GDL EU Law Study Notes 2017

The Law of the European
Union
2017 – 2018
Authors
Karl Sharp
Dr Camille Pommel
The European Union Law Team at BPP
© BPP Law Courses Ltd 2017 – this manual is for the private use of students
at BPP Law School only.
Seventh edition July 2017
Published ISBN 9781509714858
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Contents
1 The Treaties and the Historical Development of the EU 1
2 Sources of EU Law 11
3 Constitutional Principles and the Institutions 17
4 EU Law and National Law: Supremacy, Direct Effect,

Indirect Effect and State Liability 35
5 Free Movement of Goods I: Articles 28–30 and 110 TFEU 61
6 Free Movement of Goods II: Articles 34–36 TFEU 75
7 Free Movement of Persons: Articles 20 and 45 TFEU 97
8 Freedom of Establishment: Articles 49–55 TFEU 127
9 Freedom to Provide Services: Articles 56–62 TFEU 147
10 Competition Law I: Article 101 TFEU 165
11 Competition Law II: Article 102 TFEU 187
Appendix 1: Fundamental Rights and Other General Principles of EU Law 205
Appendix 2: Administrative Law of the EU 221

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1
The Treaties and the
Historical Development
of the EU
1
The Law of the European Union
1.1 The dawn of a new Europe – a brief history of European

initiatives after the Second World War
‘To substitute for age-old rivalries the merging of their essential interests; to
create … the basis for a broader and deeper community among peoples
long divided by bloody conflicts.’
Preamble to the European Coal and Steel Community Treaty, 1951
In the aftermath of the Second World War, a plethora of European organisations
sought to bring about a new age of European politics. By far the most significant of
these initiatives was the establishment of the communities which would become
European Union. It is the law of the European Union which is the subject matter of
these Study Notes. However, there have been and still are other European
organisations and other forms of pan-European law originating from different initiatives,
most significantly the European Convention on Human Rights. These should not be
confused with the European Union and EU law. Nevertheless, this chapter will begin by
providing a brief account of some of these other initiatives in order to situate the birth of
the communities that would become the European Union within its wider geo-political
context before moving on in the next section to discuss the establishment and
development of the communities which became the European Union.
Whatever hopes there had been in the past for a peacefully united Europe, it was not
until after the Second World War that it became a real possibility. The war had
devastating consequences for all of Europe and for many, cooperation was seen as the
only way forward not just to rebuild Europe’s physical and political infrastructure but
also to provide a stable future free of the conflicts of the past. Nor was it just European
nations that felt the need to invest in that future: the United States had an important
stake in a strong and peaceful Europe, not least to provide a bulwark against the
perceived threat of Communism and a powerful and expanding Soviet Union. On 12
March 1947, President Truman, in a speech to Congress to obtain funds to support
Greece and Turkey, said:
‘It must be the policy of the United States to support people who are
resisting attempted subjugation by armed minorities or by outside
pressure.’
It was logical to follow this Truman Doctrine by extending the loans to the whole of
Western Europe and with the added benefit of providing a market for the booming US
economy. Consequently, in a speech to Harvard University in 1947, George Marshall,
Secretary of State, introduced the European Recovery Programme, aiming ‘to achieve
a common programme of recovery … and to set up a permanent organisation to this
end’. The significance of this Marshall Plan was that it required European states to
cooperate together to distribute the wealth and, even more importantly, to progressively
remove trade barriers between themselves.
The former USSR and its satellites were excluded from the Marshall Plan but both
Britain and France invited the rest of Europe to help draw up a programme of
development under the aegis of the Committee on European Economic Cooperation.
This reported to Washington and from this developed the Convention on European
Economic Cooperation, established on the 16 April 1948, to organise the relief.
This period saw a flowering of pan-European organisations. In a New Year’s speech of
1948, Ernest Bevin, the British foreign secretary, put forward ideas for the consolidation
of Western Europe in the face of the worsening situation in the Aegean. His proposal
was that Britain, France and the Benelux countries would form the basis of a western
2
The Treaties and the Historical Development of the EU
European cooperative network. It had little time for what were described as ‘ambitious
schemes of European unity’ but it did lead on to the Brussels Treaty being signed in
March 1948 between these states. Whilst being a traditional defensive alliance, it did
create a consultative council comprising the five foreign ministries which could be
called together at the request of any of the members. The same states created the
Western European Union in 1955 for both collective defence and economic and social
cooperation generally. Western Germany and Italy likewise joined. This union lost its
importance, at least temporarily, as a result of the establishment of NATO while its
economic and social responsibilities were transferred to the Council of Europe. It
played little part in any major developments until an important EU Treaty, the
Maastricht Treaty, revitalised it as Europe’s common defence policy in 1992.
As a background to these official Governmental moves, pressure groups and public
opinion voiced a more radical concept of European unity. For example, the United
Europe Committee argued for a ‘democratic federation of Europe’ with a Constituent
Assembly. Winston Churchill, speaking at Zurich University in September 1946,
referred to the ‘United States of Europe’, although significantly he saw only a
supporting role for the UK because of its extant global influence. He chaired a
Congress of Europe in 1948 at The Hague which comprised non-Governmental
federalists and called for a united Europe with a European Assembly and a Court of
Human Rights. It was from this conference and as a result of this climate of opinion that
the Statute of the Council of Europe was signed on 5 May 1949 in London and entered
into force on 3 August 1949.
This Council of Europe, which has its headquarters in Strasbourg in France, comprised
a membership of democratic governments able to guarantee human rights and grew
from its original 10 members to today’s 47 members. Its objective has been to
encourage European unity, to protect human rights and to develop a European cultural
identity. It is the Council of Europe that created the European Convention of Human
Rights (ECHR) which was adopted on 4 November 1950 and entered into force in
1953. The Convention also provided for the European Court of Human Rights (ECtHR).
The Council of Europe has gone on to create further conventions, the most significant
being perhaps the European Social Charter of 1961.
Note that the Council of Europe has no part in the European Union. It is very important
that the Council of Europe, the ECHR and the ECtHR are not confused with the
European Union, the treaties which established the EU and the Court of Justice which
is the central court of the European Union. The Council of Europe is a completely
separate organisation from the EU, the ECHR is a completely separate treaty from the
treaties which establish the EU and the ECtHR is a completely separate court from the
Court of Justice.
There were other attempts to bring states closer together through economic measures.
The Benelux nations (Netherlands, Belgium and Luxembourg) signed a customs
convention to remove internal trade barriers on 5 September 1944 which entered into
force 1948 and resulted in trade barriers between the states being removed by 1956.
The success of this resulted in the Treaty of the Benelux Economic Union which was
signed on 3 February 1958 and became operative on 1 November 1960. This created
one effective economy between these countries with freedom of movement of goods,
labour, capital and services. This economic union also had a committee of ministers
and its own court. By 1980, all border controls had been eliminated between these
states resulting in a 50% trade increase.
3
1.2 The founding treaties and the European Communities

The organisation which is now the European Union (EU) owes its origins to the
establishment of three European Communities in the 1950s.
1.2.1 The European Coal and Steel Community

The first European Community to be established was the European Coal and Steel
Community. This can be traced back to the Schuman Plan which had been conceived
by Jean Monnet, a French economist and statesman, and was proposed in 1951 by
Robert Schuman, the French foreign minister at the time, in the so-called Schuman
declaration. The Schuman Plan envisaged the merging of production of what, at that
time, were the two wartime necessities, coal and steel, to ensure these could not be
used to promote war. With this in mind, it proposed that the control of these sections of
the economy was given over to an independent international authority, the High
Authority, comprising individuals who were not government representatives but who
were given the power to fix prices and ensure compliance with competition rules. The
Schuman experiment in economic cooperation involved the removal of these vital
wartime industries from the control of the national governments in the hope of providing
a sounder foundation for peace and stability in Europe.
While the original plan only envisaged France and West Germany acceding to this
Treaty, Schuman invited the rest of Western Europe to join. In the resulting conference
in 1950, France, West Germany, Italy and the Benelux nations produced the draft
treaty which was to create the European Coal and Steel Community (ECSC). The
Treaty establishing the ECSC was signed in Paris on 18 April 1951 and came into force
on 25 July 1952. The Treaty of Paris was the first Treaty in the process that has led to
what is now the EU.
To achieve its objectives, the ECSC Treaty established a number of institutions
proposed in the Schuman Plan. Alongside a High Authority was a Council of Ministers
which represented the Member States, an Assembly and a Court of Justice to review
the legality of the Acts of the High Authority. Through this structure, the ECSC
exercised a degree of independence from the Member States that formed it. This was
unique in terms of an organisation created by international agreement. That
independence was gained through a transfer of sovereignty from the Member States to
the institutions of the ECSC.
By 1954, all trade barriers in coal and steel had been removed, trade had expanded
and the High Authority had established a common pricing policy and production limits
rationalising production. The ECSC continued in existence for a period of 50 years and
expired in July 2002.
1.2.2 The European Economic Community and Euratom

The next development occurred in 1957 when the same six states signed the Treaty
establishing the European Economic Community (EEC). This is also referred to as the
Treaty of Rome after the city in which it was signed. The Treaty establishing the
European Atomic Energy Community (Euratom) was also signed at this time. Each of
these new communities was provided, like the ECSC, with an independent institutional
structure to which a degree of sovereign power was ceded by the Member States with
the Assembly and the Court of Justice being institutions common to all three. Both
Treaties entered into force in 1958.
Each of these three communities were designed to address a key aspect of the
European economy. ECSC and Euratom involved cooperation in important but specific
4
industries: the coal and steel industry and the atomic energy industry, respectively. The
EEC had a much more far-reaching focus. This was to integrate the economies of its
six Member States, first through becoming a customs union and later a common
market.
1.3 The Merger Treaty and the Single European Act

There were two principle reform treaties in the years before the establishment of the
European Union itself. The first was the Merger Treaty which was signed in Brussels in
1965 and came into force in 1967. At the time, the three European Communities
shared a common representative assembly and a single Court of Justice. However,
each community had its own Commission and its own Council of Ministers. The Merger
Treaty provided for a single Commission and a single Council of Ministers to be shared
by all three communities.
The second treaty was the Single European Act (SEA) which was signed in
Luxembourg and The Hague. This made much more extensive changes to the existing
Treaties than the Merger Treaty. It increased the areas of competence of the EEC,
provided for democratic and institutional changes to enhance the accountability and
efficiency of the communities and laid the foundation for the completion of the internal
market. The Assembly was officially renamed the European Parliament. A Court of
First Instance (subsequently renamed the General Court by the Lisbon Treaty) was
also established to supplement and relieve the workload of the Court of Justice. The
Single European Act was signed in 1986 and came into force the following year.
1.4 The European Union

The European Union (EU) was established in 1993 through the Treaty on European
Union (TEU), also known as the Maastricht Treaty, which was signed the previous
year. The EEC was renamed the European Community (EC) by this treaty. The EU
overlaid all three European communities.
The TEU also sought to broaden the scope of intergovernmental cooperation beyond
the primarily economic. That broadening was structured through the three ‘pillars’ of the
EU established by the treaty:
 Pillar I was constituted by the EC, Euratom and, originally, the ECSC.
 Pillar II provided a framework for inter-governmental cooperation between
Member States on foreign and security policy.
 Pillar III provided a framework for inter-governmental cooperation between
Member States in specified areas concerning justice and home affairs.
These three pillars constituted the EU until the Lisbon Treaty replaced it with a single
unified structure.
The TEU also provided for two other important reforms. First, it provided for monetary
union between Member States by the introduction of the euro as the currency in most
of them along with the establishment of a European Central Bank. The treaty provided
for the United Kingdom and Denmark to opt-out of the euro and retain their respective
currencies. Second, the Maastricht Treaty introduced a Protocol on Social Policy which
dealt with workers’ rights and other social issues. This was commonly known as the
social chapter. The United Kingdom also negotiated an opt-out from this protocol.
5
1.5 Post-Maastricht developments

