly pays more income tax in France than she
would if she had French nationality, all else being equal, and from this finding one works back to the
beginning.
57.
Does Mrs Gilly suffer covert discrimination because, as the Commission maintains, her family situation
is not taken into account either in Germany, since her husband does not reside there and consequently
they cannot have the benefit of the preferential scale for married couples, or in France, since the fact that
the couples family situation is taken into account there affects only Mr Gillys income?
58.
I consider that the reply in this case must be in the negative. As the court has previously observed, in
relation to direct taxes, the situations of residents and non-residents are not, as a rule, comparable and
the fact that a member state does not grant a non-resident certain tax benefits which it grants to a
resident is not, as a rule, discriminatory since those two categories of taxpayer are not in a comparable
situation. Accordingly art 48 of the Treaty does not in principle preclude the application of rules of a
member state under which a non-resident working as an employed person in that state is taxed more
heavily on his or her income than a resident in the same employment.
844
To reach that conclusion, the court reasoned as follows ([1995] All ER (EC) 319, [1995] ECR I-225
(paras 3233)):
(32) Income received in the territory of a member state by a non-resident is in most cases only
a part of his total income, which is concentrated at his place of residence. Moreover, a non-
residents personal ability to pay tax, determined by reference to his aggregate income and his
personal and family circumstances, is more easy to assess at the place where his personal and
financial interests are centred. In general, that is the place where he has his usual abode.
Accordingly, international tax law, and in particular the Model Double Tax Convention on Income
and on Capital of the Organisation for Economic Cooperation and Development, recognises that in
principle the overall taxation of taxpayers, taking account of their personal and family
circumstances, is a matter for the State of residence.
The court added that
(33) The situation of a resident is different in so far as the major part of his income is normally
concentrated in the state of residence. Moreover, that state generally has available all the
information needed to assess the taxpayers overall ability to pay, taking account of his personal
and family circumstances.
59.
The only cases in which the court has not followed this reasoning are those involving workers who did
not receive significant income in their state of residence so that their tax liability in that country was not
sufficient for their personal and family situation to be taken into account, and who received most of their
income, and almost all their household income, in a different member state. In such cases, there is
discrimination against the worker in so far as his personal and family situation is not taken into account in
the state of residence or the state of employment (the court found discrimination of this kind in the
judgments in the Schumacker case, Wielockx v Inspecteur der Directe Belastingen Case C-80/94 [1995]
All ER (EC) 679, [1995] ECR I-2493 and Asscher v Staatssecretaris van Financien Case C-107/94 [1996]
All ER (EC) 757, [1996] I-3089).
However, this cannot be said to apply to Mrs Gilly who, although as an individual she receives almost
all her income in Germany in the form of her salary, has her personal and family situation taken into
account in France, where her salary is aggregated with the taxable income of her tax household and
where she is granted the tax reliefs, rebates and deductions laid down by French tax law.
60.
The remaining point to consider is whether the legal procedure used by France to avoid double
taxation under art 20(2)(a)(cc) of the Franco-German convention is an obstacle, prohibited by art 48 of the
Treaty, to the freedom of movement of workers. For this purpose the question is whether, although it
applies irrespective of nationality, that procedure in fact has an adverse effect on persons who have
exercised their freedom of movement by treating them less favourably than those who have not done so.
In that connection the court has observed that
the provisions of the Treaty relating to freedom of movement for persons are intended to
facilitate the pursuit by Community citizens of occupational activities of all kinds throughout the
Community, and preclude [national] 845measures which might place Community citizens at a
disadvantage when they wish to pursue an economic activity in the territory of another member
state. (See the judgment in Union Royale Belge des Socits de Football Association ASBL v
Bosman Case C-415/93 [1996] All ER (EC) 97, [1995] ECR I-4921 (para 94).)
61.
Here again, the reply must be in the negative because if Germany were simply to make a sufficient
reduction in its present rate of tax on income from employment, the procedure which is now criticised for
adversely affecting workers exercising their freedom of movement would have the opposite effect. If the
German tax rate were lower than the French rate on the same income, with Mrs Gilly receiving, in respect
of tax paid abroad, a tax credit equal to the amount of the French tax on the relevant income, the tax
credit would be greater than the tax already paid in Germany and she would end up by paying less tax on
that income than if she had received it in France or if, having been received in Germany, it had been
taxed in France in accordance with the criteria described above. A similar situation could arise if France
were to decide to increase its rate of tax on such income to a rate higher than the German rate.
Whether the consequences of a provision such as that in question here are unfavourable to workers
depends, in the final analysis, on the tax rates charged in each member state on certain income and I
therefore consider that those consequences are too uncertain and indirect for the provision to be
regarded as being capable of deterring a worker from exercising his or her freedom of movement
between the two member states in question (see the judgment in Esso Espaola v Administracin de la
Comunidad Autnoma de Canarias Case C-134/94 [1995] ECR I-4223 (para 24)).
62.
Finally, Mrs Gilly contends that the second indent of art 220 of the Treaty precludes her German
income which has already been taxed in Germany from being taken into account in France in the
calculation of the taxable income of her household for income tax purposes, because the French tax
credit for tax paid abroad does not take account of the exact amount of tax paid in Germany, which
means that the procedure does not avoid double taxation, but only reduces
63.
Articles 23A and 23B of the model convention for the avoidance of double taxation envisage two
methods for achieving this result which, for the sake of clarity, are worth examining in some detail.
64.
Article 23A lays down the rules for the exemption with progression method. Where a resident of a
contracting state receives income which, according to the convention, may be taxed in the other state, the
first state exempts the income from tax. However, it may take the income into account when determining
the rate applying to the income received in the state of residence. In other words, although the income
received in the source state does not form part of the taxable income in the state of residence, the total
tax payable in the latter is increased by the effect of progressive taxation in the country of residence.
Article 23B covers the full credit or ordinary credit method. Unlike the method described above, this
aggregates the taxpayers total income, whether of national origin or not, in the taxable income of the
state of residence. Where a resident of one state receives income which, according to the convention,
may be taxed in the other state, the first state deducts from the tax charged on the residents income an
amount equal to the income tax paid in the other state However, such deduction may not exceed that part
of its own income tax, 846calculated before deduction, which is attributable to the income taxable in the
other state.
65.
The legal procedure used by France, since the entry into force of the 1989 Additional Protocol, to
avoid the further taxation in France of income from employment which has already been taxed in
Germany under the convention, consists in granting a tax credit equal to the amount of tax on the relevant
income. The method previously used consisted in exempting income already taxed in Germany, although
it was taken into account for determining the rate applying to income received in France. In the final
analysis these two methods, which at first appear to be different, produce the same result
66.
The object of a bilateral double taxation convention is to prevent income which is taxed in one state
from being taxed again in the other. The object is not, therefore, to ensure that the tax paid by the
taxpayer in one state is not more than would be payable in the other, regardless of where the income was
received and whatever its specific source. In actual fact, bilateral taxation conventions, in accordance with
art 24 of the model convention, lay down a rule of equal treatment between nationals and citizens of the
other state.
67.
In no case, therefore, does the right to freedom of movement for workers confer upon them a right to
be granted, in their state of residence, the tax status which is most favourable to them in particular. They
have a right only to the same tax treatment as nationals of that state. Moreover, I consider, this result is
achieved by using the procedure laid down in the provision in question.
Conclusion
68.
In the light of the foregoing, I propose that the court should: (A) rule that the fourth question referred by
the Tribunal Administratif, Strasbourg, is inadmissible; (B) reply as follows to the other questions:
(1) The second indent of art 220 of the EC Treaty does not have direct effect.
(2) Articles 48 and 220 of the Treaty and art 7 of Council Regulation (EEC) 1612/68 on freedom
of movement for workers within the Community must be interpreted as meaning that they do not
preclude a convention between two member states for the avoidance of double taxation from laying
down criteria for the taxation of income from employment in one or the other state: by reference to
the place where the work is done; or according to whether the worker fulfils the conditions for being
regarded as a frontier worker; or according to whether the worker receives public service
remuneration and, if so, depending on whether he is a national of the state other than the one
paying the remuneration, without at the same time being a national of the latter.
(3) Articles 48 and 220 of the Treaty and art 7 of Regulation 1612/68 must be interpreted as
meaning that they do not preclude a convention between two member states for the avoidance of
double taxation from laying down that, in one of them, double taxation is avoided by means of a
procedure of the kind referred to in art 20(2)(a)(cc) of the Franco-German convention, under which
income received in Germany by a resident in France, which has already been taxed in Germany, is
taken into consideration for the purpose of calculating the taxpayers taxable income in France by
granting a tax credit in respect of the tax paid abroad, equal to the amount of the French tax on the
relevant income.
847
12 May 1998.
Costs
55.
The costs incurred by the French, Belgian, Danish, German, Italian, Netherlands, Finnish, Swedish
and UK governments and by the European Commission, which have submitted observations to the Court
of Justice, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a
step in the proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Tribunal
Administratif, Strasbourg, by judgment of 10 October 1996, hereby rules: (1) The second indent of art 220
of the EC Treaty does not have direct effect. (2) On a proper construction, art 48 of the Treaty does not
preclude the application of provisions such as those in arts 13(5)(a), 14(1) and 16 of the Convention
between the French Republic and the Federal Republic of Germany for the avoidance of double taxation
(Paris, 21 July 1959), as amended by the 1969 and 1989 protocols (Bonn, 9 June 1969 and 28
September 1989, respectively), under which the tax regime applicable to frontier workers differs
depending on whether they work in the private sector or the public sector and, where they work in the
public sector, on whether or not they have only the nationality of the state of the authority employing them,
and the regime applicable to teachers differs depending on whether their residence in the state in which
they are teaching is for a short period or not. (3) On a proper construction, art 48 of the Treaty does not
preclude the application of a tax credit mechanism such as that provided for in art 20(2)(a)(cc) of the said
convention.
856
[1998] All ER (EC) 857
The applicants were recruited and employed on the basis of fixed-term contracts by the Italian Post
Office, which was exempt, under domestic legislation, from the general prohibition on the use of such
contracts. The applicants brought proceedings against their employer, claiming that their contracts should
be deemed to have been converted into contracts of indeterminate duration. They contended that the
exemption granted to the Post Office constituted an illegal grant of state aid contrary to art 92 1 of the EC
Treaty since it relieved the Post Office of a burden applicable to other undertakings under the general law.
The Pretura Circondariale stayed the proceedings and referred to the Court of Justice of the European
Communities for a preliminary ruling, inter alia, the question whether a national provision relieving only
one undertaking of the obligation of complying with the generally applicable legislation concerning fixed-
term contracts constituted state aid within the meaning of art 92(1) of the Treaty.
1
Article 92, so far as material, is set out at p 860 a, post
Held Only advantages granted directly or indirectly through state resources were to be considered as
state aid within the meaning of art 92(1). The distinction made in that provision between aid granted by a
Member State and aid granted through State resources did not signify that all advantages granted by a
state, whether financed through state resources or not, constituted aid, but was intended merely to bring
within that definition both advantages granted directly by the state and those granted by a public or
private body designated or established by the state. In the instant case, the non-application of generally
applicable legislation concerning fixed-term employment contracts to a single undertaking did not involve
any direct or indirect transfer of state resources to that undertaking. It followed that a provision of the kind
at issue did not constitute a means of directly or indirectly granting an advantage through state resources
(see p 863 f to j and p 864 b, post).
Openbaar Ministerie v van Tiggele Case 82/77 [1978] ECR 25, Sloman Neptun Schiffahrts v
Seebetriebsrat Bodo Ziesemer der Sloman Neptun Schiffahrts Joined cases C-72-73/91 [1993] ECR I-
887 and Kirsammer-Hack v Sidal Case C-189/91 [1993] ECR I-6185 applied.
857
Notes
For state aids which are incompatible with the common market, see 51 Halsburys Laws (4th edn) paras
702709.
For the EC Treaty, art 92(1), see 50 Halsburys Laws (4th edn) 295.
Cases cited
Kirsammer-Hack v Sidal Case C-189/91 [1993] ECR I-6185.
Openbaar Ministerie v van Tiggele Case 82/77 [1978] ECR 25.
Sloman Neptun Schiffahrts v Seebetriebsrat Bodo Ziesemer der Sloman Neptun Schiffahrts Joined cases
C-72-73/91 [1993] ECR I-887.
Reference
By three orders of 3 February 1997, the Pretura Circondariale (the District Magistrates Court), Trento,
referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the
EC Treaty four questions (set out at p 862 j to p 863 b, post) on the interpretation of arts 92(1) and 93 of
that Treaty. Those questions arose in three sets of proceedings brought by Epifanio Viscido, Mauro
Scandella and others and Massimiliano Terragnolo and others, against the Italian Post Office, by which
they were employed. Written observations were submitted on behalf of: the Italian government, by
Professor U Leanza, Head of the Legal Service in the Ministry of Foreign Affairs, acting as agent, and D
del Gaizo, Avvocato dello Stato; the German government, by E Rder, Ministerialrat in the Federal
Ministry of Economic Affairs, and B Kloke, Oberregierungsrat in the same ministry, acting as agents; and
the European Commission, by F Santaolalla, Principal Legal Adviser, and D Triantafyllou, of its Legal
Service, and E Altieri, a national civil servant seconded to that service, acting as agents. Oral
observations were made by the Italian government, represented by D Del Gaizo, and the Commission,
represented by D Triantafyllou and L Pignataro, of its Legal Service. The language of the case was Italian.
The facts are set out in the opinion of the Advocate General.
19 February 1998.
Conclusion
18.
Accordingly, I am of the opinion that the questions referred by the Pretura Circondariale di Trento
should be answered as follows:
A national provision which relieves an undertaking from the obligation of complying with the
generally applicable legislation concerning the duration of employment contracts does not entail the
grant of state aid within the meaning of art 92(1) of the EC Treaty.
7 May 1998.
Costs
18.
The costs incurred by the Italian and German governments and by the European Commission, which
have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are,
for the parties to the main proceedings, a step in the proceedings pending before the national court, the
decision on costs is a matter for that court.
On those grounds, the Court of Justice (Fourth Chamber), in answer to the questions referred to it by
the Pretura Circondariale, Trento, by order of 3 February 1997, hereby rules: a national provision which
relieves only one undertaking of the obligation of complying with the generally applicable legislation
concerning fixed-term employment contracts does not constitute state aid within the meaning of art 92(1)
of the EC Treaty.
864
The plaintiff brought a sex discrimination claim against her employer, G Ltd, alleging that she had been
dismissed because of her pregnancy. That claim was settled and the plaintiffs employment ended by
mutual agreement. G Ltd subsequently failed to provide a reference for the plaintiff to one of the
employment agencies which she contacted when seeking new employment. The plaintiff therefore
brought a further claim against G Ltd, contending that she had been victimised by her former employers
refusal to supply a reference and alleging that the refusal was a reaction to the sex discrimination claim
which she had previously brought against the company. The Industrial Tribunal dismissed that action on
the grounds that the Sex Discrimination Act 1975 only prohibited retaliatory measures whose prejudicial
effect appeared during the employment relationship. The plaintiff appealed to the Employment Appeal
Tribunal, which stayed the proceedings and referred to the Court of Justice of the European Communities
for a preliminary ruling the question whether Council Directive (EEC) 76/207 on the implementation of the
principle of equal treatment of men and women as regards access to employment, vocational training and
promotion, and working conditions required member states to ensure judicial protection for workers
whose employer, after the employment relationship had ended, refused to provide references as a
reaction to proceedings brought to enforce compliance with the principle of equal treatment.
Held Under art 61 of Directive 76/207 everyone had the right to obtain an effective remedy in a
competent court against measures which they considered to interfere with the principle of equal treatment
and it was for the member states to ensure effective judicial control of compliance with the applicable
provisions of Community law and of national legislation intended to give effect to the rights for which the
directive provided. That principle would be deprived of an essential part of its effectiveness if the
protection provided by the directive did not cover measures which an employer might take as a reaction to
legal proceedings brought by an employee with the aim of enforcing compliance with the principle of
equal treatment. Moreover, if there was no legal remedy against such 865 measures, workers who
considered themselves to be the victims of discrimination might be deterred from pursuing their claims by
judicial process, which clearly would seriously jeopardise implementation of the aim pursued by the
directive. It followed that art 6 required member states to ensure judicial protection for workers whose
former employer refused to provide references as a reaction to proceedings brought to enforce
compliance with the principle of equal treatment (see p 877 c f and p 878 b e, post).
1
Article 6, so far as material, is set out at p 864 a, post
Johnston v Chief Constable of the Royal Ulster Constabulary Case C-222/84 [1986] 3 All ER 135,
[1986] ECR 1651 applied.
Notes
For equal treatment for men and women, see 52 Halsburys Laws (4th edn) paras 21112116.
Cases cited
Burton v British Rlys Board Case 19/81 [1982] 3 All ER 537, [1982] QB 1080, [1982] 3 WLR 387, [1982]
ECR 555, ECJ.
Garland v British Rail Engineering Ltd Case 12/81 [1982] 2 All ER 402, [1983] AC 751, [1982] 2 WLR 918,
[1982] ECR 359, ECJ.
Johnston v Chief Constable of the Royal Ulster Constabulary Case C-222/84 [1986] 3 All ER 135, [1987]
QB 129, [1986] 3 WLR 1038, [1986] ECR 1651, ECJ.
Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591.
Marleasing SA v La Comercial Internacional de Alimentacin SA Case C-106/89 [1990] ECR I-4135.
Marshall v Southampton and South West Hampshire Area Health Authority (No 2) Case C-271/91 [1993]
4 All ER 586, [1994] QB 126, [1993] 3 WLR 1054, [1993] ECR I-4367, ECJ.
Marshall v Southampton and South West Hampshire Health Authority (Teaching) Case 152/84 [1986] 2 All
ER 584, [1986] QB 401, [1986] 2 WLR 780, [1986] ECR 723, ECJ.
Meyers v Adjudication Officer Case C-116/94 [1995] All ER (EC) 705, [1995] ECR I-2131, ECJ.
P v S Case C-13/94 [1996] All ER (EC) 397, [1996] ECR I-2143, ECJ.
Von Colson v Land Nordrhein-Westfalen Case 14/83 [1984] ECR 1891.
Wagner Miret v Fondo de Garanta Salarial Case C-334/92 [1993] ECR I-6911.
Reference
By order of 20 November 1996, the Employment Appeal Tribunal, London, referred to the court for a
preliminary ruling under art 177 of the EC Treaty two questions (set out at p 875 h to p 876 b, post) on the
interpretation of Council Directive (EEC) 76/207 on the implementation of the principle of equal treatment
for men and women as regards access to employment, vocational training and promotion, and working
conditions. Those questions arose in proceedings between Ms Coote and her former employer, Granada
Hospitality Ltd, concerning Granadas refusal to provide references to potential employers of Ms Coote.
Written observations were submitted on behalf of: Ms Coote, by D Rose, Barrister, instructed by P
Matthews, Principal Legal Officer, Equal Opportunities Commission; the United Kingdom government, by
L Nicoll, of the Treasury Solicitors Department, acting as agent, and S Moore, Barrister; the European
Commission, by M Wolfcarius and X Lewis, of its Legal Service, acting as agents. Oral observations were
made by Ms Coote, the UK government and 866 the Commission. The language of the case was English.
The facts are set out in the opinion of the Advocate General.
2 April 1998.
Does the provision of references fall within the scope of the directive?
8.
If the court is to provide the national tribunal with an answer that genuinely deals with its concerns, it
must first, I consider, address the question whether the provision of references falls within the scope of
the directive. I myself am convinced that it does, although I do not necessarily agree with everything the
European Commission has said on that point in its observations.
9.
The Commission submits that the provision of references falls within the scope of both arts 3 and 5 of
the directive.
10.
Article 3(1), it will be remembered, provides:
Application of the principle of equal treatment means that there shall be no discrimination
whatsoever on grounds of sex in the conditions, including selection criteria, for access to all jobs or
posts, whatever the sector or branch of activity, and to all levels of the occupational hierarchy.
The Commission argues, on the basis of Meyers v Adjudication Officer Case C-116/94 [1995] All ER (EC)
705, [1995] ECR I-2131, that, since it facilitates access to employment, the provision of references falls
within that definition.
11.
My own view is that, to be brought into play here, art 3 would have to be given an interpretation that is
not only highly creative but also of questionable expediency, since it is not necessary in order to bring the
provision of references within the scope of the directive. One is, I feel, on much surer ground if one brings
the provision of references within the scope of art 5 of the directive, which concerns working conditions,
including those governing dismissal.
12.
No one would deny that an employers appraisal of the quality of the services renderedand it is this
that is the point in the case of a reference which may assist in finding new employmentfalls entirely
within the scope of the relationship between employee and employer. Whilst I would not go so far as to
claim that it constitutes, as it were, an appurtenance of salary, in that the employee is entitled, in
exchange for good and loyal service, to both a pecuniary reward and an intangible reward in the form of
praise, I do consider that the service rendered by the employer in providing the employee with the parting
gift of a reference cannot be severed from the employment relationship, and certainly not from the
conditions governing dismissal which, as is clear from the judgment in Burton v British Rlys Board Case
19/81 [1982] 3 All ER 537, [1982] ECR 555 (para 9), are to be construed broadly.
Does the protection afforded by the directive cease with the termination of the employment
relationship?
13.
The moment at which the employer takes the decision whether to provide references is, I consider,
irrelevant in the context of art 5. Whilst it is true that in most cases references are provided after the
termination of the employment relationshipfollowing resignation or dismissalit is by no means
impossible for that to happen during the period of the contract of employment. A simple example would be
that of an employee whose spouse has found a new job in another area, or has been transferred without
change of employment to a new posting in another area, and who therefore, in preparation for his or her
own move to that area, has begun to explore the employment market there. Such an 869 employee will
undoubtedly ask his or her present employer to provide references for any prospective employers.
14.
It would be totally unjustifiable for the application of the prohibition of discrimination on grounds of sex
to a decision on the provision or refusal of references to depend on the moment when that decision was
taken, or when it became effective by the actual provision of or explicit refusal to provide, a reference.
Other than in the situation referred to above, in which the employee makes advance plans to change
employer, the moment when a reference is really needed is when, following the termination of the contract
of employment, the employee sets out to look for another job. It would be particularly inappropriate and
wholly contrary to the spirit of the directive for the employee to be deprived at that moment of the
protection which the directive is intended to afford, on the ground that the discrimination is the work of a
former employer with whom there is no longer any contractual relationship. It may be borne in mind here
that art 3 of the directive seeks to protect workers against any intended discrimination on the part of
prospective employers with whom, by definition, they as yet have no contractual relationship.
15.
The court has, moreover, always held with regard to equal pay that the prohibition of discrimination by
an employer between employees on grounds of sex does not cease to have effect on termination of the
contract of employment. A particularly clear instance is the judgment in Kowalska v Freie und Hansestadt
Hamburg Case C-33/89 [1990] ECR I-2591, in which the court held that art 119 of the Treaty was
applicable to benefits paid after the termination of the employment relationship. There could be no
justification for taking a different course with Directive 76/207.
16.
I therefore consider that an employer may not discriminate on grounds of sex when providing an
employee with references, whatever the momentwhether during or after the period of the employment
relationshipat which the decision is taken in that regard or at which those references are requested.
17.
I shall add three qualifications, however, to dispel any misunderstanding. The first is that the
prohibition of discrimination in cases where the employer provides references obviously in no way
prejudges the question of the existence of an obligation to provide references. As the Commission
accepts, the directive itself does not create any such obligation. In other words, it is only where the
employer is required by law or by an express or implied term of the contract to provide references, or in
practice habitually accedes to requests for references, that the principle of equal treatment must be
observed.
18.
But, as was already stressed in the judgment in Garland v British Rail Engineering Ltd Case 12/81
[1982] 2 All ER 402, [1982] ECR 359, concerning travel facilities provided by an employer to former
employees in the absence of any contractual obligation, there can be no question of exempting employers
from the duty to respect the principle of equal treatment when they grant benefits to their employees on a
strictly voluntary basis, since the ban on any discrimination on grounds of sex applies throughout the
whole area covered by the employment relationship.
19.
To cover all eventualities, I should add that, where an employer has only one employee, a refusal to
provide that employee with references on the ground of his or her sex would still be in breach of the
prohibition of discrimination on grounds of sex.
20.
Secondly, it must be made clear that the fact that the provision of references for former employees
falls within the scope of the directive in no way 870 interferes with any rules of national law concerning the
extent of the employers obligation to provide such referencesfor example, a rule limiting that obligation,
for practical reasons, to a specific period by providing, say, that the right to obtain references may be
exercised only during the first year following the termination of the employment relationship.
21.
The third and final qualification is that the employer remains entirely unfettered as regards the
assessment to be made of the quality of the services rendered, provided that it remains within the limits
imposed by the duty of objectivity.
22.
Were it merely a matter of dispelling the national tribunals doubts as to the scope ratione temporis of
the prohibition of discrimination on grounds of sex laid down by the directive, I could conclude my
reasoning at this point, having reached the view that the provision of references to an employeewhich
falls within the scope of the directive as defined in art 5remains subject to that prohibition whatever the
momentwhether during or after the period of the employment relationshipat which it occurs. But the
formulation of the national tribunals question does not allow me to do so, highlighting as it does the
circumstance that the refusal to provide references may have constituted retaliation for court proceedings
brought by the former employee with a view to enforcing compliance with the principle of equal treatment
and asking whether, in such an event, the member states are required to introduce into their legal
systems such measures as are necessary to enable employees who consider themselves wronged to
pursue their claims by judicial process.
32.
Such a line of reasoning would have tallied with the richly-promising seam of case law which has
recourse to the concept of effet utile. It would have been possible to consider that the effectiveness of
the right to bring proceedings laid down by art 6 would be significantly strengthened were no threat of
retaliation to hang over the bold complainants head, and to conclude that the member states were under
a duty to make a remedy available to any victim of such retaliation. But the presence of art 7 leaves, in my
view, no scope for any such construction.
33.
Nor is there scope for any interpretation whereby retaliation might constitute indirect discrimination on
grounds of sex within the meaning of art 2(1) of the directive, which provides:
For the purposes of the following provisions, the principle of equal treatment shall mean that
there shall be no discrimination whatsoever on grounds of sex either directly or indirectly by
reference in particular to marital or family status.
34.
It is clear to me that the use of the word indirectly in that article refers to a situation in which, although
a particular rule or measure may not be explicitly directed at employees of a particular sex, it is in fact
possible to pierce the veil of appearances and identify with certainty the sex in question.
35.
The addition of the words by reference in particular to marital or family status seems to me to leave
no possible room for doubt in that regard. But it does not appear that Mrs Cootes situation is of that kind.
The questions on which a ruling is sought stress that if the references have in fact been refused, it is
because she brought proceedings against her employer and not because she is a woman.