In 1997, the Treaty of Amsterdam was signed. This sought to improve decision-making
processes and to make the existing treaty structure more comprehensible. The most
obvious aspect of this process was the complete renumbering of the EC Treaty and
TEU. These numbers have themselves subsequently been renumbered again as a
result of the Treaty of Lisbon. The Treaty of Amsterdam also reorganised Pillar III,
transferring substantial parts of it to Pillar I and recasting it as being concerned with
police and judicial cooperation in criminal matters. Finally, by signing the treaty, the
new Labour Government in the United Kingdom also ended the United Kingdom’s opt-
out from the social chapter.
The Treaty of Nice was signed in 2001. Entering into force in 2003, the focus of the
Treaty of Nice was on preparing the ground for the substantial enlargement of the EU
through the accession of more than ten new Member States, primarily from Eastern
and Central Europe, which went ahead in May 2004.
Later in 2001, the European Council, which consists of the heads of government of the
Member States, issued a declaration at its meeting in Laeken in Belgium which stated
that the EU needed to become more democratic, more transparent and more efficient.
It expressed the need for a better and more transparent division of competences
between the EU and the Member States; greater democratic legitimacy and
transparency of the EU’s institutions; improved efficiency in the decision-making and
workings of those institutions; the simplification and reorganisation of the Treaties,
albeit without changing their content; and the simplification of the EU’s other legal
instruments. Moreover, it raised the possibility that this may lead in the long run to the
adoption of a constitutional text in the EU. The declaration finished by announcing a
decision to convene a Convention to consider the key issues arising for the EU’s future
development and to identify various possible responses.
The Convention on the Future of Europe was established under the chairmanship of
Valéry Giscard d'Estaing, the former president of France. It consisted of
representatives from the national parliaments, national governments, the European
Parliament and the European Commission. From the outset, it abandoned the idea that
it was just to identify possible responses to key issues and, instead, it set about
seeking to achieve an agreement on a Constitution for the EU. The result was a draft
Treaty Establishing a Constitution for Europe which was designed to replace the
existing treaties. It was presented to the European Council in July 2003 and which, with
some amendments, was signed by the Member States in October 2004. However, its
ratification process was never completed. The Constitutional treaty was rejected in
referenda in France and the Netherlands and was abandoned.
Nevertheless, the governments of the Member States agreed that there was still a
pressing need for reform. The result was the Treaty of Lisbon. This was signed by the
Member States in 13 December 2007 and entered into force on 1 December 2009. In
contrast to the Constitutional Treaty, the Lisbon Treaty did not replace the existing
Treaties. Instead, with the ECSC Treaty having already expired in 2002, the Lisbon
Treaty retained the Euroatom Treaty and the TEU whilst the EC Treaty was renamed
the Treaty on the Functioning of the European Union (TFEU). But it retained a
substantial number of the proposed reforms from the Constitutional Treaty. It gave the
Charter of Fundamental Rights, which had been drawn up in 2000, the same legal
status as the Treaties. It merged the three pillars of the EU into a single structure and
abolished the EC as a separate entity. It also consolidated, clarified and simplified the
distribution of competences between the Member States and EU.
6
Reforms were also made to the institutional framework and decision-making

processes. For example, the European Council was brought within the treaty as a full
institution with its own permanent president. The Treaty also provided for the
Commission to be reduced by a third and for a permanent position of High
Representative of the Union for Foreign Affairs and Security Policy within the
Commission to be created. Other changes included the reform of the system of
qualified majority voting in the Council of the European Union and the extension of this
voting system to all decisions of the Council except where the Treaties provide
otherwise. Membership of the European Parliament was limited to 750 and the number
of different legislative procedures that existed beforehand was reduced down to one
main ordinary legislative procedure. Provision was also made for the influence of
national parliaments in the making of EU legislation to be increased. In more
controversial areas, such as defence, increased cooperation is encouraged but the
processes of cooperation remain fundamentally in the hands of the Member States.
1.6 The accession treaties and changes in membership

The accession treaties are the treaties through which new Member States join the
European Communities and now the European Union.
Since the three original communities were formed by France, West Germany, Italy, the
Netherlands, Belgium and Luxembourg in the 1950s, the following countries have also
joined:
 The United Kingdom, Ireland and Denmark in 1973;
 Greece in 1981;
 Spain and Portugal in 1986;
 Austria, Sweden and Finland in 1995;
 The Czech Republic, Slovakia, Slovenia, Poland, Lithuania, Latvia, Estonia,
Hungary, Cyprus and Malta in 2004;
 Bulgaria and Romania in January 2007;
 Croatia in July 2013.
The EU is now comprised of 28 Member States.
Under the accession process, a candidate country will be required to develop its
economic, judicial and political system into one which can be integrated with those of
the existing Member States, a process which will continue after accession. It will
normally need to be in a position upon accession to adopt the acquis communautaire,
the body of general obligations under EU law which each individual Member State must
accept, unless arrangements for a transition period are made.
There was one other territorial expansion which did not need an accession treaty. This
was the reunification of East Germany with West Germany in 1990. One consequence
of this was that the eastern part of Germany became part of the European
Communities.
However, some territories have chosen instead to withdraw from the European
Communities. The first territory withdrew in 1962. This comprised the coastal regions of
Algeria. While most of Algeria had been a French colony, the coastal regions had been
part of France itself. This meant that the coastal regions had also been part of the
European Communities as a result. They withdrew from the European Communities
when Algeria gained independence from France.
7
The other principal territory to withdraw was Greenland. Greenland is part of Denmark
and, as such, joined the European Communities with Denmark in 1973. In 1982, a
couple of years after Greenland had been granted a significant degree of autonomy
from Denmark, the people of Greenland chose not to be part of the European
Communities in a referendum. Greenland withdraw in 1985 after a treaty had been
negotiated with the remaining Member States.
1.7 Brexit
United Kingdom’s relationship with the European Communities and then with the
European Union has not always been easy. Throughout its membership, there has
been a significant body of opinion amongst politicians, the media and the wider public
which has been sceptical or even hostile. The first referendum on whether or not to
stay a member was held in 1975, only two years after the United Kingdom joined. One
of the reasons why this had been held was because the Labour Party, which was in
Government at the time, was deeply divided over the issue. Opinion polls also
indicated that the wider public were divided. However, in the end, 67% of the votes cast
by the electorate supported remaining a member.
By the 21st century, it was the Conservative Party which was deeply divided over the
membership of the European Union. In 2013, the Conservative Prime Minister, David
Cameron, promised that if the Conservative party won the next election, he would
renegotiate terms of the United Kingdom’s membership and that the renegotiation
would be followed by a referendum on continuing membership of the European Union.
The Conservatives were victorious at the general election in 2015 and, in accordance
with his commitment, David Cameron entered into negotiations with the European
Union which were aimed at agreeing certain reforms. However, the concessions he
secured were fairly limited. A referendum was subsequently held on the 23rd June
2016. The referendum question asked whether the United Kingdom should remain a
member of the European Union or should leave the European Union. The majority of
the votes cast by the electorate (52%) were in favour of leaving the European Union.
By that time, a new word had become widely used to describe the phenomenon of the
United Kingdom withdrawing from the European Union. That word is ‘Brexit’.
The referendum is not legally binding and it does not change the status of the United
Kingdom within the European Union. The United Kingdom continues to remain a
member. However, the referendum result imposes a political requirement to withdraw.
The process of withdrawal is governed by Article 50 of the Treaty on European Union.
Under that article, the withdrawal process is initiated by the United Kingdom formally
notifying the European Council of its intention to withdraw (Article 50(2)). (The
European Council is discussed in section 3.2.3 of chapter 3 of these Study Notes.) The
United Kingdom is then required to negotiate an agreement with the European Union
on the arrangements for its withdrawal (Article 50(2)). The parties have two years in
which to reach agreement otherwise the United Kingdom automatically ceases to be a
member (Article 50(3)). However, the European Council and the United Kingdom can
agree to extend the deadline (Article 50(3)). It is important to note that Article 50 only
deals with the process of withdrawal. It says nothing about the future relationship
between the European Union and any Member State which has withdrawn. That may
require the negotiation of another treaty between these parties to resolve that issue.
8
The United Kingdom formally notified the European Council on 29 March 2017 of its
intention to withdraw from the European Union. It has thereby initiated the process of
withdrawal under article 50 of the Treaty on European Union.
9
10
2
Sources of EU Law
11
2.1 The primary sources of EU law

2.1.1 The Treaties and the amendments thereto
The primary sources of EU law are the various Treaties and the amendments thereto,
including the accession Treaties, as described in the previous chapter.
2.1.2 Citation and renumbering of Treaty articles

As has been seen, the EU occasionally renumbers its Treaty articles when a new
Treaty enters into force. It is common practice, with some minor variations, to number
Treaty articles by first listing the new article number and then, in brackets, the
equivalent number which the article bore before the most recent changes were made.
Example: Article 12 TFEU (ex Article 6 EC)
This has been a formal convention since the Treaty of Amsterdam. However, for the
sake of simplicity, these Study Notes generally refer only to the new article number.
2.1.3 Third country Treaties

Treaties or other agreements between the Union and third parties are also primary
sources of EU law. An example of such an agreement would be the Lomé Conventions
which are trade agreements between the EU and certain countries which are not
members of the Union.
2.2 Secondary sources of EU law and other acts of the EU

Article 288 TFEU provides that:
‘To exercise the Union’s competences, the institutions shall adopt
regulations, directives, decisions, recommendations and opinions.
A regulation shall have general application. It shall be binding in its entirety
and directly applicable in all Member States.
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.
A decision shall be binding in its entirety. A decision which specifies those
to whom it is addressed shall be binding only on them.
Recommendations and opinions shall have no binding force.’
2.2.1 Regulations
Regulations are the first form of binding EU legislation provided for by Article 288
TFEU. It is important to remember the following:
 Regulations are of general application in the sense that they apply to persons
who fall within general and abstract categories (Koninklijke Scholten Honig NV v
Council and Commission (Case 101/76) [1977] ECR 797). In this way,
regulations can be contrasted with directives and decisions which bind only
specific addressees.
 Regulations take immediate effect without requiring any further implementation
by a Member State. This means that they are ‘directly applicable’ in that they
automatically become law within the Member States.
12
Sources of EU Law
 Regulations set out the general rules that are used to create uniformity in law
between the various Member States.
2.2.2 Citation of Regulations

All regulations are published in the Official Journal of the European Union (L series),
the Legislation Edition of the Official Journal.
A number and its year of adoption identify each regulation.
Citation is by reference first to the regulation’s number and then its year of adoption.
Example: Regulation 1/2003
Regulations are often also referred to by reference to their subject matter. For example,
Regulation 1/2003 deals with the rules on competition as laid down in Articles 101 and
102 of the TFEU.
The full citation for this Regulation is as follows: Regulation 1/2003 [2003] OJ L1/1,
which means Regulation number 1 of 2003 as published in the Legislation Edition of
the Official Journal, issue number 1 at page 1.
2.2.3 Directives
Directives are the second form of binding EU legislation provided for by Article 288
TFEU. It is important to remember the following:
 Directives are addressed to Member States. They will normally be addressed to
all Member States but they can be addressed only to specific Member States.
 Unlike regulations, directives are not directly applicable. They do not
automatically become law within the Member States to which they are addressed.
They have to be implemented instead.
 Directives set out objectives which Member States must seek to achieve but
leave them the freedom to decide how these objectives will be implemented or
achieved. Thus, a single directive may be implemented in a diversity of ways
across the Member States. In contrast to regulations, at least in theory, directives
are not designed to produce uniformity. However, in practice, directives tend to
consist of detailed rules which leave limited room for manoeuvre and which are
comparable with those found in regulations.
 If a Member State considers that its legal order is already compliant with the
objectives set out by a directive, it need not enact any further measures to
implement it. It need only notify the EU Commission.
 Specific deadlines for implementation are generally specified within directives.
These are typically about two years.
2.2.3.1 Citation of Directives
Since the TEU, all directives are published in the Official Journal of the European
Union (L series).
Like regulations, a number and its year of adoption identify each directive.
However, in terms of citation, directives are distinguished from regulations by referring
first to the directive’s year of adoption and then its number.
13
Example: Directive 2004/38

Directives tend also to be called after their subject matter. For example, Directive
2004/38 is also called the Citizenship Directive, as it concerns the right to freedom of
movement of Union Citizens and their families.
The full citation for this Directive is as follows: Directive 2004/38 [2004] OJ L 158/77,
which means Directive number 38 of 2004 as published in the Legislation Edition of the
Official Journal, issue number 158 at page 77.
2.2.4 Decisions
Decisions are the third form of legal act provided for by Article 288. It is important to
remember the following:
 Decisions are binding on their addressees only.
 Decisions may be addressed to Member States collectively or singularly, or to
individuals or to undertakings.
2.2.4.1 Citation of Decisions
Decisions are also published in the Official Journal European Union (L series). Like
directives, citation is by reference first to the decision’s year of adoption and then its
number.
Example: Decision 87/500
Decisions are called after the names of the parties to the decision where appropriate or
sometimes by their subject matter. For example, decision 87/500 is referred to as the
BBI/Boosey & Hawkes decision.
The full citation for this Decision is as follows: Decision 87/500 [1987] OJ L286/36,
which means Decision number 500 of 1987 as published in the Legislation Edition of
the Official Journal, issue number 286 at page 36.
2.2.5 Recommendations and opinions

Recommendations and opinions have no binding force. For this reason, they are often
referred to as ‘soft law’.
2.3 Cases
Decisions of the Court of Justice and the General Court are also an important source of
law.
Cases are given a number and are cited by reference to that number and the year in
which the case first went before the Court of Justice or the General Court. In these
Study Notes, the number/year reference usually comes immediately after the name of
the case and before citation of the relevant report.
Example: Costa v E.N.E.L. (Case 6/64) [1964] ECR 585
Since 1988, reference is also included to the court before which the case was heard.
The letter C, standing for ‘Court’, which is the French term for a higher court, identifies
cases that have gone before the Court of Justice. The letter T, standing for ‘Tribunal’,
which is the French term for a lower court, identifies cases that have gone before the
CFI. The identifying letter ‘C’ or ‘T’ comes immediately before the case number/year
reference.
14
Sources of EU Law
Example: UK v Council (Case C-84/94) [1996] ECR I-5755

Irish Sugar plc v Commission (Case T-228/97) [1999] ECR II-2969
Many cases in EU law are difficult to identify solely from their names because they
simply involve a state party and an institution of the Community. UK v Council, referred
to above, is one example, and there are many others. Important cases like this are
often given a unique name reflecting the subject matter of the case. UK v Council is
referred to as the Working Time Directive case because it concerned a request from
the UK to annul the Working Time Directive. Other cases have very long titles and are
generally referred to by a shortened version of their name. For example, NV Algemene
Transport – en Expeditie Onderneming van Gend en Loos v Nederlandse Administratie
der Belastingen (Case 26/62) [1963] ECR 1, considered o be one of the most important
cases in EU law, is usually referred to simply as Van Gend en Loos.
15
16
3
Constitutional Principles
and the Institutions
17
Introduction
This chapter begins by providing an overview of some basic constitutional principles. It
sets out the declared values and objectives of the EU. It then examines principles
governing the competences of the EU. The rest of the chapter is devoted to discussing
the various institutions of the EU.
3.1 Constitutional Principles

3.1.1 Objectives and values of the EU
A declaration of the underlying values of the EU is provided by Article 2 TEU:
‘The Union is founded on the values of respect for human dignity, freedom,
democracy, equality, the rule of law and respect for human rights, including
the rights of persons belonging to minorities. These values are common to
the Member States in a society in which pluralism, non-discrimination,
tolerance, justice, solidarity and equality between women and men prevail.’
The objectives of the EU are outlined in Article 3 TEU. They are:
 To promote peace, its values and the well-being of its peoples.
 To offer its citizens an area of freedom, security and justice without internal
frontiers.
 To establish an internal market.
 To establish an economic and monetary union whose currency is the euro. Note
that the United Kingdom and several other Member States have not adopted the
euro as their currency.
 In its relations with the wider world, to uphold and promote its values and
interests and contribute to the protection of its citizens.
 To pursue its objectives by appropriate means commensurate with the
competences which are conferred upon it in the Treaties.
3.1.2 Competences
In pursuing its objectives, the EU can only act within the competences it has been
allocated. This is made clear in Article 5(2) TEU which provides that:
‘Under the principle of conferral, the Union shall act only within the limits of
the competences conferred upon it by the Member States in the Treaties to
attain the objectives set out therein. Competences not conferred upon the
Union in the Treaties remain with the Member States.’
There are three types of competence provided for in the TEU which are defined in
Article 2 TFEU:
1. When the Treaties confer on the Union exclusive competence in a
specific area, only the Union may legislate and adopt legally binding acts,
the Member States being able to do so themselves only if so empowered
by the Union or for the implementation of Union acts.
2. When the Treaties confer on the Union a competence shared with the
Member States in a specific area, the Union and the Member States may
legislate and adopt legally binding acts in that area. The Member States
shall exercise their competence to the extent that the Union has not
18
Constitutional Principles and the Institutions
exercised its competence. The Member States shall again exercise their
competence to the extent that the Union has decided to cease exercising
its competence.
[…]
5. In certain areas and under the conditions laid down in the Treaties, the
Union shall have competence to carry out actions to support, coordinate or
supplement the actions of the Member States, without thereby superseding
their competence in these areas.
Legally binding acts of the Union adopted on the basis of the provisions of
the Treaties relating to these areas shall not entail harmonisation of
Member States’ laws or regulations.
Whether a competence is exclusive, shared or involves support depends upon the area
it relates to. These are set out in Figure 3.1 later in this chapter. It is important to
emphasise here that even if the EU intends to act within one of its allocated
competences, it can still only do so in accordance with the specific powers it has been
granted by the treaties. It has no legal authority to act, even within one of its allocated
competences, where it has not been provided with a power to do so by one of the
Treaty provisions.
The exercise of the EU’s competences is governed by the principle of subsidiarity
(Article 5(1) TEU). This principle was first introduced by the Maastricht Treaty and is
now defined by Article 5(3) TEU:
‘Under the principle of subsidiarity, in areas which do not fall within its
exclusive competence, the Union shall act only if and in so far as the
objectives of the proposed action cannot be sufficiently achieved by the
Member States, either at central level or at regional and local level, but can
rather, by reason of the scale or effects of the proposed action, be better
achieved at Union level.
The institutions of the Union shall apply the principle of subsidiarity as laid
down in the Protocol on the application of the principles of subsidiarity and
proportionality. National Parliaments ensure compliance with the principle
of subsidiarity in accordance with the procedure set out in that Protocol.’
The first thing to note about Article 5(3) TEU is that subsidiarity is irrelevant in the very
few areas in which the EU has exclusive competence. In most areas, the EU either
shares its competences with the Member States or its competence extends only to
supporting, coordinating or supplementing the actions of the Member States. The
principle of subsidiarity governs these areas. In essence, subsidiarity requires that the
EU should only act where its Member States could not achieve similar objectives as
effectively, such as, for example, where the EU is better placed to achieve objectives
because it enjoys advantages of scale and effect. Article 5(1) further provides that the
use of EU competences is governed by the principle of proportionality. This requires
that ‘the content and form of Union action shall not exceed what is necessary to
achieve the objectives of the Treaties’ (Article 5(4) TEU). Thus subsidiarity combined
with proportionality can be seen as key tools to prevent the EU from increasing its
actions in areas of shared or supporting competence.
The critical question has been one of enforcement. Attached to the Treaty of
Amsterdam was a Protocol on the Application of the Principles of Subsidiarity and
Proportionality which further outlined how subsidiarity and proportionality are to be
given effect in the legislative process. Under the Protocol, any legislative proposal put
19
forward by the Commission has to be expressly justified on the basis of subsidiarity.

The Commission must always explain why its proposal complies with subsidiarity. The
Council and Parliament must do the same with any such proposal. The protocol also
calls for the use of simple drafting and states that Directives are preferable to
Regulations. Despite this, it has been suggested that the harmonising imperative
underlining the development of EU law renders the principle of subsidiarity a hostage to
progress. It has not had any noticeable impact on integration and, of course, was never
designed to restrict the expansion of EU competence through treaties since each new
treaty is the ultimate expression of the sovereign will of the Member States that sign it.
That it has had a limited impact on integration can be seen in cases where subsidiarity
have been considered. In the United Kingdom v Council (Working Time Directive)
(Case C-84/94) [1996] ECR I-5755, the UK argued the Directive infringed subsidiarity
because the EU institutions had not shown that the Union action would be
demonstrably beneficial over and above national action. The Court of Justice simply
refused to engage with this analysis, stating that once the Council felt the need to act,
as evidenced by the preamble to the Directive, it was inevitable that they would wish to
harmonise the law in this area. This approach to subsidiarity effectively gave the
Council a free hand and rendered subsidiarity all but non-justiciable.
The Lisbon Treaty introduced a more political mechanism for monitoring compliance
with subsidiarity, one which largely rests on national parliaments. National parliaments
are informed as early as possible of any EU legislative proposal. Each national
parliament may submit a reasoned opinion as to why, in its view, the proposal in
question would fall short of the subsidiarity requirement, that is to say why it is not
demonstrated that the Union is better placed than the Member States to take action. If
a threshold of national parliaments have formally submitted their ‘reasoned opinion’,
then a so-called yellow card is raised forcing the Commission to reconsider and
potentially amend or withdraw its draft proposal. Several Commission proposals have
attracted a handful of reasoned opinions from national parliaments, and in November
2013 the required threshold was obtained in respect of a Commission proposal for a
regulation establishing a European Public Prosecutor’s Office.
20
Figure 3.1
Support, coordinate or
Exclusive Shared
supplement
Article 3 TFEU: Article 4 TFEU: Article 6 TFEU:

 Customs union  Areas not referred to in  Protection and
 Establishing the Article 3 and Article 6 improvement of human
competition rules for the  The principal areas are: health
internal market – Internal market  Industry
 Monetary policy for the – Social policy for  Culture
Member States whose aspects defined  Tourism
currency is the euro within the TFEU  Education, vocational
 The conservation of – Economic, social training, youth and
marine biological and territorial sport
resources under the cohesion  Civil protection
common fisheries policy – Agriculture and
 Administrative
 Common commercial fisheries, excluding
cooperation
policy the conservation of
marine biological
resources
– Environment
– Consumer protection
– Transport
– Trans-European
networks
– Energy
– Area of freedom,
security and justice
– Common safety
concerns in public
health matters for
aspects defined
within the TFEU
21
3.2 The institutions