36.
It is not therefore possible to consider that the directive requires member states to introduce into their
national legal systems such measures as are necessary to enable employees who consider themselves
wronged to pursue their claims in circumstances such as those of theclearly morally blameworthy
conduct alleged against Mrs Cootes former employer.
872
Conclusion
37.
I propose, finally, that the Court of Justice should phrase its answer to the questions on which the
Employment Appeal Tribunal seeks a preliminary ruling as follows:
(1) The provision of references for employees by an employer is covered by the prohibition of
any discrimination on grounds of sex laid down by Council Directive (EEC) 76/207 on the
implementation of the principle of equal treatment for men and women as regards access to
employment, vocational training and promotion, and working conditions. In that connection, it is
irrelevant whether the references were in fact refused during the period of employment or after its
termination, or whether the employer decided on the refusal before or after the termination of the
period of employment.
(2) Directive 76/207 does not, however, require member states to introduce into their national
legal systems such measures as are necessary to enable employees to bring legal proceedings
against former employers who have refused to provide references for them, where that refusal
constitutes retaliation for legal proceedings brought by the employee against the employer with a
view to enforcing compliance with the requirement of equal treatment for men and women.
22 September 1998.
The directive
3.
According to art 1(1) of the directive, its purpose is
to put into effect in the Member States the principle of equal treatment for men and women as
regards access to employment, including promotion, and to vocational training and as regards
working conditions and, on the conditions referred to in paragraph 2, social security. This principle
is hereinafter referred to as the principle of equal treatment.
4.
Article 5(1) of the directive states:
Application of the principle of equal treatment with regard to working conditions, including the
conditions governing dismissal, means that men and women shall be guaranteed the same
conditions without discrimination on grounds of sex.
5.
Under art 6 of the directive, member states are to
873
introduce into their national legal systems such measures as are necessary to enable all
persons who consider themselves wronged by failure to apply to them the principle of equal
treatment within the meaning of Articles 3, 4 and 5 to pursue their claims by judicial process after
possible recourse to other competent authorities.
6.
Pursuant to art 7 of the directive, member states are to
take the necessary measures to protect employees against dismissal by the employer as a
reaction to a complaint within the undertaking or to any legal proceedings aimed at enforcing
compliance with the principle of equal treatment.
National legislation
7.
The Sex Discrimination Act 1975, which transposed the directive into UK law, provides, in s 4:
(1) A person (the discriminator) discriminates against another person (the person victimised)
in any circumstances relevant for the purposes of any provision of this Act if he treats the person
victimised less favourably than in those circumstances he treats or would treat other persons, and
does so by reason that the person victimised has(a) brought proceedings against the
discriminator or any other person under this Act or the Equal Pay Act 1970
8.
The discrimination is unlawful only if committed in one of the situations referred to in Parts II and IV of
the 1975 Act; Part II concerns discrimination in the employment field. In this respect s 6 provides:
(1) It is unlawful for a person, in relation to employment by him at an establishment in Great
Britain, to discriminate against a woman(a) in the arrangements he makes for the purpose of
determining who should be offered that employment, or (b) in the terms on which he offers her that
employment, or (c) by refusing or deliberately omitting to offer her that employment. (2) It is
unlawful for a person, in the case of a woman employed by him at an establishment in Great
Britain, to discriminate against her(a) in the way he affords her access to opportunities for
promotion, transfer or training, or to any other benefits, facilities or services, or by refusing or
deliberately omitting to afford her access to them, or (b) by dismissing her, or subjecting her to any
other detriment.
Costs
29.
The costs incurred by the UK government and by the European Commission, which have submitted
observations to the Court of Justice, are not recoverable. Since these proceedings are, for the parties to
the main proceedings, a step in the action pending before the national tribunal, the decision on costs is a
matter for that tribunal.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Employment
Appeal Tribunal, London, by order of 20 November 1996, hereby rules: art 6 of Council Directive (EEC)
76/207 on the implementation of the principle of equal treatment for men and women as regards access
to employment, vocational training and promotion, and working conditions requires member states to
introduce into their national legal systems such measures as are necessary to ensure judicial protection
for workers whose employer, after the employment relationship has ended, refuses to provide references
as a reaction to legal proceedings brought to enforce compliance with the principle of equal treatment
within the meaning of that directive.
878
The six applicants were female employees of the EOC who had each completed at least one years paid
service on a permanent basis. Their contracts of employment comprised a staff handbook, which applied
to all workers, and a maternity scheme, which applied to female workers. Under the maternity scheme,
the applicants were entitled to just over three months maternity leave on full pay plus a limited period of
unpaid supplementary maternity leave. However, in order to benefit from those rights, an employee had to
state that she intended to return to work at the EOC after childbirth and agree that, should she fail to
return, she would repay any payment received under the maternity scheme which exceeded the statutory
maternity pay to which she would have been entitled. The applicants applied to an industrial tribunal for a
declaration that that requirement and certain other clauses in their contracts of employment were void or
unenforceable in so far as they discriminated against female employees, contrary to art 119 1 (equal pay
for equal work) of the EC Treaty and Council Directive (EEC) 75/117 on the approximation of the laws of
the member states relating to the application of the principle of equal pay for men and women, Council
Directive (EEC) 76/207 on the implementation of the principle of equal treatment for men and women as
regards access to employment, vocational training and promotion and working conditions and Council
Directive (EEC) 92/85 on the introduction of measures to encourage improvements in the safety and
health at work of pregnant workers and workers who have recently given birth or are breastfeeding. The
tribunal stayed the proceedings and referred to the Court of Justice of the European Communities for a
preliminary ruling questions as to the compatibility of such clauses with the relevant Community rules.
1
Article 119, so far as material, is set out at p 887 c d, post
879
Held (1) Article 119 of the Treaty, art 1 of Directive 75/117 and art 11 2 of Directive 92/85 did not preclude
a clause in an employment contract which made the payment, during the period of maternity leave
referred to by art 83 of Directive 92/85, of pay higher than the statutory payments in respect of maternity
leave conditional on the workers undertaking to return to work after the birth of the child for at least one
month, failing which she was required to repay the difference between the amount of the pay she would
have received during the period of maternity leave, on the one hand, and the amount of those payments,
on the other (see p 910 e f, p 911 d to g and p 916 j, post).
2
Article 11, so far as material, is set out at p 908 j to p 909 c, post
3
Article 8, so far as material, is set out at p 908 h j, post
(2) Article 8 of Directive 92/85 and art 5(1)4 of Directive 76/207 did not preclude a clause in an
employment contract from requiring an employee who had expressed her intention to commence her
maternity leave during the six weeks preceding the expected week of childbirth, and was on sick leave
with a pregnancy-related illness immediately before that date and gave birth during the period of sick
leave, to bring forward the date on which her paid maternity leave commenced either to the beginning of
the sixth week preceding the expected week of childbirth or to the beginning of the period of sick leave,
whichever was the later (see p 912 d to f j and p 917 b, post).
4
Article 5(1), so far as material, is set out p 908 g, post
(3) A clause in an employment contract which prohibited a woman from taking sick leave during the
minimum period of 14 weeks maternity leave to which a female worker was entitled pursuant to art 8(1) of
Directive 92/85, unless she elected to return to work and thus terminate her maternity leave, was not
compatible with Directive 92/85. By contrast, a clause in an employment contract which prohibited a
woman from taking sick leave during a period of supplementary maternity leave granted to her by the
employer, unless she elected to return to work and thus terminate her maternity leave, was compatible
with Directives 76/207 and 92/85 (see p 913 f to p 914 j and p 917 c d, post).
(4) Directives 92/85 and 76/207 did not preclude a clause in an employment contract from limiting the
period during which annual leave accrued to the minimum period of 14 weeks maternity leave to which
female workers were entitled under art 8 of Directive 92/85 and from providing that annual leave ceased
to accrue during any period of supplementary maternity leave granted to them by their employer (see p
914 g to j, p 915 d to h and p 917 e, post).
(5) Directive 92/85 precluded a clause in an employment contract from limiting, in the context of an
occupational scheme wholly financed by the employer, the accrual of pension rights during the period of
maternity leave referred to by art 8 of that directive to the period during which the woman received the
pay provided for by that contract or national legislation (see p 916 b to f and p 917 f, post).
Notes
For equal pay and equal treatment for men and women, see 52 Halsburys Laws (4th edn) paras 2111
2116.
For the EC Treaty, art 119, see 50 Halsburys Statutes (4th edn) 306.
880
Cases cited
Aprile Srl (in liq) v Amministrazione delle Finanze dello Stato Case C-125/94 [1995] ECR I-2919.
Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] QB
344, [1991] 2 WLR 72, [1990] ECR I-1889, ECJ.
Brown v Rentokil Ltd Case C-394/96 [1998] All ER (EC) 791, ECJ.
Caisse Nationale dAssurance Viellesse des Travailleurs Salaris v Thibault Case C-136/95 [1998] All ER
(EC) 385, [1998] ECR I-2011, ECJ.
Coloroll Pension Trustees Ltd v Russell Case C-200/91 [1995] All ER (EC) 23, [1994] ECR I-4389, ECJ.
De Weerd, ne Roks v Bestuur van de Bedrijfsvereniging voor de Gezondheid, Geestelijke en
Maatschappelijke Belangen Case C-343/92 [1994] ECR I-571.
Defrenne v Belgium Case 80/70 [1971] ECR 445.
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990]
ECR I-3941.
Finanzamt Kln-Altstadt v Schumacker Case C-279/93 [1995] All ER (EC) 319, [1995] ECR I-225, ECJ.
Furlanis Costruzioni Generali SpA v Azienda Nazionale Autonoma Strade (ANAS) Case C-143/93 [1995]
ECR I-3633.
Gerster v Freistaat Bayern Case C-1/95 [1997] ECR I-5253.
Gillespie v Northern Health and Social Services Board Case C-342/93 [1996] All ER (EC) 284, [1996]
ECR I-475, ECJ.
Habermann-Beltermann v Arbeiterwohlfahrt, Bezirksverband Ndb/Opf-eV Case C-421/92 [1994] ECR I-
1657.
Handels- og Kontorfunktionaerernes Foribund i Danmark v Dansk Arbejdsgiver- forening Case C-179/88
[1990] ECR I-3979.
Hofmann v Barmer Ersatzkasse Case 184/83 [1984] ECR 3047.
Kording v Senator fr Finanzen Case C-100/95 [1997] ECR I-5289.
Larsson v Ftex Supermarked A/S Case C-400/95 [1997] ECR I-2757.
Megner v Innungskrankenkasse Vorderpfalz Case C-444/93 [1996] All ER (EC) 212, [1995] ECR I-4741,
ECJ.
Meilicke v ADV/ORGA AG Case C-83/91 [1992] ECR I-4871.
Pedersen v Kvickly Skive Case C-66/96 (1997) Transcript (opinion) 10 July, ECJ.
Union Royale Belge des Socits de Football Association ASBL v Bosman Case C-415/93 [1996] All ER
(EC) 97, [1995] ECR I-4921, ECJ.
Webb v EMO Air Cargo (UK) Ltd Case C-32/93 [1994] 4 All ER 115, [1994] QB 718, [1994] 1 WLR 941,
[1994] ECR I-3567, ECJ.
Reference
By order of 15 October 1996, the Industrial Tribunal, Manchester, referred to the Court of Justice of the
European Communities for a preliminary ruling under art 177 of the EC Treaty five questions (set out at p
970 g to p 908 a, post) on the interpretation of art 119 of the Treaty, Council Directive (EEC) 75/117 on the
approximation of the laws of the member states relating to the application of the principle of equal pay for
men and women (OJ 1975 L45 p 19), Council Directive (EEC) 76/207 on the implementation of the
principle of equal treatment for men and women as regards access to employment, vocational training
and promotion, and working conditions (OJ 1976 L39 p 40) and Council Directive (EEC) 92/85 on the
introduction of measures to encourage improvements in the safety and health at work of pregnant
workers and workers who have recently given birth or are breastfeeding (OJ 1992 L348 881p 1). Written
observations were submitted on behalf of: Mrs Boyle and others, by D Rose, Barrister, instructed by A
Eddy, Solicitor; the Equal Opportunities Commission, by P Duffy QC, instructed by A Lakin, Solicitor; the
United Kingdom government, by L Nicoll, of the Treasury Solicitors Department, acting as agent, and by
E Sharpston, Barrister; the Irish government, by M A Buckley, Chief State Solicitor, acting as agent, and
by N Hyland, BL; and the European Commission, by M Wolfcarius and C OReilly, of its Legal Service,
acting as agents. Oral observations were made by: Mrs Boyle and others, represented by D Rose; the
Equal Opportunities Commission, represented by P Duffy QC; the UK government, represented by J E
Collins, Assistant Treasury Solicitor, acting as agent, and E Sharpston; the Irish government, represented
by B Lenihan SC, and N Hyland; the Austrian government, represented by C Pesendorfer, Oberrtin im
Bundeskanzleramt, acting as agent; and the Commission, represented by M Wolfcarius and C OReilly.
The language of the case was English. The facts are set out in the opinion of the Advocate General.
19 February 1998.
ITHE FACTS
2.
The proceedings before the Industrial Tribunal have been brought by Mrs Boyle and other female
employees of the Equal Opportunities Commission (the EOC), a public body set up under the Sex
Discrimination Act 1975 to promote equal treatment and equality of opportunity as between men and
women in the United Kingdom. The applicants wish to have declared void certain provisions of the EOC
Maternity Scheme (rules governing employees absences on account of pregnancy and maternity), which
are incorporated in their employment contracts, because, by providing for the application of certain
measures in the event of pregnancy or maternity and/or ultimately, by reference to sex, they discriminate
against women. The contested provisions coincide with those applied in the Civil Service in England and
Wales.
3.
The applicants are employees of the EOC and are all of childbearing age. They have all completed
one years service with the EOC. They were not employed on a casual or standby basis and none of them
was employed for a fixed term of less than two years. Mrs Boyle started working for the EOC for an
indefinite period around 1976. During her employment she has taken maternity leave on two occasions.
The dates of birth of the plaintiffs in the main proceedings are: Mrs Boyle, 23 June 1953, Mrs Taylor, 24
June 1961, and Mrs Mansley, 14 December 1961. The last two each took maternity leave 882 recently
and all three may wish to take further periods of maternity leave: hence their interest in having the
contested provisions in their employment contracts declared void or unenforceable.
ALegal provisions concerning employment rights in the event of pregnancy and maternity
and the right to be paid when absent from work
4.
Sections 71 to 78 of the Employment Rights Act 1996 grant all female workers a general right to
maternity leave for a continuous period of 14 weeks (maternity leave), commencing either on the date
which the employee notifies to her employer or on the first day after the beginning of the sixth week
before the expected date of childbirth, whichever is earlier.
Sections 79 to 85 of that Act grant employees who meet certain conditions, including continuous
employment for the two preceding years, the right to return to work after their maternity leave, at any time
during the 29 weeks following the week in which childbirth occurredthe right to return to work. To
describe the period of time for which the worker may stop working on account of pregnancy and maternity
and retain the right to return to work, the duration of which may, by virtue of a concession from the
employer, exceed 29 weeks, I shall use the expression unpaid maternity leave.
5.
Sections 164 to 166 of the Social Security Contributions and Benefits Act 1992 govern the right of
workers who have been employed for a specified period 5, and those earnings are of a specified level6, to
receive statutory maternity pay from their employer for a maximum of 18 weeks, if they are absent from
work on account of pregnancy or maternity. There are two rates of statutory maternity pay: the higher rate
and the lower rate. The higher rate consists of nine-tenths of the womans normal weekly earnings in the
eight weeks preceding the fourteenth week before the expected week of confinement; the lower rate,
which is fixed and amounts at present to 5455, is paid where its amount exceeds the nine-tenths figure.
A woman who, for two continuous years ending at the start of the fourteenth week prior to the expected
week of confinement, has worked for an employer who is under an obligation to pay her the benefit will
receive it at the higher rate for the first six weeks and at the lower rate for the remainder of the period. A
woman who is entitled to statutory maternity pay, but does not qualify for the higher rate, will receive it at
the lower rate.
5
At least 26 weeks ending with the week preceding the fourteenth week before the expected week of confinement.
6
This must not be less than the lowest level of income taken into account for the payment of social security contributions.
Any pregnant women who do not meet the necessary conditions to receive statutory maternity pay are
entitled to receive, subject to a maximum of 18 weeks, a maternity allowance, which at present amounts
to 5455 per week.
Sections 151 to 163 of the same Act govern the right to benefits in respect of incapacity for work on
account of illness. In such circumstances, workers are entitled to receive statutory sick pay from their
employers for a maximum of 28 weeks, the present rate being 5455 per week.
6.
Paragraph 5 of Sch 5 to the Social Security Act 1989, which incorporates in domestic law the
provisions of Council Directive (EEC) 86/378 on the implementation of the principle of equal treatment for
men and women in 883 occupational social security schemes (OJ 1986 L225 p 40), governs the situation
of a woman on maternity leave regarding the accrual of pension rights under an occupational scheme. By
virtue of that provision, a woman must be allowed to continue to belong to an occupational pension
scheme as if she were working normally. She may not receive more favourable treatment than a woman
in active employment, but her contributions to the pension scheme will be based on the amount she
receives from her employer whilst on maternity leave by way of contractual remuneration or statutory
maternity pay.
8
Council Directive (EEC) 75/117 on the approximation of the laws of the member states relating to the application of the
principle of equal pay for men and women (OJ 1975 L45 p 19)
9
Council Directive (EEC) 76/207 on the implementation of the principle of equal treatment for men and women as
regards access to employment, vocational training and promotion, and working conditions (OJ 1976 L39 p 39).
(1) A condition that maternity pay, beyond the Statutory Maternity Pay, is paid only if the woman
states that she intends to return to work and agrees to be liable to repay such maternity pay if she
does not return to work for one month on the conclusion of maternity leave.
(2) A condition that where a woman, who is absent on paid sick leave with a pregnancy-related
illness, gives birth during such absence, her maternity leave may be backdated to the later date of
either six weeks before the expected week of childbirth or when the sickness leave began.
(3) A prohibition on a woman, who is unfit for work for any reason whilst on maternity leave, from
taking paid sick leave, unless she elects to return to work and terminate her maternity leave.
886
(4) A condition limiting the time during which annual leave accrues to the statutory minimum
period of 14 weeks maternity leave and accordingly excluding any other period of maternity leave.
(5) A condition limiting the time in which pensionable service accrues during maternity leave to
when the woman is in receipt of contractual or Statutory Maternity Pay and accordingly excluding
any period of unpaid maternity leave.
A common denominator in all those cases is that it was or is necessary for them to be resolved by
reference to an interpretation of the Community legislation which was in force at the material time, namely
either art 119 of the Treaty and Directive 75/117, in the case of the principle of equal pay; or Directive
76/207 in the case of equal treatment regarding access to employment, training and promotion, and
working conditions.
27.
In order to deal with the present case, however, recourse may now be had to Directive 92/85, since
the wording of the clauses which the applicants in the main proceedings seek to have declared void is the
wording adopted in order to bring them into line with the text of that directive.
Since it is an individual directive which, as indicated by its very title, purports to apply measures to
encourage improvements in the safety and health at work of pregnant workers and workers who have
recently given birth or are breastfeeding, I consider that, in order to answer the preliminary questions, it
will be necessary to rely primarily on the provisions of that directive and, on a subsidiary basis, on the
remainder of the Community legislation of more general scope.
28.
Before examining the various questions, I must point out that, in order to answer them, it is necessary
to reformulate them since, otherwise, in view of the complexity and originality of the national legislation on
which the disputed clauses are partly based, the terminological problems associated with the various
concepts would be insoluble, and the answers might not be helpful to the national court.
I shall therefore reformulate the questions, relying for that purpose, in view of the lack of detail in the
order for reference regarding the factual and legal background to the disputes, upon the documents
produced by the national court and by the parties which have submitted observations in these
proceedings, and on the replies to the written questions put by the court to the respondent and to the UK
government, in order to clarify the scope of some of the disputed clauses.
However, the argument that that provision adversely affects a much larger number of women because
they more frequently take unpaid leave cannot succeed in the present case since the leave taken by the
women referred to by the applicants in support of their allegation of indirect discrimination reflects special
arrangements which have no connection with unpaid leave taken voluntarily for personal reasons, which
is available to both men and women. In the first place, in the United Kingdom only women may take
unpaid leave to look after a newborn child, of a predetermined duration and with the right to return to
work13. In the second place, unpaid leave of that kind is a protective measure covered by art 2(3) of
Directive 76/207, which is afforded to a woman because she has recently given birth and the grant of
such leave and the rules concerning it, where it exceeds the minimum requirements of Directive 92/85,
are matters reserved exclusively to the member states.
13
In Coloroll Pension Trustees Ltd v Russell Case C-200/91 [1995] All ER (EC) 23, [1994] ECR I-4389 (para 103),
the Court of Justice stated in reply to questions from the High Court as to whether, in the sphere of equal pay for men
and women, art 119 of the Treaty was applicable to company pension schemes which at all times have had members of
only one sex, thata worker cannot rely on art 119 in order to claim pay to which he could be entitled if he belonged to
the other sex in the absence, now or in the past, in the undertaking concerned of workers of the other sex who perform
or performed comparable work. In such a case, the essential criterion for ascertaining that equal treatment exists in the
matter of pay, namely the performance of the same work and receipt of the same pay, cannot be applied.
62.
For the foregoing reasons, I am of the opinion that Community law does not preclude the limitation, by
means of stipulations such as those of the EOC Maternity Scheme, of the time during which annual leave
accrues to the 14 weeks maternity leave and the exclusion of such accrual during unpaid maternity leave.
VIIICONCLUSION
70.
In view of the foregoing considerations, I propose that the following answers be given to the questions
submitted by the Industrial Tribunal, Manchester:
(1) In circumstances such as those of the present case, neither art 119 of the EC Treaty, nor
Council Directive (EEC) 75/117 on the approximation of the laws of the member states relating to
the application of the principle of equal pay for men and women, nor Council Directive (EEC)
76/207 on the implementation of the principle of equal treatment for men and women as regards
access to employment, vocational training and promotion, and working conditions, nor Council
Directive (EEC) 92/85 on the introduction of measures to encourage improvements in the safety
and health at work of pregnant workers and workers who have recently given birth or are
breastfeeding precludes the application of clauses of the kind examined in this opinion under
which: (1) an employer, who is prepared, for the benefit of his employees, to go beyond the legal
provisions applicable to pay during maternity leave, imposes, as a quid pro quo, by means of
clauses like those of the EOC Maternity Scheme, the requirement that the employees declare,
before commencing maternity leave, that they intend returning to work and give an undertaking to
repay the difference between the full salary paid to them and the statutory maternity pay that they
would have received had they not given an undertaking to return to work, in the event of their failing
to come back to work for at least one month; (2) where a worker has indicated that she wishes to
commence maternity leave on any date in the six weeks prior to the expected week of confinement
and is declared unfit for work on account of pregnancy immediately before that date, then, if the
birth occurs whilst she is in that situation, the commencement of her maternity leave may be
backdated to the later of the following two dates: the beginning of the period of sick leave or the
start of the sixth week prior to the expected week of confinement; (3) a woman who has begun her
maternity leave or is on unpaid maternity leave is not allowed to be accorded sick leave on full pay
being entitled in the latter case to claim only statutory sick payand is required, in order to be
granted such leave, to have stated, three weeks in advance, her intention to return to work on a
specified day, thereby bringing to an end, if the birth has occurred, her special maternity leave
arrangements, provided that the two weeks of compulsory maternity leave have already been
taken; (4) the time for which annual leave accrues is limited to the 14 weeks duration of the 904
maternity leave, and such accrual is excluded during unpaid maternity leave.
(2) Article 11(2)(a) of Directive 92/85, in conjunction with art 8 thereof, precludes making the
accrual of pension rights under an occupation scheme during the 14 weeks maternity leave
conditional upon the employees receiving, by way of salary or statutory maternity pay, income from
her employer.
27 October 1998.
Costs
88.
The costs incurred by the UK government, the Irish government and the Austrian government, and by
the European Commission, which have submitted observations to the Court of Justice, are not
recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the
proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the questions referred to it by the Industrial
Tribunal, Manchester, by order of 15 October 1996, hereby rules: (1) Article 119 of the EC Treaty, art 1 of
Council Directive (EEC) 75/117 on the approximation of the laws of the member states relating to the
application of the principle of equal pay for men and women and art 11 of Council Directive (EEC) 92/85
on the introduction of measures to encourage improvements in the safety and health at work of pregnant
workers and workers who have recently given birth or are breastfeeding do not preclude a clause in an
employment contract which makes the payment, during the period of maternity leave referred to by art 8
of Directive 92/85, of pay higher than the statutory payments in respect of maternity leave conditional on
the workers undertaking to return to work after the birth of the child for at least one month, failing which
she is required to repay the difference between the amount of the 916 pay she will have received during
the period of maternity leave, on the one hand, and the amount of those payments, on the other. (2)
Article 8 of Directive 92/85 and art 5(1) of Council Directive (EEC) 76/207 on the implementation of the
principle of equal treatment for men and women as regards access to employment, vocational training
and promotion, and working conditions do not preclude a clause in an employment contract from requiring
an employee who has expressed her intention to commence her maternity leave during the six weeks
preceding the expected week of childbirth, and is on sick leave with a pregnancy-related illness
immediately before that date and gives birth during the period of sick leave, to bring forward the date on
which her paid maternity leave commences either to the beginning of the sixth week preceding the
expected week of childbirth or to the beginning of the period of sick leave, whichever is the later. (3) A
clause in an employment contract which prohibits a woman from taking sick leave during the minimum
period of 14 weeks maternity leave to which a female worker is entitled pursuant to art 8(1) of Directive
92/85, unless she elects to return to work and thus terminate her maternity leave, is not compatible with
Directive 92/85. By contrast, a clause in an employment contract which prohibits a woman from taking
sick leave during a period of supplementary maternity leave granted to her by the employer, unless she
elects to return to work and thus terminate her maternity leave, is compatible with Directives 76/207 and
92/85. (4) Directives 92/85 and 76/207 do not preclude a clause in an employment contract from limiting
the period during which annual leave accrues to the minimum period of 14 weeks maternity leave to
which female workers are entitled under art 8 of Directive 92/85 and from providing that annual leave
ceases to accrue during any period of supplementary maternity leave granted to them by their employer.
(5) Directive 92/85 precludes a clause in an employment contract from limiting, in the context of an
occupational scheme wholly financed by the employer, the accrual of pension rights during the period of
maternity leave referred to by art 8 of that directive to the period during which the woman receives the pay
provided for by that contract or national legislation.