The institutions of the European Union are set out in Article 13 TEU. They are:
 The European Parliament
 The European Council
 The Council of the European Union (‘the Council’)
 The European Commission
 The Court of Justice of the European Union (including the General Court)
 The European Central Bank
 The Court of Auditors
Their role is to carry out the tasks of the European Union. They do not operate on a
conventional separation of powers model based on the functions of government being
divided between executive, legislative and judicial bodies. Rather, the institutional
system seeks to find a balance between the primary interests that operate within the
EU: the people are represented in the European Parliament; the national interests of
the Member States are represented in the Council; and the overall interests of the
Union are represented in the Commission. All three institutions are supposed to work
together in making legislation and exercise some level of control over one another.
Under such a system based on a balance of interests, the role of one institution can
straddle legislative and executive functions whilst the legislative function is exercised
through the joint effort of all three institutions.
The institutions will now be examined in turn.
3.2.1 The European Parliament (Article 14 TEU and Articles 223-234 TFEU)
Officially based in Strasbourg, the European Parliament’s committees sit in Brussels
and its secretariat is divided between Brussels and Luxembourg. This division is far
from efficient and has come about purely for historic reasons.
Article 14(2) TEU provides that:
‘The European Parliament shall be composed of representatives of the
Union’s citizens. They shall not exceed seven hundred and fifty in number,
plus the President. Representation of citizens shall be degressively
proportional, with a minimum threshold of six members per Member State.
No Member State shall be allocated more than ninety-six seats.’
As such, the European Parliament represents the interests of more than 500 million
Union citizens.
Members of the European Parliament (MEPs) are directly elected for five-year terms.
Any citizen can stand for election to the European Parliament. In the UK, the European
Parliament elections have been taken on a proportional representation basis since
1999. The European Parliament meets and debates in public and its decisions are
generally based on an absolute majority of votes cast. MEPs meet in plenary sessions
for about a week each month in Strasbourg. However, the detailed work of the
Parliament is substantially undertaken through its committee system.
MEPs do not organise themselves on a national basis but tend to sit in multinational
party groups based on ideology, such as the Party of European Socialists, the
European People’s Party and the European Liberal Democrat Party.
22
The European Parliament was originally called the Assembly and began its life as an
advisory body with few formal powers. Members of the Assembly were appointed from
representatives of the national assemblies of Member States. However, in 1979, the
first direct elections for the European Parliament were held and its legitimacy was
correspondingly enhanced. Since that time, its role and powers have steadily
expanded, though turnout for elections to the Parliament are very low in a significant
number of member states. The Assembly was renamed the European Parliament by
the Single European Act in 1987.
3.2.1.1 The European Parliament’s role
The European Parliament undertakes a range of legislative, budgetary and supervisory
functions.
 Legislative function
The Lisbon Treaty greatly simplified the making of EU legislation by reducing the
number of different legislative procedures that existed beforehand down to one main
‘ordinary legislative procedure’, previously known as the co-decision procedure,
governed by Article 294 TFEU. A total of 73 policy areas now fall under this procedure.
Other legislative procedures have now become marginal.
The ordinary legislative procedure is complex. Its essential purpose is to get the
Council and the European Parliament to arrive at one common text. To this end, a
legislative proposal initiated by the Commission goes back and forth up to two times
between the Council and European Parliament. On both readings, the text may be
adopted, amended or dropped altogether. If, following the second reading, European
Parliament and Council are still not in agreement, a conciliation committee comprising
representatives of both institutions is convened. Ultimately, the text can only be
adopted with the agreement of both Council and the European Parliament.
The stages of the ordinary legislative procedure are as follows:
– First reading: The procedure starts with the Commission submitting a proposal to
the European Parliament and the Council. Following consultation with the
European Parliament, the Council may adopt the proposed act as agreed to or
amended by the European Parliament. In this case the legislation is adopted.
Otherwise, the Council must adopt a common position.
– Second reading: The Council’s ‘common position’ is communicated with reasons
to the European Parliament. If the common position is approved by the European
Parliament, or no decision is taken within three months, the proposed act is
deemed to have been adopted. If the European Parliament rejects the proposal it
is deemed not to have been adopted. However, if the European Parliament
makes amendments, the Council may approve the proposed act as amended by
the European Parliament and it is so adopted. If the Council does not agree with
all the amendments made by the European Parliament, a Conciliation Committee
will have to be convened.
– Conciliation stage: A ‘Conciliation Committee’ is established, comprised of an
equal number of Council and the European Parliament representatives. If a joint
text is agreed within six weeks, the proposal may be adopted by an absolute
majority of the European Parliament and a qualified majority of the Council. If no
joint text can be agreed the proposal will not be adopted.
This is the most complex legislative procedure, but it also gives the European
Parliament most power because it can effectively veto the passing of legislation.
23
 Budgetary Function
Article 14 TEU and Article 313 TFEU outline the European Parliament’s role in the
budgetary procedure. Not only has the European Parliament a power to approve or
reject the entire EU budget, the process also allows for the European Parliament to
push for its own priorities to be reflected. Rejection of the budget by the Parliament
sets the whole process in motion again. The budget has indeed been rejected in this
way on a number of occasions.
 Supervisory functions
The European Parliament also performs substantial supervisory functions over the
other institutions and in particular over the Commission. These include:
– Approval of a new Commission and its President.
– Holding the Commission to account, including:
 Submitting questions orally or in writing to the Commission to which the
Commission is required to reply.
 Debating the Commission’s Annual General Report.
 The power to pass a motion of censure of the Commission by a two-thirds
majority vote, upon which the Commission is required to resign as a whole.
– Submitting questions orally or in writing to the Council, though its authority with
respect to the Council is more limited than with respect to the Commission, the
Council not being subject to the control of the European Parliament.
– The power, under the assent procedure, to veto the accession of new Member
States.
– Standing to bring proceedings against another institution under Articles 263 and
265 TFEU.
– The right to recourse to the Court of Justice for annulment of acts adopted or
failure of the Commission or council to fulfil its obligations.
– The power to set up a ‘Committee of Inquiry’ into allegations of maladministration.
– Receiving petitions from Union citizens on matters within the scope of Community
activity affecting the individual directly.
– Appointing an Ombudsman. The Ombudsman’s role is to investigate disputes
between citizens and the EU’s administrative authorities.
3.2.2 The Council of the European Union (Article 16 TEU and Articles 237–
243 TFEU)
The Council of the European Union is primarily based in Brussels. It was formerly
called the Council of Ministers. It is referred to in the Treaties simply as ‘the Council’. It
is important to recognise that the Council of the European Union is a separate and
distinct body from the European Council, which is discussed below.
3.2.2.1 Composition
The Council represents the Member States, thereby allowing them to defend their
national interests. In this sense, it is the institution which most closely corresponds with
standard international relations. Membership of the Council is variable depending on
the subject matter under consideration, with each member being a representative of his
24
or her Member State at Ministerial level. For instance, where the external relations of
the EU are at issue, the Foreign Ministers of Member States will form the Council. If it
is agriculture that is being discussed, it is Agricultural Ministers that will come together
as the Council (see Article 16 TEU). The ministers will usually be from the national
government of the Member States but sometimes a Member State may permit a
minister from a regional government to represent it.
The Presidency of the Council is allocated to one member state by rotation (Article 16
TEU and Article 236 TFEU). The government of the country holding the Presidency will
usually issue a programme of action at the start of their term of office and will be
responsible for preparing the agenda for meetings of the Council, signing any resulting
acts and generally ensuring the smooth organisation of Council meetings.
3.2.2.2 Accountability of the Council
Being dedicated to the representation of the Member States, Council members are
politically accountable to their national governments.
3.2.2.3 The Role of the Council
The Council is the main decision-making body within the EU, having both executive
and legislative powers, although some executive powers are devolved to the
Commission and most legislative powers are shared with the Parliament under the
‘ordinary legislative’ procedure. Together with the European Parliament, it constitutes
the budgetary authority for approving the EU budget.
 Decision-making procedures – simple majority, unanimity and qualified
majority voting
The government ministers representing their Member States within the Council often
use this forum to promote their national interests. To this end, they will seek to
maximise their influence, if necessary by negotiating to convince others or agreeing to
support each other in temporary alliances. For a long time, all negotiations and
deliberations were taking place behind closed doors. Today, the Council has some
meetings held in public.
Ultimately, the Council decisions are reached by voting. A simple majority is rarely
used to decide an issue because to do so would see individual Member States cede
too much power to other Member States in the decision-making process. Protective of
their sovereignty, unanimity was the initially favoured method of decision-making. It still
remains in those areas of Union action where Member States are most concerned to
protect national interests. However, unanimity is difficult to achieve, effectively allowing
any single Member State to veto a Union proposal and so creating a decision-making
process with a high degree of inbuilt inertia.
The requirement of unanimity on the Council has increasingly given way in many
important areas to what is called ‘qualified majority voting’ (QMV). Under Article 16(3)
TEU, this is now used for all decisions except where the Treaties provide otherwise.
QMV is a weighted voting system that makes it more difficult to reach a decision than if
only a simple majority is required but prevents any one Member State or even a small
block of Member States from vetoing a decision being made. Until November 2014, it
entails each Member State being allocated a number of votes. The United Kingdom
currently has 29 votes out of a total number of 366 votes allocated across the Member
states. An act will be adopted by the Council where there are at least 255 votes in
favour and these represent a majority of the Member States (Article 3(3) of the Protocol
on Transitional Measures to the Lisbon Treaty). A new form of QMV will come into
effect from 1 November 2014 under Article 16(4) TEU and Article 238(3) TFEU. This
25
requires a so-called ‘double majority’ in order for an act to be adopted by the Council.
First, it must be approved by at least 55% of the Member States. This is currently 15
out of the 28 Member States. Second, those Member States must also represent at
least 65% of the EU population. Article 16(4) adds that a blocking minority must include
at least four Member States. If the blocking minority does not, the vote will be deemed
to have been passed. This prevents three very large states with, say, 40% of the EU
population from blocking an act.
3.2.2.4 Operation: the Committee of Permanent Representatives (COREPER)
‘A committee consisting of the Permanent Representatives of the Member
States shall be responsible for preparing the work of the Council and for
carrying out the tasks assigned to it by the Council.’
The Committee of Permanent Representatives (COREPER) performs an essential role
in facilitating and carrying on the work of the Council between meetings. It is based in
Brussels and meets every week. While one of its main tasks is to prepare the meetings
of the Council, it also oversees the work of around 250 committees and working
parties. The chair is taken by the delegate of the Member State which holds the
Council Presidency.
Due to volume of work, COREPER is split into two committees: COREPER 1, which
comprises deputy ambassadors to the EU and deals with internal matters; and
COREPER 2, which comprises the ambassadors themselves and handles the more
important political issues. The two committees are equal in status.
While these representatives must follow their national instructions, there is evidence of
loyalty amongst them and a desire to reach agreement and take forward Union policy.
3.2.3 The European Council (Article 15 TEU and Articles 235–236 TFEU)
The European Council is a meeting of the Heads of Government of the Member States
and the President of the Commission. It is assisted by the Ministers of Foreign Affairs
of the Member States and a Member of the Commission. It is not the same body as the
Council of the European Union. It generally takes its decisions by consensus although
there is some allowance for QMV following the Lisbon Treaty.
Often referred to as a summit meeting, the European Council is not mentioned in the
original founding treaties, despite the fact that summits did occur in the early years of
the EEC. The name ‘European Council’ was not used until the Paris Summit of 1974
and did not appear in a treaty until the SEA in 1986, which laid down its organisation,
but not its functions. It is now recognised in the treaties, in which its role is set out in
the following terms in Article 15(1) TEU:
‘The European Council shall provide the Union with the necessary impetus
for its development and shall define the general political directions and
priorities thereof. It shall not exercise legislative functions.’
Article 15(3) TEU requires that the European Council meets at least twice every six
months. It plays an enormously important role in taking long-term strategic decisions
about the EU, so providing political direction for the continuing and future development
of the Union.
The most significant change to the functioning of the European Council has been the
creation of a stable presidency (Articles 15(5) and (6) TEU). This is a post now elected
by the European Council itself, with a 30-month term of office. Previously the
26
Presidency rotated amongst the Member States every six months (which would mean
that in practice, that the best candidate might not get a chance in the role for 13 years).
The aim has been to give the EU a stable, established voice on the world stage.
3.2.4 The Commission (Article 17 TEU and Articles 244–250 TFEU)