917
The applicant undertaking was one of three private commercial television companies in Spain. In March
1992, it lodged complaints with the European Commission seeking to have the grants which the public
television companies received from the Spanish state declared incompatible with the common market
within the meaning of art 921 of the EC Treaty. In February 1996 the Commission, which still had not ruled
on the complaints, informed the applicant that following completion of a study commissioned in December
1993 on public television in other countries, it had requested the Spanish authorities to provide a number
of further details and explanations necessary for investigating the complaints. No decision was adopted
subsequently and thereafter the applicant applied to the Court of First Instance of the European
Communities for a declaration under art 1752 of the Treaty that, by failing to adopt a decision in relation to
the applicants complaints and by failing to initiate the procedure provided for under art 93(2) 3, the
Commission had failed to fulfil its obligations under the Treaty. Before the Court of First Instance, the
Commission contended that only the person to whom an act was potentially addressed had the capacity
to bring an action under art 175, and that since any decision taken under an art 93(2) procedure would be
addressed to a member state, the action brought by the applicant was inadmissible. Furthermore, it
contended that such an interpretation did not deprive individuals of the right to legal protection, since they
could bring an action before the national courts in order to determine the illegality of state measures.
1
Article 92, so far as material, provides: (1) Save as otherwise provided in this Treaty, any aid granted by a Member
State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be
incompatible with the common market.
2
Article 175, so far as material, provides: Any natural or legal person may complain to the Court of Justice that an
institution of the Community has failed to address to that person any act other than a recommendation or an opinion.
3
Article 93, so far as material, provides: (2) If the Commission finds that aid granted by a State or through State
resources is not compatible with the common market having regard to Article 92, or that such aid is being misused, it
shall decide that the State concerned shall abolish or alter such aid
918
Held (1) On its proper construction, the third paragraph of art 175 entitled individuals to bring an action
for failure to act against a Community institution which they claimed had failed to adopt a measure where
that measure would have been of direct and individual concern to them. The persons directly and
individually concerned for the purposes of art 93(2) were those persons, undertakings or associations
whose interests might be affected by the grant of the aid in question, in particular competing undertakings
and trade associations. In the instant case, the applicants undisputed position as a party concerned
within the meaning of art 93(2) ensued from its status as one of the private television channels in
competition with the public television channels to which the contested grants were made and from the fact
that both complaints lodged by it prompted the preliminary investigation carried out by the Commission in
relation to those grants (see p 928 f and p 929 f h, post); T Port GmbH & Co KG v Bundesanstalt fr
Landwirtschaft und Ernhrung Case C-68/95 [1996] ECR I-6065 applied.
(2) Moreover, the possible existence of a remedy at domestic level, whereby the applicant could
challenge the grant of the disputed allowances to the public channels, could not affect the admissibility of
the applicants claim. Accordingly, the failure by the Commission to take any decision following its
initiation of the preliminary investigation procedure in relation to the grants made by the various Spanish
state bodies to the public television companies was of direct and individual concern to the applicant. It
followed that the applicants claim for a declaration that the Commission had failed to act was admissible
and would, in the circumstances, be granted (see p 929 j to p 930 c and p 933 c, post); Kahn
Scheepvaart BV v European Commission Case T-398/94 [1996] ECR II-477 applied.
Notes
For locus standi in relation to actions for failure to act, see 51 Halsburys Laws (4th edn) para 256. For a
relevant case see, 21(1) Digest (2nd reissue) 64, 143.
For the EC Treaty, art 175 (as amended by art G.54 of the Treaty on European Union), see 50
Halsburys Statutes (4th edn), Current Service 97.
Cases cited
Association of Sorbitol Producers within the EC (ASPEC) v European Commission Case T-435/93 [1995]
ECR II-1281.
Associazone Italiana Tecnico Economica del Cemento (AITEC) v European Commission Case T-277/94
[1996] ECR II-351.
Automec Srl v EC Commission Case T-24/90 [1992] ECR II-2223.
Buckl (Joseph) und Shne OHG v EC Commission Joined cases C-15/91 and C-108/91 [1992] ECR I-
6061.
Chambre Syndicale Nationale des Entreprises de Transport de Fonds et Valeurs (Sytraval) v European
Commission Case T-95/94 [1995] ECR II-2651.
Chevalley v EC Commission Case 15/70 [1970] ECR 975.
Compagnie franaise de lazote (Cofaz) SA v EC Commission Case 169/84 [1986] ECR 391.
Dumez v European Commission Case T-126/95 [1995] ECR II-2863.
European Commission v Chambre Syndicale Nationale des Entreprises de Transport de Fonds et Valeurs
(Sytraval) Case C-367/95 P (1998) Transcript, 2 April, ECJ.
European Parliament v EC Council Case 13/83 [1985] ECR 1513.
Fdration Franaise des Socits dAssurance (FFSA) v European Commission Case C-174/97 P
[1998] ECR I-1303.
919
Fdration Franaise des Socits dAssurance (FFSA) v European Commission Case T-106/95 [1997]
ECR II-229.
Fdration Nationale du Commerce Extrieur des Produits Alimentaires v France Case C-354/90 [1991]
ECR I-5505.
Forening af Jernskibs- og Maskinbyggerier i Danmark, Skibsvrftsforeningen v European Commission
Case T-266/94 [1996] ECR II-1399.
Germany v EC Commission Case 84/82 [1984] ECR I-1451.
Goldstein v European Commission Case T-286/97 (1998) Transcript, 15 July, CFI.
Iannelli & Volpi SpA v Meroni Case 74/76 [1977] ECR 557.
Intermills (SA) v EC Commission Case 323/82 [1984] ECR 3809.
Kahn Scheepvaart BV v European Commission Case T-398/94 [1996] ECR II-477.
Lorenz (Gebr) GmbH v Germany Case 120/73 [1973] ECR 1471.
Matra SA v EC Commission Case C-225/91 [1993] ECR I-3203.
Oliveira (Estabelecimentos Isidoro M) SA v European Commission Case T-73/95 [1997] ECR II-381.
Pantochim SA v European Commission Case T-107/96 [1998] ECR II-311.
Plaumann & Co v EEC Commission Case 25/62 [1963] ECR 95.
Port (T) GmbH & Co KG v Bundesanstalt fr Landwirtschaft und Ernhrung Case C-68/95 [1996] ECR I-
6065.
Rijn-Schelde-Verholme (RSV) Maschinefabrieken en Scheepswerven NV v EC Commission Case 223/85
[1987] ECR 4617.
Socit internationale diffusion et de ldition (SIDE) v European Commission Case T-49/93 [1995] ECR
II-2501.
Socit Nouvelle des Usines de PonlieueAciries du Temple v ECSC High Authority Joined cases
42/59 and 49/59 [1961] ECR 53.
Spain v EC Commission Case C-312/90 [1992] ECR I-4117.
Steinike and Weinlig (Firma) v Germany Case 78/76 [1977] ECR 595.
Stichting Certificatie Kraanverhuurbedrijf (SCK) v European Commission Joined cases T-213/95 and T-
18/96 [1997] ECR II-1739.
Syndicat Franais de lExpress International (SFEI) v La Poste Case C-39/94 [1996] All ER (EC) 685,
[1996] ECR I-3547, ECJ.
Vereniging van Exporteurs in Levende Varkens v EC Commission Joined cases T-481/93 and T-484/93
[1995] ECR II-2941.
William Cook plc v EC Commission Case C-198/91 [1993] ECR I-2487.
William v EC Commission Case 246/81 [1982] ECR 2277.
Application
By an application lodged on 17 June with the registry of the Court of First Instance of the European
Communities 1996 Gestevisin Telecinco SA, a company governed by Spanish law, sought, inter alia, a
declaration under art 175 of the EC Treaty that the European Commission had failed to fulfil its obligations
under the Treaty, first, by failing to adopt a decision in relation to the complaints made by the applicant
against the Kingdom of Spain for breach of art 92 of the Treaty and secondly by failing to initiate the
procedure provided for under art 93(2) of the Treaty. Gestevisin Telecinco SA was represented by S
Muoz Machado, of the Madrid Bar, with an address for service in Luxembourg at the Chambers of
Carlos Amo Quiones, 2 Rue Gabriel Lippmann. The Commission was represented initially by G Rozet,
Legal Adviser, and F Castillo de la Torre, of its Legal Service, and then by Mr Rozet and J Guerra
Fernndez, of its Legal Service, acting as agents, with an address for service in Luxembourg at the office
of Carlos Gmez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg. The 920 French Republic
intervened in support of the Commission and was represented by C de Salins, Deputy Director of the
Department of Legal Affairs at the Ministry of Foreign Affairs, and G Mignot, Secretary for Foreign Affairs,
acting as agents, with an address for service in Luxembourg at the French Embassy, 8B Boulevard
Joseph II. The language of the case was Spanish. The facts are set out in the judgment of the court.
15 September 1998.
PROCEDURE
15.
The applicant brought this action by an application lodged with the registry of the Court of First
Instance of the European Communities on 17 June 1996.
16.
By application lodged with the registry of the Court of First Instance on 8 November 1996, the French
Republic applied to intervene in support of the defendant. That application was granted by an order of the
President of the Third Chamber (Extended Composition) dated 4 February 1997.
17.
Upon hearing the report of the Judge Rapporteur, the Court of First Instance (Third Chamber,
Extended Composition) decided to open the oral procedure without preparatory inquiry. However, as a
measure of organisation of procedure, provided for in art 64 of the Rules of Procedure, the parties were
requested to respond to certain questions at the hearing.
18.
The parties made their submissions and replied to the questions posed by the Court of First Instance
at the hearing on 10 March 1998.
FAILURE TO ACT
COSTS
93.
Under art 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if
they have been applied for in the successful partys pleadings.
94.
Since the Commission is the unsuccessful party, it will be ordered to pay the costs incurred by the
applicant, as sought by the applicant, other than the costs incurred as a result of the intervention by the
French Republic.
95.
Pursuant to art 87(4) of the Rules of Procedure, the French Republic shall bear its own costs. In
addition, it shall bear the costs incurred by the applicant as a result of its intervention.
On those grounds, the Court of First Instance (Third Chamber, Extended Composition) hereby: (1)
Declares that the European Commission failed to fulfil its obligations under the EC Treaty by failing to
adopt a decision following the two complaints lodged by the applicant on 2 March 1992 and 12 November
1993; (2) Orders the Commission to pay the applicants costs other than those incurred as a result of the
intervention by the French Republic; (3) Orders the French Republic to bear its own costs together with
the costs incurred by the applicant by reason of its intervention.
933
MGM applied for the registration in Germany of the word trade mark CANNON to be used in respect of
films recorded on video tape cassettes production, distribution and projection of films for cinemas and
television organisations. CKK opposed that application on the ground that it infringed its own earlier word
trade mark Canon, which was registered in Germany in respect of still and motion picture cameras and
projectors; television filming and recording devices, television retransmission devices, television receiving
and reproduction devices, including devices for television recording and reproduction. The German
Patent Office dismissed the opposition for lack of similarity and CKKs appeal to the Federal Patent Court
was also dismissed. CKK subsequently appealed to the Federal Court of Justice, which stayed the
proceedings and referred to the Court of Justice of the European Communities for a preliminary ruling,
questions whether, on a proper construction of Council Directive (EEC) 89/104 to approximate the laws of
the member states relating to trade marks: (i) the distinctive character and reputation of the earlier trade
mark had to be taken into account when determining whether the similarity between the goods or services
covered by the two trade marks was sufficient to give rise to the likelihood of confusion, contrary to art
4(1)(b)1 of the directive; and (ii) whether there could be a likelihood of confusion where the public
perception was that the goods or services had different places of origin.
1
Article 4(1)(b), so far as material, is set out at p 947 c, post
Held (1) The more distinctive the earlier trade mark, the greater the risk of confusion: the protection of a
trade mark depended, in accordance with art 4(1)(b) of the directive, on there being a likelihood of
confusion and, as such, marks with a highly distinctive character, either per se or because of the
reputation they possessed on the market, enjoyed broader protection under the directive than marks with
a less distinctive character. It followed that art 4(1)(b) 934of the directive required, in addition to evidence
of similarity between the goods or services in question, that the distinctive character and in particular the
reputation of the earlier trade mark be taken into account when determining whether the similarity
between the goods or services covered by two trade marks was sufficient to give rise to the likelihood of
confusion (see p 948 f g, p 949 b j and p 950 h, post); Sabel BV v PUMA AG, Rudolph Dassler Sport
Case C-251/95 [1997] ECRI-6191 applied.
(2) The essential function of a trade mark was to guarantee the identity of the origin of the marked
product to the consumer or end user by enabling him to distinguish the product or service from others
which had another origin. Thus, a risk that the public might believe that the goods or services in question
came from the same or economically linked undertakings constituted a likelihood of confusion within the
meaning of art 4(1)(b) of the directive. It followed that, for the purposes of art 4(1)(b), there could be a
likelihood of confusion even where the public perception was that the goods were produced in different
places. Conversely, there could be no such likelihood where it did not appear that the public could believe
that goods or services came from the same or economically linked undertakings (see p 950 c to f j, post);
Sabel BV v PUMA AG, Rudolph Dassler Sport Case C-251/95 [1997] ECRI-6191 applied.
Cases cited
Bayerische Motorenwerke AG v Deenik Case C-63/97 (1998) Transcript (opinion) 2 April, ECJ.
British Sugar Plc v James Robertson & Sons Ltd [1996] RPC 281.
CNL-SUCAL (SA) NV v HAG GF AG Case C-10/89 [1990] ECR I-3711.
Sabel BV v PUMA AG, Rudolph Dassler Sport Case C-251/95 [1997] ECR I-6191.
Reference
By order of 12 December 1996, the Bundesgerichtshof (the Federal Court of Justice) referred to the Court
of Justice of the European Communities for a preliminary ruling under art 177 of the EC Treaty a question
(set out at p 948 b, post) on the interpretation of art 4(1)(b) of Council Directive (EEC) 89/104 to
approximate the laws of the member states relating to trade marks (OJ 1989 L40 p 1). That question
arose in proceedings between the Japanese company Canon Kabushiki Kaisha (CKK) and the American
corporation Metro-Goldwyn-Mayer Inc, formerly Pathe Communications Corp (MGM), following MGMs
application in Germany in 1986 for registration of the word trade mark CANNON to be used in respect of
certain goods and services. Written observations were submitted on behalf of: CKK, by G Jordan,
Rechtsanwalt, Karlsruhe; MGM, by W-W Wodrich, Rechtsanwalt, Essen; the French government, by K
Rispal-Bellanger, Assistant Director in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and P
Martinet, Secretary of Foreign Affairs in the same directorate, acting as agents; the Italian government, by
Prof U Leanza, Head of the Legal Service in the Ministry of Foreign Affairs, acting as agent, and O
Fiumara, Avvocato dello Stato; the United Kingdom government, by L Nicoll, of the Treasury Solicitors
Department, acting as agent, and D Alexander, Barrister; and the European Commission, by J Grunwald,
Legal Adviser, and B J Drijber, of its Legal Service, acting as agents. Oral observations were made by:
CKK, represented by A Rinkler, Rechtsanwalt, Karlsruhe; MGM, represented by W-W Wodrich and J K
Zenz, Patentanwalt, Essen; the French government, represented by A de Bourgoing, Charg de 935
Mission in the Legal Affairs Directorate of the Ministry of Foreign Affairs, acting as agent; the Italian
government, represented by O Fiumara; the United Kingdom government, represented by D Alexander;
and the Commission, represented by J Grunwald. The language of the case was German. The facts are
set out in the opinion of the Advocate General.
2 April 1998.
The facts
12.
On 29 July 1986, Pathe Communications Corp (Pathe), which is based in the United States of
America, submitted an application to register the word trade mark CANNON in respect of the following
goods and services: films recorded on video tape cassettes (video film cassettes); production, distribution
and projection of films for cinemas and television institutions.
13.
That application was opposed by Canon Kabushiki Kaisha (CKK) on the grounds that it infringed its
own word trade mark Canon. That mark had already been registered, inter alia, in respect of
still and motion picture cameras and projectors; television filming and recording devices,
television transmission devices, television receiving and reproduction devices, including tape and
disc devices for television recording and reproduction.
14.
At the time the opposition by CKK was lodged the trade marks directive had not been adopted and the
national German law on trade marks accordingly applied. That law is known as the Warenzeichengesetz
(the WZG). The directive, adopted on 21 December 1988 and due to be implemented by 31 December
1992 (see para 5, above), was implemented late into German law by a law adopted on 25 October 1994.
The principal provisions of that law came into force on 1 January 1995. However, the Bundesgerichtshof
explains that the present case must be judged on the basis of the law as it now stands, which gives effect
to the directive. The new German trade mark law is called the Markengesetz and the Bundesgerichtshof
explains that art 9(1)(2) of that law corresponds to art 4(1)(b) of the directive.
15.
According to the Bundesgerichtshof, it must be assumed for the purposes of legal assessment that the
two marks CANNON and Canon sound identical. They are not, however, applied in respect of identical
goods and services. The question with which the German courts have been confronted is whether the
respective goods and services can nevertheless be regarded as similar.
16.
When Pathes application was examined by the German authorities the first examiner considered that
the goods and services of the opposing parties were indeed similar and accordingly refused to register
the mark CANNON. The second examiner set aside that decision and dismissed the opposition on the
ground that there was no similarity. CKK appealed to the Bundespatentgericht (the Federal Patent Court)
but its appeal was dismissed by an order dated 6 April 1994. CKK then appealed to the
Bundesgerichtshof and it is in the context of those proceedings that the present reference has been
made.
17.
The Bundespatentgericht dismissed CKKs appeal because it agreed with the second examiner that
there was no similarity, within the meaning of para 5(4)(1) of the WZG, between the parties goods and
services. In its view, there could be similarity only if the goods or services, in accordance with their
economic significance and use, and with respect in particular to their usual places of manufacture and
sale, had such close points of contact that the average purchaser might form the opinion that they came
from the same business operation. CKK claims that 766% of the population knew its mark in November
1985 and the Bundesgerichtshof states that that must be taken as meaning that the mark Canon was a
recognised mark. The Bundespatentgericht, however, considered that the reputation of CKKs mark was
of no significance in assessing the similarity of the goods and services in question.
938
18.
The Bundespatentgericht observed that the goods video film cassettes specified in Pathes
application were closest to the goods television filming and recording devices, television transmission
devices, television receiving and reproduction devices, including tape and disc devices for television
recording and reproduction covered by CKKs mark. However, it considered that the two sets of goods
were not similar. Disagreeing with the view taken by the Thirtieth Senate of the Bundespatentgericht in a
similar case, it stated that it could not be assumed that video film cassettes were similar to the television
devices covered by CKKs mark or to the video cameras distributed by CKK.
19.
It explained that the Bundespatentgericht had already found, in 1989, that there was not a single
manufacturer of leisure electronic devices to be found among the video tape producers in the 1988
SEIBT Directory of German Industries; no significant changes had taken place in the meantime in that
respect, at least in relation to recorded video cassettes; and inquiries in relevant specialist shops had
shown that no name of a manufacturer of television devices or video recorders could be found in the
range of recorded video cassettes. The Bundespatentgericht accordingly considered that it could not be
assumed that the relevant average purchaser thought that recorded video tapes and the corresponding
recording and reproduction devices came from the same business operation. Even members of the public
were sufficiently aware of the different conditions for the manufacture of recorded cassettes and
understood that video cassettes and video recorders do not come from the same manufacturer.
20.
The Bundespatentgericht also rejected the possibility of similarity between the services specified in
Pathes application relating to production, distribution and projection of films for cinemas and television
institutions and the television filming devices etc. protected by CKKs mark. The Bundespatentgericht
considered that the fact that cameras and projectors were used to produce and project films did not
mislead persons, to an extent relevant for trade mark law purposes, to conclude that the producers of
such devices regularly also produced, distributed or projected films.
21.
In its appeal against the order of the Bundespatentgericht, CKK argues that, since the implementation
of the trade marks directive into German law, the approach of the Bundespatentgericht to the assessment
of the similarity of goods or services is no longer appropriate. It submits that its mark Canon is a famous
or well-known mark and that that fact, coupled with the fact that video film cassettes and video recording
and reproduction devices are offered through the same points of sale, should lead to the conclusion that
the goods covered by the two marks are similar and that there is consequently a likelihood of the public
being confused within the meaning of para 9(1)(2) of the Markengesetz (which corresponds to art 4(1)(b)
of the directive).
The question
22.
The Bundesgerichtshof has accordingly referred the following question to this Court of Justice for a
preliminary ruling:
May account be taken, when assessing the similarity of the goods or services covered by the
two marks, of the distinctive character, in particular the reputation of the mark with earlier priority
(on the date which determines the seniority of the later mark), in particular in such a way that
likelihood of confusion within the meaning of Article 4(1)(b) of the Directive 939 must be taken to
exist even if the public attributes the goods and/or services to different origins?
23.
The Bundesgerichtshof explains that the essential question is whether the adoption of the trade marks
directive requires the German courts to change their approach in assessing the similarity of goods or
services. It accordingly seeks to ascertain which criteria should be applied in assessing whether goods or
services are similar within the meaning of art 4(1)(b) of the directive.
24.
The order for reference contains the following information as to the implementation of the directive.
When implementing the directive, the German legislature started from the assumption that the concept of
the similarity of goods or services could not be understood in the same way as that concept had been
understood under the previous German law. In the explanatory memorandum to the draft
Markenrechtsreformgesetz (the Trade Mark Reform Law), it was stated that in future it would not be
possible to refer back to the static concept of similarity developed in the previous law.
25.
Under the previous law, there had to be objective similarity between the goods or services: there was
thus no protection under trade mark law where there was no objective similarity of goods and services,
however similar the marks and whatever the reputation of the earlier mark. Commentators argue that,
since implementation of the directive, that is no longer the case: there is now an inverse correlation
between, on the one hand, the similarity of the goods and services and, on the other, the similarity of the
marks and the distinctive character of the earlier mark. Thus the closer the marks and the more distinctive
the earlier mark, the less similarity of goods or services needs to be shown. According to the
Bundesgerichtshof, such an interpretation would mean that it would be considerably easier than under the
previous German law to demonstrate a likelihood of confusion.
26.
The Bundesgerichtshof recognises that, in certain circumstances, where the earlier mark has a
reputation, it can be protected even in relation to dissimilar goods and services by virtue of art 4(4)(a) of
the directive. Although that provision is optional, the Bundesgerichtshof states that it has been
implemented into German law by para 9(1)(3) of the Markengesetz. However, the Bundesgerichtshof
stresses that it is important to distinguish between the application of art 4(1)(b) and art 4(4)(a) because,
under national law, the initial registration of a mark in relation to dissimilar goods cannot be opposed per
se under the national provisions implementing art 4(4)(a): the person objecting can only commence an
action for cancellation of the mark once it has been registered or bring proceedings for infringement of his
own mark, the idea being that the registration procedure should be carried out in an abstract, systematic
way. Article 4(1)(b), on the other hand, is a ground for opposing the registration of a mark. The question
whether a particular use of a mark falls within art 4(1)(b) or art 4(4)(a) is accordingly of considerable
practical importance.
28.
That case concerned the interpretation of art 4(1)(b) of the directive in so far as it refers to a likelihood
of confusion on the part of the public, which includes the likelihood of association with the earlier trade
mark. The court explained that it had been submitted that
the likelihood of association may arise in three sets of circumstances: (1) where the public
confuses the sign and the mark in question (likelihood of direct confusion): (2) where the public
makes a connection between the proprietors of the sign and those of the mark and confuses them
(likelihood of indirect confusion or association); (3) where the public considers the sign to be similar
to the mark and perception of the sign calls to mind the memory of the mark, although the two are
not confused (likelihood of association in the strict sense). (See [1997] ECR I-6191 (para 16).)
29.
The court stated that it was therefore necessary to determine whether Article 4(1)(b) can apply
where there is no likelihood of direct or indirect confusion, but only a likelihood of association in the strict
sense (see [1997] ECRI-6191 (para 17)). It concluded: The terms of the provision itself exclude its
application where there is no likelihood of confusion on the part of the public (see para 18). Thus the
court held that the mere association which the public might make between two trade marks as a result of
their analogous semantic content is not in itself a sufficient ground for concluding that there is a likelihood
of confusion (see operative part) within the meaning of art 4(1)(b).
30.
It follows that if, in the present case, there is no likelihood of the public assuming that there is any sort
of trade connection between the marks Canon and CANNON, there is no likelihood of confusion within
the meaning of art 4(1)(b) of the directive. The European Commission suggests however that the question
refers to the attribution of goods or services to different places of origin; and that concept may reflect the
importance attached by the previous German trade mark law to the place of manufacture of the goods in
question. In that respect it should be noted that it is not sufficient to show simply that there is no likelihood
of the public being confused as to the place in which the goods are manufactured or the services
performed: if, despite recognising that the goods or services have different places of origin, the public is
likely to believe that there is a link between the two concerns, there will be a likelihood of confusion within
the meaning of the directive.
3
The word of, rather than on, appears in the English text by mistake.
35.
CKK and the French government argue that that recital, in particular the statement that it is
indispensable to give an interpretation of the concept of similarity in relation to the likelihood of confusion,
shows that the test of the similarity of goods or services is not to be regarded as an objective test.
36.
CKK also argues that it is important to be able to oppose the initial registration of a mark under art 4(1)
(b), rather than having to accept the initial registration and attack its use under other provisions. It
considers that parties to opposition proceedings are subject to lower costs and can present their rights
more effectively and more efficiently than in other proceedings.
37.
Pathe and the United Kingdom, however, advocate an objective, independent assessment of the
similarity of the goods or services (ie an assessment made without regard to the nature or reputation of
the earlier mark). The United Kingdom maintains that to require, at the stage of registering a mark, that
the reputation of an earlier mark be taken into account when assessing the similarity of the goods or
services in question would place an undue burden on examiners and considerably lengthen the
registration process. Pathe also argues that large companies would deliberately delay registration
processes.
38.
Moreover, Pathe argues that flexible boundaries to the definition of similar goods or services would
cause legal uncertainty. One final argument made by the United Kingdom is that, if the question of the
likelihood of confusion had to be 942 addressed in order to decide whether goods or services were
similar, there would be no purpose in requiring such similarity: the only question would be whether or not
there was a likelihood of confusion; if that had been the intention, the directive would have had a different
structure.
39.