The Commission is primarily based in Brussels. Within the Union’s unique institutional
system, the Commission is entrusted with the representation of the interest of the
European Union as a whole, whereas, as it will be recalled, Council and Parliament
represent Member States and EU citizens respectively. If it is to be trusted in this task,
the Commission must not be seen as advancing the interests of particular states over
that of others and it certainly cannot take instruction from any Member State or any
other body. Thus, the independence of the Commission is crucial to its credibility and
this has largely informed its composition, methods of accountability and even the
diversity of functions carried out by the Commission. In practice, being responsible for
taking forward the interests of the Union has also made the Commission, more than
any other institutions, a driver for European integration.
3.2.4.1 Composition of the Commission
Commissioners are appointed ‘whose independence is beyond doubt’ and ‘on the
grounds of their general competence’ for a period of office of five years (Article 17
TEU). This is consistent with the Union-centred role of the Commission.
Whilst commissioners do not represent any Member State, the Commission has until
now comprised one national from each Member State. It has been argued that with the
successive enlargements of the EU and, therefore, the increase in the number of
commissioners, the Commission may have become too big to operate effectively. At 28
Member States, the commission has to function with 28 commissioners. Reforms were
introduced by the Lisbon Treaty in response in order to limit the number of
commissioners to 18. To guarantee a strict equality between the 28 Member States,
commissioners were to be chosen from among the nationals of Member States in
accordance with a strict rotation system. The hope was that this kind of selection
system would satisfactorily combine considerations of efficiency with state equality.
Nonetheless, despite having agreed the Lisbon Treaty, Member States have proven
attached to the former system allowing for one commissioner per Member State. They
have, through a unanimous decision of the European Council, used a power in Article
17 TEU to alter the number of commissioners so as to bring that number back to 28.
This, in effect, entirely negates the reformed selection system.
The Commission works under the political guidance of its President. The President is
the figurehead of the EU, participating in the meetings of the European Council and
representing the EU at the annual summits of the G8 leading industrialised countries.
The Presidency is elected by the European Parliament on the recommendation of the
Council. The rest of the Commission appointments also need the approval of the
European Parliament, thereby enhancing the democratic credentials of the
Commission.
The Lisbon Treaty introduced a High Representative of the Union for Foreign Affairs
and Security Policy. The High Representative is appointed by the European Council
and is responsible for conducting the Union’s common foreign and security policy
agreed by the Member States.
With regard to the background of Commissioners, figures show that, since 1951, about
one-third had experience of either high or middle-ranking ministerial office in their
country of origin before going to Brussels, while the rest tended to be either senior
27
diplomats or international civil servants. There is now an increasing trend for

Commissioners to have been MEPs. Few Commissioners return to political life in their
own states.
3.2.4.2 Accountability of the Commission
The independence of the Commission can make the institution appear very distant.
Because it is not seen as representative, it has been difficult for the Commission to
appeal to public opinion. To mitigate this, a limited form of political accountability to the
European Parliament is provided for in the Treaties. The European Parliament can
force the whole Commission to resign through a vote of censure or no confidence. This
power has never been used, although the Santer Commission itself chose to resign in
1999 following an investigation into allegations of corruption. In addition, the
Commission attends European Parliament sessions where it must explain and justify its
policies if MEPs request this. Individual Commissioners guilty of serious misconduct
may be compulsorily retired by the Court of Justice on application of the Council or
Commission.
3.2.4.3 The Operation of the Commission
Commissioners meet weekly. Although the decisions of the Commission can be taken
by a simple majority vote, in practice all major decisions are by consensus. Its workload
is so great that its decisions are often delayed, sometimes for many years.
The wider Commission is divided into various policy departments called Directorates
General (DG). These departments include Agriculture and Rural Development;
Enterprise and Industry; Environment; and Competition amongst many others. Each
department has a Director General who must report to the Commissioner responsible
for that policy department. In this way, each Commissioner is responsible for one or
more DGs in line with their policy portfolio allocated by the President.
Commissioners also appoint a small cabinet of advisers who will assist them, notably
by keeping them informed of developments relevant to their portfolios and linking with
their department. Overall, some 15,000 fonctionnaires, the French term for civil
servants, work for the Commission, which is about half of those employed by all the EU
institutions taken together.
3.2.4.4 The role of the Commission
To fulfil its important role concerned with taking forward the interests of the Union, the
Commission is entrusted with a diversity of executive, legislative and supervisory
functions. It is worth noting that in carrying out these functions, the Commission has
had traditionally to walk a political tightrope to avoid offending national sensibilities.
Even its name, the ‘Commission’, was chosen as being less grand and provocative
than ‘High Authority’, the name at the time of the equivalent institution of the ECSC.
 Executive Functions
The Commission is effectively the ‘executive’ of the EU, being responsible for initiation
of Union policy in areas of Union competence and ensuring that policy is properly
implemented (Article 17 TEU). Thus, for example, the preliminary draft of the Union’s
annual budget is prepared by the Commission (Article 314 TFEU) and, while the
European Parliament and the Council ultimately decide what expenditure is to be
made, it is the Commission that implements their budgetary decisions (Article 317
TFEU). The Commission’s role is scrutinised by the Court of Auditors to ensure sound
financial management, legality and the elimination of fraud and wastage. The Auditor’s
report is made to the European Parliament, which judges the Commission’s execution
of the budget.
28
As part of its executive role, the Commission also has important responsibilities in
carrying out the external relations of the Union. These include establishing the
overseas missions of the Union and acting as the Union’s negotiator where
international agreements are being made, though the Council is responsible for
concluding such agreements (see Article 218 TFEU).
The role of the Commission is not simply executive. It also performs important
legislative and supervisory functions.
 Legislative Function: initiation of legislation
As to legislation made by the Union, much important legislation originates in a proposal
from the Commission (Articles 292 and 293 TFEU). This right to initiate Union action
gives the Commission a central role in the development of Union policy. Not only does
it initiate specific proposals, but the Commission also shapes the annual legislative
programme of the Union and can develop more far-reaching strategies in important
areas of general policy concern. The role the Commission plays in the Union’s
legislative process has enabled the Commission to act as the driving force behind
European integration. One of the periods in which this power was most apparent was
during the early 1990s when Jacques Delors was Commission President. At this time, it
performed an instrumental role in completing the move to a single European market.
However, initiation of legislation is not the sole preserve of the Commission and the
other institutions may also perform a role in the initiation process. The European
Parliament can request that the Commission submit a proposal to the Council to take
action in an area of EU competence (Article 225 TFEU) and the Council can request
the Commission to undertake studies to achieve common objectives (Article 241
TFEU).
With the introduction of the principle of subsidiarity in the Maastricht Treaty, the
Commission should only seek to initiate legislation where the Member States are in a
less effective position than the Union to take action. The Protocol on the Application of
the Principles of Subsidiarity and Proportionality imposes a procedural requirement
under which all legislative proposals must, in addition to having a clear and proper
competence, be overtly justified on the basis of subsidiarity. As was noted above, the
enforcement of the principle of subsidiarity at a more substantive level has proved
difficult, if only because determining the level of government best suited to undertake a
particular policy will be eminently political and thus inevitably contested. The Lisbon
Treaty has since introduced another system for enforcing compliance with subsidiarity
which is more political in character and rests essentially on national parliaments.
Additionally, before issuing draft legislation, the Commission must sound out opinion
from representatives of those parties affected to achieve a balance of interests when
preparing proposal.
 Supervisory Functions
The Commission’s supervisory role is grounded, in the first instance, in Article 258
TFEU. The Commission can rely on this Article in seeking to enforce Treaty obligations
that it believes Member States have not fulfilled. Ultimately, that may see the
Commission taking action against a Member State before the Court of Justice.
However, before that point is reached, it must first give a Member State the opportunity
to state its case, in response to which it must deliver a reasoned opinion.
Where a Member State continues to fail to fulfil their Treaty obligations after the Court
of Justice has found against it, Article 260 TFEU provides that the Commission may
further apply to the Court of Justice for that state to be fined.
29
Under Articles 263 and 265 TFEU the Commission has supervisory powers in relation
to the other EU institutions and may request the Court of Justice to annul any act or
omission made by them which is contrary to EU law. The Commission also performs
important enforcement functions, now shared with national courts and competition
authorities, in relation to competition policy.
3.2.5 The Court of Justice of the European Union and the General Court
(Article 19 TEU and Articles 251–281 TFEU)
Article 19 TEU provides that:
‘The Court of Justice of the European Union shall include the Court of
Justice, the General Court and specialised courts. It shall ensure that in the
interpretation and application of the Treaties the law is observed.’
3.2.5.1 Court of Justice
One of the first things to remember about the Court of Justice is to not confuse it with
either the European Court of Human Rights (Strasbourg) or the International Court of
Justice (The Hague).
Based in Luxembourg, the Court of Justice is made up of 28 Judges, one judge from
each Member State, and 9 Advocates General. Judges are required to be of
recognised competence; they must also be independent from their national
governments. Judges are appointed for a renewable term of six years by the common
accord of all Member States. To provide continuity, appointments rotate on a three-
yearly basis. The judges choose one of their number to be President for a renewable
term of three years. The President’s role is to direct the Court’s work and act as its
figurehead.
The Court of Justice is assisted in its work by Advocates-General (AGs), who deliver in
open court a reasoned and impartial opinion on most cases which go before the Court
of Justice. It is not their role to prosecute the case and nor do they take part in the
Court’s deliberations, which are held in secret. The AG’s opinion reviews both the facts
and the parties’ submissions before describing the appropriate law. It has no legal force
and it need not be followed by the Court of Justice, though it may be highly influential
and will often set out the facts and relevant law more clearly than the judgment of the
Court. The rules governing appointment and qualifications of AGs are the same as for
judges of the Court of Justice.
Judgments are by majority and collegiate: there is only one judgment and no dissenting
opinions.
Depending on the nature of the case, it may be heard in Full Court of at least 15
judges, which occurs only in the most exceptional cases, in a Grand Chamber of 13
Judges or in Chambers of 3 to 5 judges. Most cases are heard in Chambers, although,
if important or where an institution or Member State that is a party requests it, the case
will be heard in a Grand Chamber.
The Court of Justice is the ‘guardian of EU law’. In performing this role, the Court of
Justice has furthered the objectives of the founding EU treaties by drawing from the
purposes and wider aims underlying these Treaties. Thus, the meaning of legislation
and Treaty provisions is interpreted and given effect by looking behind the words of the
Treaties rather than interpreting them literally, and by interpreting them purposively in a
way that will ensure the full effectiveness of EU law. Under this approach, precedents
may be applied and departed from much more flexibly than within the UK, where the
30
courts have generally taken a more formal and rigid approach in interpreting and
applying the law.
This bold approach has enabled the Court of Justice to develop legal doctrines that
have transformed the nature of the European Union and have established EU law as
an independent body of law, separate from that of its Member States. For example, the
Court of Justice has developed the doctrine of direct effect which enables individuals to
enforce in their national courts rights conferred by EU law (NV Algemene Transport –
en Expeditie Onderneming van Gend en Loos v Nederlandse Administratie der
Belastingen (Case 26/62) [1963] ECR 1). It has also established the principle of
supremacy which ensures that EU law prevails over inconsistent national law (Costa v
E.N.E.L. (Case 6/64) [1964] ECR 585). Neither was expressly provided for in the
Treaties.
The jurisdiction of the Court of Justice may be exercised through actions brought
directly before it. The most important direct actions include enforcement proceedings
under Articles 258-260 TFEU and secondly judicial review of the validity of EU acts
under Article 263-266. The Court’s jurisdiction may also be exercised indirectly
following preliminary references from the national courts of Member States. Preliminary
references under Article 267 are unique to EU law. These are all discussed in more
detail in Appendix 2 of these Study Notes.
 Enforcement Proceedings (Articles 258–260 TFEU)
The Court of Justice has the power to determine whether or not a Member State has
fulfilled its obligations under EU law. Such actions follow only after the Commission has
sought to resolve the dispute. They may be brought by the Commission, which is most
common, or another Member State. If the Member State does not comply with the
judgment of the Court of Justice, a further action may be brought by the Commission to
impose a penalty upon the recalcitrant state.
 Actions for annulment and other judicial review procedures (Articles 263-
266 and Article 268 TFEU)
Disputes over actions taken or the failure to act by an institution or over legislation
adopted by the institutions may be brought by a Member State, one of the EU’s
institutions or more rarely an individual. The latter allows the Court of Justice to review
the legality of legislation made by the institutions and to annul it where it is found that
the exercise of power in making it has been unlawful.
 References for preliminary ruling (Article 267 TFEU)
Preliminary rulings are essential to ensure a uniform interpretation of EU law. They are
made by the Court of Justice on reference from a national court asking for clarification
of a point concerning the interpretation of EU law. Under this procedure, individuals
bring claims involving EU law before their national courts. If, in the course of these
proceedings, there is doubt about the interpretation to be placed on a relevant aspect
of EU law, the national courts may, and in some instances must, seek guidance from
the Court of Justice by means of a preliminary reference. This is because, as the
guardian of EU law, the Court of Justice is the ultimate interpreter of EU Law. Once the
Court of Justice has provided its interpretation in a preliminary ruling, it is then for the
national judge to resolve the dispute accordingly. The Court of Justice’s interpretation
of the point of EU law considered also binds other national courts.
Preliminary references are common. Many have led to important decisions by the Court
of Justice in terms of the development of EU law and the fundamental principles which
inform it. Arguably, the most significant of these was the decision in Van Gend en Loos
31
(Case 26/62) [1963] ECR 1 which is discussed in detail in Section 4.1 of these Study
Notes.
 Other jurisdiction
The Court of Justice hears appeals from the General Court on points of law only
(Article 256 TFEU). The Court of Justice also has jurisdiction in disputes relating to the
award of compensation for non-contractual damages (Articles 268 and 340 TFEU).
3.2.5.2 The General Court and Specialised Courts
Formerly known as the Court of First Instance, the General Court is an independent
court attached to the Court of Justice and which was introduced by the Single
European Act to ease the pressure of work on the Court of Justice. The General Court
decides at first instance, with some exceptions, all direct actions brought by individuals
against institutions of the EU, actions brought by Member States against the
Commission, actions seeking compensation for damage caused by institutions to their
staff, actions relating to EU trademarks and appeals against decisions taken by the EU
Civil Service Tribunal. Appeals on points of law are heard in the Court of Justice.
Like the Court of Justice, its membership comprises 28 Judges, one from each
Member State, elected for six years by common accord of the Member States. Again,
like the Court of Justice, the Judges of the General Court elect their own President.
However, unlike the Court of Justice, there is no provision made for AGs. It is
nonetheless possible, if believed desirable in a particular case, for the role of an AG to
be performed by one of its Judges, who would not then take part in the General Court’s
deliberation.
Article 19 TEU also now provides for the specialised courts. The only specialised court
which has been established is the European Union Civil Service Tribunal. It comprises
seven judges and adjudicates on disputes between the European Union and its civil
servants.
3.2.5.3 The problems of delay in the courts
Even with the creation of the General Court, it was acknowledged through the Treaty of
Nice that the Court of Justice had too many cases to decide and that with the
accession of new Member States in 2004, 2007 and 2013 this situation would only get
worse. The Treaty of Nice provided for a more effective sharing of the workload
between the Court of Justice and what is now known as the General Court, as well as
the creation of specialised ‘judicial panels’ in certain areas. In 2004, the Council
adopted a decision to establish the European Union Civil Service Tribunal to settle at
first instance disputes in staff cases.
3.2.6 The Court of Auditors (Articles 285–287 TFEU)