In my view, the decisive consideration in resolving the issue is the statement in the tenth recital of the
preamble to the directive that the appreciation of the likelihood of confusion depends in particular on the
recognition of the mark. That statement set in its context reads as follows:
Whereas the protection afforded by the registered trade mark, the function of which is in
particular to guarantee the trade mark as an indication of origin, is absolute in the case of identity
between the mark and the sign and goods or services; whereas the protection applies also in case
of similarity between the mark and the sign and the goods or services; whereas it is indispensable
to give an interpretation of the concept of similarity in relation to the likelihood of confusion;
whereas the likelihood of confusion, the appreciation of which depends on numerous elements and,
in particular, on the recognition of the trade mark on the market, [on] the association which can be
made with the used or registered sign, [on] the degree of similarity between the trade mark and the
sign and between the goods or services identified, constitutes the specific condition for such
protection
That statement makes it clear that the recognition of the mark, although not specifically mentioned in
art 4(1)(b) of the directive, is relevant in deciding whether there is sufficient similarity to give rise to a
likelihood of confusion.
40.
That view is also confirmed by the judgment of the court in Sabel BV [1997] ECR I-6191 (para 22), in
which it held that the likelihood of confusion must be appreciated globally, taking into account all
factors relevant to the circumstances of the case. It is true that that statement was made in a different
context: the court was there considering the question whether conceptual similarity of the marks alone
could give rise to confusion within the meaning of art 4(1)(b), in a situation in which the goods in question
were clearly the same. However the statement is one of general application.
41.
The UK government seeks to refute the argument that the tenth recital of the preamble to the directive
supports a global approach. It maintains that that recital means simply that in assessing similarity regard
should be had to the question whether the goods or services are such that the public might be confused
into thinking that they have the same trade origin, and that in making that assessment it is not permissible
to have regard to the reputation of the earlier mark.
42.
That explanation, however, requires the recital to be read as indicating that the question of confusion
is to be taken into account in assessing the similarity of goods or services, but that one element of the
confusion test, namely that of the recognition of the earlier mark on the market (which is mentioned
expressly in the recital), cannot be taken into account in such an assessment. I have difficulty in reading
the recital in that way. (The phrase recognition of the trade mark on the market to my mind refers to the
degree of distinctiveness of the mark: ie whether it is readily recognised by the public, either because it
has an inherently unusual nature or because of its reputation.)
43.
In addition, the dangers of lengthening the registration process by requiring consideration of an earlier
trade marks reputation do not appear to me to be as serious as Pathe and the UK government suggest.
The French 943 government stated at the hearing that, in its experience, such consideration did not
unduly lengthen or complicate the procedure. Indeed, it may be in the interest of legal certainty to ensure
that marks whose use may be challenged successfully are not registered in the first place. In any event, it
seems to me that the tenth recital of the preamble to the directive indicates that the reputation of a trade
mark should be taken into account in assessing the likelihood of confusion between two marks even if it
cannot be taken into account in assessing the similarity of goods and services. Moreover, the Community
Trade Mark Registry will be obliged to consider the question of the reputation of a mark in many cases
since the Community trade mark regulation contains a provision similar to art 4(4)(a) of the directive.
Under art 8(5) of the regulation the proprietor of an earlier mark which has a reputation can oppose,
subject to certain conditions, the registration of an identical or similar mark in relation to dissimilar goods
or services. That suggests that the practical problems of requiring registrars to consider the reputation of
a mark are not as great as has been argued.
44.
I would emphasise that although in my view the degree of recognition of the mark must be taken into
account in deciding whether there is sufficient similarity to give rise to confusion, the requirement of
similarity must be given full weight, both in assessing the similarity of the marks and in assessing the
similarity of the goods or services in question. It is therefore incorrect to suggest that, in consequence of
the implementation into national law of art 4(1)(b) of the directive, it may no longer be necessary in the
case of a particularly distinctive mark to establish the similarity of the goods or services in question. In
assessing the similarity of the goods or services it will be helpful to have regard to the factors suggested
by the UK and French governments.
45.
According to the UK government, the following type of factors should be taken into account in
assessing the similarity of goods or services: (a) the uses of the respective goods or services; (b) the
users of the respective goods or services; (c) the physical nature of the goods or acts of service; (d) the
trade channels through which the goods or services reach the market; (e) in the case of self-serve
consumer items, where in practice they are respectively found or likely to be found in supermarkets and in
particular whether they are, or are likely to be, found on the same or different shelves; (f) the extent to
which the respective goods or services are in competition with each other: that inquiry may take into
account how those in trade classify goods, for instance whether market research companies, who of
course act for industry, put the goods or services in the same or different sectors (taken from the
judgment of the English High Court in British Sugar Plc v James Robertson & Sons Ltd [1996] RPC 281).
46.
Whilst recognising that that list of factors is not exhaustive, the UK government observed at the
hearing that it nevertheless indicates a common denominator which should be present in all factors taken
into account in assessing the similarity of goods or services: namely that the factors are related to the
goods or services themselves.
47.
The French government likewise considers that, in assessing the similarity of goods and services, the
factors to be taken into account should include the nature of the goods or services, their intended
destination and clientele, their normal use and the usual manner of their distribution.
48.
The use of those objective factors to assess similarity does not however in my view preclude account
being taken of the degree of recognition of the mark 944 in deciding whether there is sufficient similarity to
give rise to a likelihood of confusion.
49.
Against that view it might be argued that the simpler and more objective the test of the similarity of
goods and services under art 4(1)(b), the less likely national trade mark registries or courts in different
member states would be to adopt different assessments as to whether a particular mark is confusing.
That would be consistent with the directives aim of harmonising member states trade mark laws.
50.
I accept that a flexible test of the similarity of goods or services might lead to different interpretations of
such similarity in different member states. It is indeed possible that, contrary to the view in certain
member states, a new mark might not be caught by art 4(1)(b) of the directive in one member state simply
because it is considered in that state that, despite the reputation of the earlier mark and a likelihood of
confusion, the goods or services are not sufficiently similar. In such a case, however, the fact that the
earlier mark has a reputation may well mean that in that member state art 4(4)(a) or art 5(2) of the
directive (concerning the protection of a mark in relation to dissimilar goods or services) would apply
instead. According to the understanding of the Commission, all member states have availed themselves
of the option provided by art 4(4)(a) (statement made by the Commission at the hearing in Bayerische
Motorenwerke AG v Deenik Case C-63/97 on 13 January 19984). Thus the ultimate result in all member
states (namely the prohibition, or cancellation, of the registration of a mark or prohibition of its use) would
often be the same.
4
Ed: the judgment was still pending at date of going to press. However, for the opinion of Advocate General Jacobs see
Bayerische Motorenwerke AG v Deenik Case C-63/97 (1998) ECJ Transcript (opinion) 2 April.
51.
By way of a final observation I would add that I do not consider it unjust for a trade mark owner to
benefit from protection in relation to a wider range of goods than those in relation to which the mark is
registered. It is not reasonable to require a trade mark owner to register his mark in relation to all types of
goods in relation to which use of his mark may give rise to a risk of confusion, because he may not be
using his mark in relation to such goods; indeed marks which are registered in respect of goods or
services in relation to which they are not used are liable to be struck off the register after five years on the
grounds of non-use (see arts 10 to 12 of the directive). Moreover, the criterion of confusion ensures that
when registering a mark in relation to a certain class of goods or services, the trade mark owner is not
thereby protected in relation to too broad a range of goods and services. The concept of confusion should
not be extended too far since, as I observed in my opinion in Sabel BV [1997] ECR I-6191 (paras 5051)
a broad interpretation would be contrary to the directives aim of assisting the free movement of goods.
However, where there is a genuine and properly substantiated likelihood of confusion, it is in my view not
only justifiable but necessary to protect both the consumer and the trade mark owner by disallowing the
registration of a later mark even in relation to similar goods and services in respect of which the earlier
mark is not registered.
Conclusion
52.
Accordingly the question referred by the Bundesgerichtshof should in my opinion be answered as
follows:
945
In the assessment of the similarity of goods or services covered by two marks within the
meaning of art 4(1)(b) of Council Directive (EEC) 89/104 to approximate the laws of the member
states relating to trade marks, account may be taken of the distinctive character, in particular the
reputation, of the earlier mark in deciding whether there is sufficient similarity to give rise to a
likelihood of confusion. However, there will only be a likelihood of confusion within the meaning of
that provision if it is likely that the public will be confused into thinking that there is some sort of
trade connection between the suppliers of the goods or services in question.
29 September 1998.
Costs
31.
The costs incurred by the French, Italian and UK governments and by the European Commission,
which have submitted observations to the Court of Justice, are not recoverable. Since these proceedings
are, for the parties to the main proceedings, a step in the action pending before the national court, the
decision on costs is a matter for that court.
On those grounds, the Court of Justice, in answer to the question referred to it by the
Bundesgerichtshof by order of 12 December 1996, hereby rules: On a proper construction of art 4(1)(b) of
Council Directive (EEC) 89/104 to approximate the laws of the member states relating to trade marks, the
distinctive character of the earlier trade mark, and in particular its reputation, must be taken into account
when determining whether the similarity between the goods or services covered by the two trade marks is
sufficient to give rise to the likelihood of confusion. There may be a likelihood of confusion within the
meaning of art 4(1)(b) of the directive even where the public perception is that the goods or services have
different places of production. By contrast, there can be no such likelihood where it does not appear that
the public could believe that the goods or services come from the same undertaking or, as the case may
be, from economically linked undertakings.
950
Under art 237 of Annex II to the French Code Gnral des Impts a, value added tax was not deductible
on bicycles, motorcycles, private motor cars, boats, aeroplanes and helicopters; but it was deductible on
commercial vehicles such as vans, lorries and tractors. The European Commission informed the French
government that, since it did not confer the right to deduct value added tax on vehicles used for driving
instruction, the French rule was contrary to art 17(2)b of the subsequent Council Directive (EEC) 77/388
on the harmonisation of the laws of the member states relating to turnover taxescommon system of
value added tax: uniform basis of assessment, which provided that tax was deductible in respect of goods
and services used for the purposes of a persons taxable transactions. Although the French government
amended its legislation in respect of vehicles used for driving instruction, the Commission considered that
the legislation still affected taxable persons whose work necessarily involved certain measures and forms
of transport. The French government contended that such legislation was authorised by art 17(6) c of
Directive 77/388, which provided that, until the Council had adopted specific legislation as to the types of
expenditure which were not tax deductible, member states could retain all the exclusions provided for
under national legislation which pre-dated the directive. That provision also specified that value added tax
should in no circumstances be deductible on expenditure which was not strictly business expenditure.
The Commission subsequently brought an action under art 169 of the EC Treaty for a declaration that, by
maintaining in force legislation which denied taxable persons the right to deduct value added tax on
means of transport which constituted the tool of their trade, France had failed to fulfil its obligations under
Directive 77/388. The Commission contended, inter alia, that the national exclusions authorised by art
17(6) only related to non-business expenditure.
a
Article 237, so far as material is set out at p 258 f, post
b
Article 17(2), so far as material is set out at p 957 j to p 958 a, post
c
Article 17(6), so far as material is set out at p 958 b c, post
951
Held On a proper construction of art 17(6) of Directive 77/388, the rules which the Council was called
on to adopt were not automatically limited to expenditure which was not strictly business expenditure; and
in those circumstances the expression all the exclusions clearly comprised exclusions for expenditure
which was strictly business expenditure. That provision accordingly authorised the member states to
retain national rules which denied taxable persons the right to deduct VAT on means of transport which
constituted the very tool of their trade. Furthermore, that interpretation was confirmed by the legislative
history of the directive which made it clear that the member states had been unable to agree on the
arrangements applicable specifically to expenditure on passenger transport. It followed that, by
maintaining in force the legislation at issue, the French government had not failed to fulfil it obligations
under art 17(2) of Directive 77/388. The application would therefore be dismissed (see p 959 h to p 960 e,
post).
Notes
For the right to deduct, see 52 Halsburys Laws (4th edn) para 2033.
Case cited
Lennartz v Finanzamt Mnchen III Case C-97/90 [1991] ECR I-3795.
Application
By application lodged at the registry of the Court of Justice of the European Communities on 14 February
1996, the European Commission brought an action under art 169 of the EC Treaty for a declaration that,
by maintaining in force legislation which denied taxable persons the right to deduct value added tax on
means of transport which constituted the very tool of their trade, France had failed to fulfil its obligations
under Council Directive (EEC) 77/388 on the harmonisation of the laws of the member states relating to
turnover taxescommon system of value added tax: uniform basis of assessment, and in particular art
17(2) thereof. The Commission was represented by H Michard and E Traversa, of its Legal Service,
acting as agents, with an address for service in Luxembourg at the office of C Gmez de la Cruz, also of
its Legal Service, Wagner Centre, Kirchberg. The French Republic was represented by C de Salins,
Deputy Director in the Legal Directorate, Ministry of Foreign Affairs, assisted by G Mignot, Foreign Affairs
Secretary in the same ministry, acting as agents, with an address for service in Luxembourg at the French
Embassy, 8B Boulevard Joseph II. The United Kingdom, which intervened in support of France, was
represented by S Ridley, of the Treasury Solicitors Department, acting as agent, with an address for
service in Luxembourg at the British Embassy, 14 Boulevard Roosevelt. The language of the case was
French. The facts are set out in the opinion of the Advocate General.
13 November 1997.
7.
The Commission claims that art 237 of Annex II of the CGI, as interpreted and applied by the French
tax authorities, is contrary to art 17(2) of the Sixth Directive in so far as it denies taxable persons the right
to deduct VAT on goods which constitute the very tool or object (loutil ou objet mme) of their trade. By
that term the Commission confines its application to cases where the goods in question are a necessity
to such an extent that they condition in an absolute manner the exercise of the trade itself, as distinct
from cases in which the goods contribute substantially to facilitating the exercise of the trade.
8.