Originally created in 1977, the Court of Auditors was established as a full institution of
the Union through the TEU. It is based in Luxembourg and, while not really a court, its
structure is similar to that of the Court of Justice and General Court. It has 28
members, one from each Member State, chosen from amongst persons who have
belonged to audit bodies in their own countries (or who are similarly qualified) and
whose independence is ‘beyond doubt’. Members are appointed for six–year terms.
The President is elected by the members of the Court for a renewable three–year term.
The role of the Court is to independently audit the revenue and spending of the Union
and to certify that its accounts are legal and reliable. The Court examines whether the
Union’s funds have been properly managed so as to ensure economy, efficiency and
effectiveness. It can be consulted by the Council and Parliament about the budget and
32
its remit extends beyond the EU institutions to include any national, regional or local
body that handles EU funds.
Its findings form part of the Court’s Annual Report, which is published each November.
It is this Report that contains the ‘statement of assurance’ that good accounting
practice has been followed and, as a result of sound practice, the financial objectives of
the Union have been met. The Report is adopted by simple majority. Consistent with its
independence, the Court’s findings are not always favourable.
The TEU gave it the power to protect its own rights in the Court of Justice against other
institutions. However, the Court has no substantive power to address shortcomings it
may uncover. Its role is merely to pass the information on to relevant authorities.
3.3 Institutional balance in practice

The key institutions of the EU in terms of policy making and legislation are the
Parliament, the Council and the Commission. As it has been seen, each represents a
different interest in the Union: the Parliament represents the interests of the people of
the Union; the Council represents the interests of the Member States; and the
Commission represents the Union itself. This chapter has highlighted how the powers
and legitimacy of the European Parliament have grown through direct election of its
members and elevation of the ordinary legislative procedure to become the principal
legislative procedure. Decision-making on the Council has also become easier through
the extension of qualified majority voting (QMV) to become the default voting system.
33
34
4
EU Law and National
Law: Supremacy, Direct
Effect, Indirect Effect
and State Liability
35
4.1 A new legal order

The first chapter of these Study Notes has explained how the modern European Union
is the product of a series of treaties entered into over the years. It will be recalled that
the first of these were the ECSC Treaty, the EEC Treaty and the Euroatom Treaty in
the 1950s. These three founding treaties, like their successors, were all international
agreements entered into between nation states within Europe which became the
founding members of the communities which the treaties established. The founding
treaties each placed obligations on the contracting Member States and structured the
relations between them. In this much, they were no different from other international
treaties agreed between nation states. Each of the founding treaties established
organisational structures, provided for various institutions and structured the
relationship between those institutions and the Member States. Again, they were not
unique in doing this. Other international treaties had already established organisations
elsewhere in the world with their own international bodies by the time that the founding
treaties were being agreed. Finally, the founding treaties each made provision to
ensure that Member States fulfilled their Treaty obligations, just as other international
treaties did.
The primary mechanisms in the EEC Treaty for enforcing the obligations of Member
States under that treaty were provided by Articles 169 and 170 EEC. Article 169 EEC
empowered the Commission to bring a case to the Court of Justice against a Member
State for not fulfilling its Treaty obligations and Article 170 EEC provided that a Member
State may do the same against another Member State. Both of these mechanisms
operated on the international plane via the Court of Justice. (They are both now
provided by Articles 258 and 259 TFEU respectively and are discussed in Section A2.2
of Appendix 2 to these Study Notes.)
In contrast, no equivalent mechanisms for the enforcement of the Treaty obligations of
Member States by national courts were specifically provided by the EEC treaty and
there was only limited provision governing how EEC law was to be applied within the
national legal systems of the Member States. Article 177 EEC (now Article 267 TFEU)
did provide for national courts to refer to the Court of Justice questions on the
interpretation of the EEC Treaty. That at least envisaged national courts engaging with
EEC law. Moreover, Article 189 EEC (now Article 288 TFEU) did provide that
regulations are binding and directly applicable within the Member States. But there was
no specific reference within the EEC treaty to the obligations under any other form of
EEC law, including those under the treaty articles themselves, being directly
enforceable in national courts. That remains the same today under the TFEU and TEU.
At the time when the EEC Treaty was adopted, it was at least arguable that these
provisions demonstrated that the Member States who had agreed the treaty had not
intended the treaty articles themselves to be enforceable in their own national courts.
Instead, Member States were to remain free to determine how these obligations would
take effect in their own respective legal orders. That would have reflected the basic
position under Public International Law. However, in one of the most important
decisions in EU law, the Court of Justice held in 1963 in NV Algemene Transport – en
Expeditie Onderneming van Gend en Loos v Nederlandse Administratie der
Belastingen (Case 26/62) [1963] ECR 1 that the EEC treaty was no ordinary
international treaty. It established a new legal order for the benefit of which the Member
States agreed to limit their sovereign rights and it conferred rights on individuals which
had to be protected by national courts.
36
EU Law and National Law: Supremacy, Direct Effect, Indirect Effect and State Liability
4.1.1 Van Gend en Loos

Van Gend en Loos imported urea formaldehyde from West Germany in 1960. Changes
to the classification of this product by the Dutch authorities had resulted in the duty
payable being increased from 3% to 8%. However, Article 12 EEC provided at the time
that:
‘Member States shall refrain from introducing between themselves any new
custom duties on imports or exports or any charge having equivalent effect,
and from increasing those which they already apply in their trade with each
other’.*
Van Gend en Loos argued that Article 12 EEC gave rise to rights which could be
claimed by individuals and protected in the courts of Member States and that the
company had an enforceable claim because the increased duty was contrary to Article
12. The Dutch Customs Court made a preliminary reference to the Court of Justice in
which it asked whether nationals of a Member State can, on the basis of Article 12
EEC, lay claim to individual rights which national courts must protect. In response,
three Member States argued in written submissions to the Court of Justice that
infringements of the EEC Treaty by the Member States could only be submitted to a
court under the procedures provided by Articles 169 and 170 EEC (now Article 258 and
259 TFEU) and that it was never the intention of the Member States who agreed the
EEC Treaty that Article 12 EEC would confer rights on individuals which national courts
had to protect. These arguments were rejected by the Court of Justice. The Court held
that the EEC Treaty was something more than a regular international agreement which
merely created mutual obligations between States:
‘The Community constitutes a new legal order of international law for the
benefit of which the states have limited their sovereign rights, albeit within
limited fields, and the subjects of which comprise not only Member States
but also their nationals. Independently, of the legislation of Member States,
Community law therefore not only imposes obligations on individuals but is
also intended to confer upon them rights which become part of their legal
heritage. These rights arise not only where they are expressly granted by
the Treaty, but also by reason of obligations which the Treaty imposes in a
clearly defined way upon individuals as well as upon the Member States
and upon the institutions of the Community.’
The Court found that Article 12 EEC imposed such a right as it contained a clear and
unconditional prohibition on Member States to refrain from introducing new customs
duties which was not qualified by any requirement that made its effect conditional on
Member States first enacting legislation to implement it. In the Court’s view, it was
ideally suited to have direct effect in the national legal systems of the Member States
and national courts must protect the right conferred by it. The Court added that the
existence of the enforcement mechanisms in Articles 169 and 170 EEC did not prevent
individuals from enforcing Article 12 before national courts and restricting enforcement
to the mechanisms in Article 169 and 170 would remove all direct legal protection of
the individual rights of the nationals of Member States. Indeed, the vigilance of
individuals concerned to protect their rights would also amount to an effective form of
supervision in addition to that provided under Articles 169 and 170.
Van Gend en Loos was an enormously important decision. It established that treaty
articles can have effect directly within the national legal systems of the Member States
*It should be noted that Article 12 has now been replaced with Article 30 TFEU which provides for the
complete abolition of customs duties between Member States. This is discussed in Chapter 5.
37
by conferring individual rights which national courts are required to protect. This is
known as the principle of direct effect. It means that rights conferred under the Treaty
can be relied upon and enforced in proceedings brought in national courts. This was a
giant step in achieving the integration of EU law within those national legal systems.
The reasoning in Van Gend en Loos also provides a classic example of the Court of
Justice taking the kind of teleological based purposive approach which has become a
characteristic of its jurisprudence over the years. In its judgment, the Court explicitly
declared that it was considering not only the wording of the treaty but also its spirit and
general scheme. It also sought to justify its interpretation on the basis of how giving
direct effect to Article 12 served the effectiveness of EU law, not only by ensuring that
individuals could protect their rights but also by aiding the effective enforcement of EU
law. The importance attached by the Court of Justice to ensuring the effectiveness of
EU law has been another feature of its subsequent jurisprudence. However, this kind of
purposive interpretation has left the Court open to the charge of engaging in excessive
and illegitimate judicial activism. Indeed, whether it was the EEC Treaty that created
the new legal order represented by the EU or it was really the Court of Justice itself
which did so in Van Gend en Loos and subsequent cases remains a moot point.
Whatever the answer to that question, the fact is that today direct effect is an integral
part of EU law.
4.2 Supremacy of EU Law