By way of example of goods used as the actual tool of a taxable persons trade the Commission refers
in its application to the case of a firm which uses helicopters for aerial work other than the transport of
passengers. In its letter of formal notice of 6 September 1991 the Commission also referred to the case of
a driving school whose business depended on the use of motor cars for the purpose of giving driving
instruction. However, following an amendment to the French legislation e, permitting deduction of VAT on
motor cars used exclusively for the 953 purposes of driving instruction, the Commission no longer
pursues its complaint in that regard.
e
See art 237 septies A of the CGI, introduced by art 13 of the Law of 26 July 1991.
9.
By contrast the Commissions application does not extend to, for example, cars used by sales
representatives or by veterinary surgeons. Although considerably facilitating the exercise of a trade, such
goods cannot, according to the Commission, be regarded as tools of a trade.
10.
France and the United Kingdom, which has intervened in support of France, contend that the second
sub-paragraph of art 17(6) of the directive expressly permits the maintenance of all the French provisions,
whichas the Commission concedespredate the entry into force of the Sixth Directive. I share that
view.
11.
The Commission contends that France reads the second sub-paragraph of art 17(6) out of context. In
its view the term exclusions in the second sub-paragraph of art 17(6) is a contraction of the expression
expenditure which is not strictly business expenditure in the second sentence of the first sub-paragraph
of that provision. Expenditure on goods which are the tools of a taxable persons trade cannot be
regarded as expenditure which is not strictly business expenditure and therefore cannot be the subject of
exclusions retained under the second sub-paragraph.
12.
However, that analysis is incorrect. The first sentence of the first sub-paragraph of art 17(6) provides
for the adoption by the Council of rules specifying expenditure that shall not be eligible for a deduction of
value added tax. The second sentence of the sub-paragraph adds that VAT shall in no circumstances be
deductible on expenditure which is not strictly business expenditure, such as that on luxuries,
amusements or entertainmentf. It is apparent from the wording and structure of the sub-paragraph that
what was envisaged was the adoption by the Council of comprehensive rules on all the categories of
expenditure which were not eligible for deduction, includingbut not limited toexpenditure that was not
strictly business expenditure.
f
In the light of other language versions it would appear that the term in no circumstances should be understood as
meaning not in any event: see, for example, the Dutch (in elk geval), French (en tout tat de cause), German (auf
jeden Fall) and Italian (comunque) language versions.
13.
Under the second sub-paragraph of art 17(6) member states are permitted until the above rules come
into force to retain all the exclusions provided for under their national laws when the directive came into
force. Thus the second sub-paragraph is linked not to the second sentence of the first sub-paragraph but
to the first: member states are entitled under the second sub-paragraph to retain all the exclusions in the
areas which are to be the subject of common rules adopted by the Council under the first sentence of art
17(6).
14.
The above analysis is consistent with the legislative history of art 17(6).
In its explanatory memorandum accompanying its proposal for the Sixth Directive g the Commission
explained that:
g
See Bulletin of the European Communities, Supplement 11/73, note 5, p 18.
certain expenditure, even though incurred in the ordinary course of business, is also incurred
for private purposes, and apportionment of such expenditure between business and private
purposes could not be adequately supervised.
15.
Accordingly, art 17(6) of the proposal provided:
954
Value added tax on the following shall not be deductible: (a) expenditure on accommodation,
lodging, restaurants, food, drink, entertainment and passenger transport, unless incurred by an
undertaking whose principal or subsidiary business is the pursuit of such activities; (b) expenditure
on luxuries; (c) entertainment expenditure.
16.
Thus it is clear first that, in drafting the proposal, the Commissions concern was not merely that
certain items of expenditure incurred by taxable persons were not strictly business expenditure but also
that certain expenditure, although incurred in connection with the normal operation of the business, was
difficult to apportion between business and private use h. Secondly, it is apparent from a comparison of the
proposed and adopted texts of art 17(6) that, although, at the moment of the adoption of the Sixth
Directive, member states were in substantial agreement with regard to certain categories of expenditure,
in particular luxuries, amusements and entertainment, no agreement could be reached on the treatment
of passenger transport.
h
See also to the same effect the second recital in the preamble to the proposal for a Twelfth Council Directive on the
harmonisation of the laws of the member states relating to turnover taxes Common system of value added tax:
expenditure not eligible for deduction of value added tax (OJ 1983 C37 p 8).
17.
Further guidance as to what the Commission itself considered to be the scope of the matters upon
which a decision was deferred at the moment of the adoption of the Sixth Directive is provided by the
proposals submitted by the Commission under the first sentence of art 17(6). The Commissions proposal
of 25 January 1983 for a Twelfth Council Directive on the harmonisation of the laws of the member states
relating to turnover taxes Common system of value added tax: expenditure not eligible for deduction of
value added tax (OJ 1983 C37 p 8), in addition to laying down rules disallowing deduction of tax on
transport expenses (art 2), accommodation, food and drink (art 3), entertainment expenditure (art 4) and
amusements and luxuries (art 5), contained detailed provisions on means of transport. Article 1(1) of the
proposal provided that VAT was not to be deductible on the purchase, manufacture, importation, leasing
or hire, use, modification, repair or maintenance of passenger cars, pleasure boats, private aircraft or
motor cycles. Passenger car was defined as
any road vehicle (including any trailer) other than one which, by its design and equipment, is
intended solely for the transport of goods or is intended for industrial or agricultural use or has a
seating capacity of more than nine persons including the driver.
Article 1(2) provided exceptions for vehicles or craft which were: (a) used for carriage for hire or reward;
(b) used for driving training or instruction; (c) hired out; (d) part of the stock in trade of a business.
18.
On 20 February 1984 the Commission presented an amended proposal in which it altered the
treatment of passenger cars and motor cycles (see OJ 1984 C56 p 7). Under a new paragraph 1a,
inserted into art 1, member states were to restrict the right of deduction to a proportion of the VAT on such
goods. In addition it proposed the insertion of a new art 3a providing as follows:
A taxable person may request application of Article 17(2) of Directive 77/388/EEC in respect of
the items of expenditure listed in Articles 1, 2 and 3 955above if he can furnish proof that such
expenditure has been made exclusively for business purposes.
Member States shall maintain in force or introduce arrangements for verifying ex post facto that
such expenditure was indeed made exclusively for business purposes.
19. Thus the Commissions proposals submitted pursuant to the first sentence of art 17(6) (now
withdrawn following continued disagreement in the Council) sought the adoption of common rules on the
restrictions to be imposed on input tax deductions on means of transport in general and on the scope of
the exceptions to be made for certain types of business such as driving schools or car-hire firms or, more
generally, for taxable persons able to show exclusive business use. In other words, they were directed
precisely at the matters which are the subject of the present case.
20.
During the proceedings the Commission has stressed the severe disruption to the VAT system caused
by rules disallowing deduction of tax on passenger vehicles and craft. It argues that France has not
shown why motor cars and other craft are singled out for special treatment and contends that the French
rules are disproportionate to the aim of preventing tax evasion. Private use of such goods could be dealt
with in the normal way, that is to say, either by means of an adjustment of a taxable persons input tax
deduction under arts 17 and 19 or by means of an output tax charge under arts 5(6) and 6(2).
21.
I do not think it is necessary for France in these proceedings to explain the merits of its rules. As I
have explained, it is clear from the text and legislative history of art 17(6), and from the proposals
submitted by the Commission pursuant to the first sentence of that provision, that as yet there are no
common rules on deduction of VAT on passenger vehicles and craft and that, pending the adoption of
such rules, member states are entitled to retain all the exclusions in that area which they applied at the
moment when the Sixth Directive came into force. Article 17(6) does not, as the Commission seems to
suggest, merely confer on member states the power to retain anti-evasion measures whose legality falls
to be tested judicially against the principle of proportionality.
22.
I do not in any event find it altogether surprising that some member states consider that passenger
vehicles and craft merit special treatment. As the Commission itself suggested in the explanatory
memorandum to its proposal for a Sixth Directive, the private use of such goods is particularly difficult to
monitor; moreover, in the case of luxury vehicles the final consumption and business elements may be
indistinguishable. In addition the extremely high value of such goods provides considerable incentive for
undeclared private use. For similar reasons some member states also restrict the deductibility of
expenditure on motor vehicles for the purposes of income and corporation taxes (see eg as regards
France: Fiscal 1996 pp 162163, 309; and, as regards the United Kingdom: Butterworths UK Tax Guide
(199596) pp 479480).
23.
That is not to say that the Councils failure to reach agreement is not regrettable. As the Commission
explained with commendable clarity at the hearing, rules preventing taxable persons from deducting VAT
on such important categories of expenditure severely disrupt the functioning and neutrality of the VAT
system. I doubt moreover whether the risk of tax evasion can justify total exclusion of such goods from
the deduction mechanism.
24.
It is however equally clear that the problem calls for a legislative solution. That point is amply
demonstrated by the weaknesses of the criterion suggested 956 by the Commission in these
proceedings. The mere fact that a passenger vehicle or craft constitutes a tool of the trade does not
remove the possibility of tax evasion or non-taxation of final consumption. Conversely, a vehicle or craft
which is not a tool of the trade may nevertheless be essential for the running of a business, as is shown
by the examples which the Commission itself gives as cases outside the scope of its challenge, namely
motor vehicles used by travelling sales representatives or veterinary surgeons in rural areas. The
perhaps necessarilysimplistic criterion proposed to the Court of Justice of the European Communities
by the Commission in these proceedings may be contrasted with the rather more sophisticated set of
rules which it put forward in its proposal for a Twelfth Directive. It is in any event clear that, as France and
the United Kingdom point out, the criterion proposed here has no basis in the Sixth Directive.
25.
Contrary to the Commissions assertion, I do not think the comments which I made in my opinion in
Lennartz v Finanzamt Mnchen III Case C-97/90 [1991] ECR I-3795 (paras 7879) of are of assistance to
it. As the United Kingdom points out, in that opinion I merely suggested that art 17(6) did not authorise a
general exclusion such as a rule treating goods as being used wholly for private purposes where the
element of business use was very small. Drawing support from the proposal for a Sixth Directive and the
proposal for a Twelfth Directive I concluded that the measures falling within the contemplation of the last
sentence of art 17(6) were those concerning specific categories of goods, such as motor vehicles, whose
use for business purposes was difficult to verify. The French rules in issue here clearly fall within that
category.
Conclusion
26.
Accordingly, I am of the opinion that the court should: (1) dismiss the Commissions application; (2)
order the Commission to pay the costs.
18 June 1998.
The application
13.
In support of its application, the Commission claims that the exclusion, provided for by art 237 of
Annex II to the CGI, of the right to deduct VAT on goods which constitute the very tool or object of a
taxable persons trade is contrary to art 17(2) of the Sixth Directive.
14.
Admittedly, the second sub-paragraph of art 17(6) of the directive expressly authorises member states
to retain provisions excluding the right to deduct which, like art 237 of Annex II to the CGI, predate the
entry into force of the Sixth Directive.
15.
According to the Commission, however, the exclusion of the right to deduct provided for by art 17(6) of
the Sixth Directive relates only to expenditure which is not strictly business expenditure. Thus, the only
expenditure liable to be excluded from the right to deduct is that incurred by a taxable person on goods
and services which are not absolutely essential for the operation of his business. That possibility is
designed to prevent a taxable person from being able to obtain for his own final use goods and services
which have not been taxed.
16.
That interpretation cannot be accepted, as it is not consistent with the wording of art 17(6) of the Sixth
Directive.
17.
The first sub-paragraph of art 17(6) of the Sixth Directive provides that the Council is to decide what
expenditure is not eligible for a deduction of VAT. The next sentence states that value added tax shall in
no circumstances be deductible on expenditure which is not strictly business expenditure. It follows, in
particular, from that second sentence that the rules which the Council is called upon to adopt are not
automatically limited to expenditure which is not strictly business expenditure.
18.
In those circumstances, the expression all the exclusions, used in the second sub-paragraph of art
17(6), clearly comprises expenditure which is strictly business expenditure. That provision accordingly
authorises the member states to retain national rules which deny taxable persons the right to deduct VAT
on means of transport which constitute the very tool of their trade.
19.
As the Advocate General has pointed out in paras 14 to 16 of his opinion, that interpretation is
confirmed by the origin of art 17(6) of the Sixth Directive. In the first place, in the explanatory
memorandum accompanying its proposal for the Sixth Directive (see Bulletin of the European
Communities Supplement 11/73 p 1), the Commission stated that certain expenditure, even though
incurred in 959 the ordinary course of the undertakings business, would be difficult to apportion between
business use and private use. Secondly, it is clear from a comparison of the wording of art 17(6) proposed
by the Commission and that adopted by the Council that, when the Sixth Directive was adopted, the
member states were unable to agree on the arrangements applicable specifically to expenditure on
passenger transport.
20.
In the light of those considerations, it is apparent that, by maintaining in force legislation which denies
taxable persons the right to deduct VAT on means of transport which constitute the very tool of their trade,
the French Republic has not failed to fulfil its obligations under the Sixth Directive, and in particular art
17(2) thereof. The application for a declaration that it has failed to fulfil its obligations must therefore be
dismissed as unfounded.
Costs
21.
Under art 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs.
Since the Commission has been unsuccessful, it must be ordered to pay the costs. Under art 69(4) of the
Rules of Procedure, member states and institutions which intervene in the proceedings are to bear their
own costs.
On those grounds, the Court of Justice (Sixth Chamber) hereby: (1) Dismisses the application; (2)
Order the European Commission to pay the costs; (3) Orders the United Kingdom to bear its own
costs.
960