There is another reason why Van Gend en Loos has proven to be an important
decision beyond establishing the principle of direct effect. By declaring that the Treaty
had established a new legal order in which Member States had limited their sovereign
rights, the judgment paved the way for the establishment of a second central principle
of EU law by the Court of Justice two years later in Costa v ENEL (Case 6/64) [1964]
ECR 585. This is the principle of the supremacy of EU law. The principle addresses the
question of how conflicts between national law and EU law should be resolved. This
issue had been broached by two of the Member States who submitted arguments in
Van Gend en Loos but the Court had side stepped it by holding that it was only
interpreting the scope of Article 12 in relation to its effect on individuals. It was not until
Costa that the Court directly confronted the question of how such conflicts were to be
resolved.
Costa had been a shareholder in an Italian electricity company which had been
nationalised by the Italian State. The assets of the various Italian electricity companies
had been transferred to ENEL which, under the nationalisation legislation, became
responsible for producing and distributing electricity in Italy. Costa refused to pay his
electricity bill when it was issued by ENEL. When sued for the money owed, he argued
that the nationalisation legislation was contrary to Community law. This was referred to
the Court of Justice, only for the Italian government to argue before the Court of Justice
that the case was inadmissible because, inter alia, national courts were obliged to
apply the national law nationalising the electricity industry. The Court of Justice did not
agree. It reiterated that the Treaty had established a new legal order in which they had
limited their sovereign rights and continued:
‘The integration into the laws of each Member State of provisions which
derive from the Community, and more generally the terms and spirit of the
Treaty, make it impossible for the States, as a corollary, to accord
precedence to a unilateral and subsequent measure over a legal system
accepted by them on the basis of reciprocity. The executive force of
Community law cannot vary from one State to another in deference to
subsequent domestic laws, without jeopardizing the attainment of the
38
objectives of the Treaty set out in Article 5(2) and giving rise to the
discrimination prohibited by Article 7.[*]
The obligations undertaken under the Treaty establishing the Community
would not be unconditional, but merely contingent, if they could be called in
question by subsequent legislative acts of the signatories.’
The Court noted that the Treaty used clear and precise provisions wherever it granted
the Member States the right to act unilaterally. It asserted that the requirements under
Article 189 EEC (now Article 288 TFEU) that Regulations shall be binding and directly
applicable in all Member States would be meaningless if national law could prevail over
Community law. It then concluded that:
‘It follows from all these observations that the law stemming from the
Treaty, an independent source of law, could not, because of its special and
original nature, be overridden by domestic legal provisions, however
framed, without being deprived of its character as Community law and
without the legal basis of the Community itself being called into question.’
This is the principle of the supremacy of EU law. The Court of Justice has reinforced it
in the cases which followed Costa as to the absolute nature of the doctrine. In
Internationale Handelsgesellschaft v Einfuhr und Vorratstelle für Getreide und
Futtermittel (Case 11/70) [1970] ECR 1125, the Court of Justice made it clear that that
the principle ensured that EU law took precedence even over the national constitutional
law of a Member State including fundamental rights provided by that constitution,
although it tempered the effect of this by adding that the protection of fundamental
rights was a general principle of EU law (see Section A1.2.1.1 in Appendix 1 of these
Study Notes). In Amministrazione delle Finanze dello Stato v Simmenthal SpA (Case
106/77) [1978] ECR 629 the Court of Justice added that a national court must not wait
for a national measure which conflicted with EU law to be set aside by a national
authority. Therefore, an Italian court had to give effect to an EU Regulation which
conflicted with national law without waiting for the Italian Constitutional Court to set
aside the offending national law. In its judgement, the Court of Justice in Simmenthal
left no doubt as to the absolute nature of the doctrine:
’Any recognition that national legislative measures which encroach upon
the field within which the Community exercises its legislative power or
which are otherwise incompatible with the provisions of Community law had
any legal effect would amount to a corresponding denial of the
effectiveness of obligations undertaken unconditionally and irrevocably by
Member States pursuant to the Treaty and would thus imperil the very
foundations of the Community.
… every national court must, in a case within its jurisdiction, apply
Community law in its entirety and protect rights which the latter confers on
individuals and must accordingly set aside any provision of national law
which may conflict with it, whether prior or subsequent to the Community
rule’.
The supremacy of EU law has proven to be another significant step in ensuring the
integration, effectiveness and uniformity of EU law within the legal systems of the
Member States. Yet it is worth noting that the Court of Justice has never used the term
‘supremacy’ to describe the doctrine. It has preferred to refer to EU law taking
* Article 5(2) EEC required Member States to abstain from any measure which could jeopardise the
attainment of the objectives of this Treaty. Article 7 EEC prohibited discrimination on the basis of
nationality. These obligations are now provided by Article 4(3) TEU and Article 18 TEU respectively.
39
precedence over or priority over the national law of the Member States. In more recent
years, it has become common to describe the principle as the primacy of EU law
instead. The principle, under this more modern label, has now been formally
recognised by the European Council in Declaration 17 of the Lisbon Treaty 2007.
4.3 Direct effect distinguished from directly applicable

In the past, the terms ‘direct effect’ and ‘directly applicable’ have often been used
interchangeably without distinction by the Court of Justice. However, they now have
their own distinct meanings.
The term ‘directly applicable’ is used in Article 288 TFEU which specifies the forms of
secondary legislation that the institutions of the Community must use to fulfil the
objects of the Treaty. Of those, a regulation is described as being of ‘general
application … binding in its entirety and directly applicable in all Member States’. Direct
applicability means in this context that the regulation does not need to be implemented
into the domestic law of Member States. Once it has been adopted, it automatically
becomes part of their domestic law. This is to be contrasted with directives which are
described in Article 288 as binding only ‘as to the result to be achieved’ whilst leaving
to Member States the ‘form and method’ of their achievement. Consequently, directives
require Member States to take national measures to implement the terms of a directive
into their domestic law. Therefore, unlike regulations, they are not directly applicable.
On the other hand, direct effect refers to the fact that provisions of EU law may, even
without transposition by a Member State, give rise to immediate rights which can be
enforced by individuals within the national legal systems of Member States. Such rights
arise where the conditions for direct effect are satisfied.
4.4 The Van Gend en Loos criteria for direct effect

The central criteria for a provision of EU law to have direct effect derive from Van Gend
en Loos. In holding that Article 12 EEC (now Article 30 TFEU) could have direct effect,
the Court of Justice reasoned that:
‘The wording of Article 12 contains a clear and unconditional prohibition
which is not a positive but a negative obligation. This obligation, moreover,
is not qualified by any reservation on the part of states which would make
its implementation conditional upon a positive legislative measure enacted
under national law. The very nature of this prohibition makes it ideally
adapted to produce direct effects in the legal relationship between Member
States and their subjects’.
Two basic requirements for a provision of EU law to have direct effect have evolved
from this. The first is that the provision must be sufficiently clear and precise to give
rise to an identifiable individual right. The second is that it must be unconditional.
These two requirements were defined by the Court of Justice in Cooperativa Agricola
Zootecnica S. Antonio v Amministrazione delle finanze dello Stato [1996] ECR I-4373
in the following terms:
‘A Community provision is unconditional where it sets forth an obligation
which is not qualified by any condition, or subject, in its implementation or
effects, to the taking of any measure either by the Community institutions or
by the Member States …
40
Moreover, a provision is sufficiently precise to be relied on by an individual

and applied by a national court where it sets out an obligation in
unequivocal terms’.
Rather than providing a precise test for direct effect, the Court of Justice has
interpreted these criteria with some flexibility. For example, direct effect will generally
not be precluded by the following:
 The mere fact that the provision raises questions of interpretation which can be
resolved by a court (Van Duyn v Home Office (Case 41/74) [1974] ECR 1337);
 Just because the Member State is able to choose among several possible means
of achieving the result required by the Directive (Francovich & Bonifaci v Italian
Republic (Cases 6/90 and 9/90) [1991] ECR I-5357).
A good example of how the Van Gend en Loos criteria for direct effect work in practice
is found in Defrenne v SABENA (Case 43/75) [1976] ECR 455. This case concerned
an action between an air hostess, Defrenne, and her employer, the Belgian airline
SABENA. Defrenne claimed she had suffered sex discrimination as a female worker in
terms of pay as compared with male cabin stewards. She maintained that this infringed
Article 119 EEC (now Article 157 TFEU) which required each Member State to ‘ensure
and subsequently maintain the principle that men and women should receive equal pay
for equal work’. The airline accepted that there had been discrimination but denied that
that Article 119 EEC conferred any legal right to be protected against such
discrimination which could be enforced against it in a national court. On a preliminary
reference from the Belgian court, the Court of Justice noted that the other paragraphs
in the Article provided further detail concerning the concepts of ‘pay’ and ‘work’ and
held that it was possible to identify when overt discrimination arose solely with the aid
of the criteria for equal pay and equal work laid down in Article 119 EEC. These are
forms of discrimination that appear overtly in legislative provisions, collective labour
agreements or the contracts of employment themselves. Such overt forms of
discrimination are collectively known as direct discrimination. To that extent, the Article
was sufficiently clear and precise and could be enforced in national courts. However,
the Court of Justice also held that Article 119 EEC was not sufficiently clear and
precise to enable the identification of situations in which other more indirect and
disguised forms of discrimination arose which fell within the scope of the principle in
Article 119. These are situations in which the discrimination has to be detected by
means of its effect in practice. The Court of Justice held that it was only possible to
identify such situations by means of more explicit measures taken by the Community or
the Member States to implement Article 119 EEC. Therefore, Article 119 could have
not direct effect to combat these forms of discrimination.
Further examples of the Court’s approach in deciding whether a term is sufficiently
clear, precise and unconditional are provided by the following two cases. First, in Von
Colson & Kamann v Land Nordrhein-Westfalen (Case 14/83) [1984] ECR 1891, two
women had failed in their applications to be social workers in a state prison for male
offenders on grounds relating to their sex. The West German Labour Court held that
they had been discriminated against but found that, under West German law, it was
only able to award them their travel expenses in compensation. The court made a
preliminary reference to the Court of Justice asking whether it was required by the
Equal Treatment Directive to order the prison to employ the women or, if not, what
other sanction was to be applied. Article 6 of the Equal Treatment Directive stated that:
‘Member States shall introduce into their national legal systems such
measures as are necessary to enable all persons who consider themselves
wronged by the failure to apply to them the principle of equal treatment
41
within the meaning of Articles 3, 4 and 5 to pursue their claims by judicial

process after possible recourse to other competent authorities’.
The Court of Justice held that the directive did not include an unconditional and
sufficiently clear and precise obligation to provide a specific sanction for discrimination.
In the later case of Francovich & Bonifaci v Italian Republic (Cases 6/90 and 9/90)
[1991] ECR I-5357, the court had to consider Directive 80/987 which sought to ensure
that in the event of bankruptcy of a company its employees would be able to claim their
outstanding wages from a guarantee institution established by the Member States. Italy
had not implemented the Directive and as there was no national law under which
Francovich and the other claimants could claim their lost wages, they sought to rely on
the terms of the unimplemented Directive to enforce their claim. One of the questions
for the court was whether the directive had direct effect. The court concluded that the
identity of the persons entitled to the guarantee provided by the Directive and the
content of that guarantee were both sufficiently clear and precise from the provisions of
the Directive. However, the identity of the person liable to provide the guarantee in the
event that no guarantee institutions were established was not clear from the provisions.
The Directive did not have direct effect.
4.5 Direct effect of Treaty articles

Van Gend en Loos tells us that Treaty articles can be directly effective if the conditions
for direct effect are satisfied. However, Van Gend en Loos concerned a Treaty article
which imposed a negative obligation on Member States – it restrained Member States
from introducing new customs duties or increasing existing ones. It did not impose a
duty on them to take further action. Treaty articles which impose negative obligations
are sometimes referred to as ‘standstill’ articles, as all they require is that Member
States refrain from making certain changes to national law.
4.5.1 Negative and positive obligations

Van Gend en Loos left unanswered the question of whether Treaty articles which
imposed a positive obligation could be directly effective. Such articles are more
problematical from a direct effect perspective as a positive obligation appears on its
face to be necessarily conditional, as it requires Member States to do something to
give effect to the protected principle. The answer was supplied by the Court of Justice
in Alfons Lütticke GmbH v Hauptzollamt Saarlouis (Case 57/65) [1966] ECR 205 This
case concerned the scope of Article 110 TFEU. Article 110 includes a prohibition on
Member States introducing internal taxation measures which discriminate against the
goods of other Member States. However, at the time the Treaty was first agreed to, it
also imposed a positive obligation on Member States to remove, by 1 January 1962,
any existing measures which had such a discriminatory effect. The Court of Justice
held that there was no discretion left to Member States to give effect to the positive
obligation regarding removal of discriminatory internal taxes once the 1 January 1962
deadline had passed. At this point the provision became directly effective.
4.5.2 Vertical and horizontal direct effect

The action at issue in Van Gend en Loos was brought against the Dutch Inland
Revenue Administration which dealt with taxation in the Netherlands. This formed part
of the Dutch State. The decision of the Court of Justice established as a result that it
was possible for treaty articles to have direct effect against the State and organs of the
State. This is known as vertical direct effect. But it left open the question of whether or
not a treaty article could also have direct effect against private individuals and private
42
bodies. This is known as horizontal direct effect. The Court of Justice held that a treaty
article could do so in Defrenne v SABENA (Case 43/75) [1976] ECR 455,
notwithstanding that Article 119 EEC (now Article 157 TFEU), the provision at issue in
that case, only referred to Member States. The Court held that, unless it could have
horizontal direct effect, the effectiveness of the principle of equal pay for equal work
contained within it would be adversely affected by the failure of the Member States to
implement it. Therefore:
’Since Article 119 is mandatory in nature, the prohibition on discrimination
between men and women applies not only to the action of public
authorities, but also extends to all agreements which are intended to
regulate paid labour collectively, as well as to contracts between
individuals’.
4.6 Direct effect of regulations and decisions

Regulations and decisions are forms of binding EU law under Article 288 TFEU. Like
Treaty articles, the Court of Justice has found that both are capable of being directly
effective. The Court of Justice had opined in Franz Grad v Finanzamt Traunstein (Case
9/70) [1970] ECR 835 that ‘regulations are directly applicable and therefore by virtue of
their nature capable of producing direct effects’ but the matter was put beyond doubt in
Politi s.a.s. v Ministry for Finance of the Italian Republic (Case 43/71) [1971] ECR
1039. Regulations can have direct effect not only vertically against the Member State
but also horizontally against private parties (Antonio Munoz y Cia SA v Frumer Ltd
(Case C-253/00) [2002] ECR I-7289). However, they must still comply with the Van
Gend en Loos criteria. This follows from Azienda Agricola Monte Arcosu Srl v Regione
Autonoma della Sardegna (Case 403/98) [2001] ECR I-103 in which the Court of
Justice held that provisions of two Regulations did not have direct effect because those
provisions specifically required Member States to define the phrase ‘farmer practising
farming as his main occupation’. This meant that the Member States had to take further
measures to implement the provisions.
The capacity of decisions to have direct effect was established in Franz Grad v
Finanzamt Traunstein (Case 9/70) [1970] ECR 835 in which the Court of Justice held
that ‘it would be incompatible with the binding effect attributed to decisions by Article
288 to exclude in principle the possibility that persons affected may invoke the
obligation imposed by a decision’. But they can only have direct effect against the party
to whom the decision was addressed (Carp Snc di L. Moleri e V. Corsi v Ecorad Srl
(Case C-80/06) [2007] ECR I-4473).
4.7 Direct effect of recommendations and opinions

Recommendations and opinions are not binding forms of EU law and, as such, cannot
have directly effect (Grimaldi v Fonds des Maladies Professionnelles (Case C-322/88)
[1989] ECR 4407).
4.8 Direct effect of directives

Directives, like regulations and decisions, are a binding form of EU law. However,
Article 288 TFEU makes it clear that directives are only binding on Member States and
that they always have to be implemented by those Member States. This seemed to
indicate that they could not have direct effect as they were inherently conditional,
thereby failing the Van Gend en Loos test.
43
However, the Court of Justice held in Van Duyn v Home Office (Case 41/74) [1974]
ECR 1337 that they could have direct effect so long as they satisfy the Van Gend en
Loos criteria. This case concerned a Dutch scientologist offered work as a secretary at
the Church of Scientology HQ in London. She was refused entry into the UK. Article 45
TFEU provides for the free movement of workers, subject to derogations justified on
the grounds of public policy, security or health. Directive 64/221 (now Directive
2004/38) described in detail the scope of the measures which may be taken by
Member States to derogate from Article 45 TFEU. Article 3 of the Directive provided
that any such measure ‘shall be based exclusively on the personal conduct of the
individual concerned’. Van Duyn sought to rely on this provision in her claim against the
Home Office.
The Court of Justice held that the directive could have direct effect. It sought to justify
this on the basis that it would be incompatible with the binding effect of directives to
exclude direct effect and that the useful effect of an obligation being imposed on a
competent authority by a directive would be weakened if individuals were prevented by
relying on it before their national courts. However, the decision was not well received
by certain national courts in France and Germany which accused the Court of Justice
of exceeding its jurisdiction and refused to give direct effect to directives. The Court of
Justice responded in Pubblico Ministero v Ratti (Case 148/78) [1979] ECR 1629 by
providing a new rationale. It simply held that a Member State cannot rely against
individuals on its own failure to perform the obligations that the Directive entails. This
rationale succeeded in convincing the rebellious national courts to accept the direct
effect of directives. It has also informed the principles that the Court subsequently
developed to govern the direct effect of Directives.
4.8.1 The implementation date must have passed

Under Article 297 TFEU, a directive must be implemented either by the date specified
in the directive or, if the directive is silent, within 20 days of publication of the directive
in the Official Journal. In Pubblico Ministero v Ratti (Case 148/78) [1979] ECR 1629 the
Court of Justice held that a directive can only have direct effect once the deadline for
its implementation of a directive has passed and not beforehand. In this way, the Court
of Justice was able to reconcile the direct effect of directives with the requirement in the
Van Gend en Loos criteria that they be unconditional.
Ratti was the head of a company whose board of directors had decided to package its
solvents in conformity with Directive 73/173 and to apply Directive 77/728 to its
varnishes. These directives had not been implemented into Italian law. He was
prosecuted for infringing Italian law which was more stringent than the directives. In his
defence, Ratti sought to rely on the directives. The Court of Justice found that Directive
73/173 had direct effect as the deadline for its implementation had passed. It justified
this on the basis that:
‘a Member State which has not adopted the implementing measures
required by the directive in the prescribed periods may not rely, as against
individuals, on its own failure to perform the obligations the directive
entails’.
However, it held that that Directive 77/728 did not have direct effect as the deadline for
its implementation date had not yet passed. Before the expiry of the deadline, the
Member States remain free in that field.
Ratti concerned a simple failure to implement a Directive. Prior to Ratti, the Court had
already established that a directive could have direct effect where a Member State has
only partially or incorrectly implemented it (see Verbond van Nederlandse
44
Ondernemingen (VNO) v Inspecteur der Invoerrechten en Accijnzen (Case 51/76)

[1977] ECR 113). The result of this is that an individual may be able to rely on a
directive in the national court of a Member State where the directive has not been
implemented at all by that Member State or has only been partially or incorrectly
implemented by it so long as the implementation date for that directive has passed and
its provisions satisfy the other conditions for direct effect. The Court of Justice has
subsequently gone one step further in Marks & Spencer plc v Commissioners of
Customs & Excise (Case C-62/00) [2002] ECR I-6325 by holding that even where a
directive has been completely and correctly implemented into national law by the
Member State, an individual may continue to rely upon a clear, precise and
unconditional directive in their national court ‘where the national measures correctly
implementing the directive are not being applied in such a way as to achieve the result
sought by it’.
4.8.2 Vertical direct effect but no horizontal direct effect

The Court of Justice in Van Duyn had held that a directive has direct effect against a
Government department. The case thereby established that a Directive can have
vertical direct effect against the State. But could it also have direct effect against a
private individual or body? In Marshall v Southampton and South West Area Health
Authority (Teaching) (No 1) (Case 152/84) [1986] ECR 723, the Court of Justice
established that a Directive cannot have direct effect against a private entity as, under
Article 288 TFEU, it is only binding on the Member States to whom it is addressed. The
case concerned a female dietician, who was dismissed on the ground that she had
passed the compulsory retiring age applicable to women. Female employees were
required to retire at 60, whereas male employees could continue to work until they
were 65. Marshall, who was then 62, complained that her dismissal violated Directive
76/207 (the Equal Treatment Directive) which prohibited discrimination in working
conditions on the grounds of sex.
One of the arguments made in response by the Area Health Authority and the United
Kingdom Government, which had intervened in the case, was that a Directive could
only have direct effect against a Member State when it was acting in its capacity as a
public authority and not when it was acting as an employer. This was because a
Directive could not impose obligations on an individual and, as a state employer is no
different from a private employer, it would not be proper to put persons employed by a
state employer in a better position than those employed by private employers.
The Court of Justice agreed that a Directive could not have horizontal effect against a
private individual:
'With regard to the argument that a directive may not be relied upon against
an individual, it must be emphasised that according to Article 189 of the
EEC Treaty, the binding nature of a directive, which constitutes the basis
for the possibility of relying on the directive before a national court, exists
only in relation to ‘each Member State to which it is addressed’. It follows
that a directive may not of itself impose obligations on an individual and that
a provision of a directive may not be relied upon as such against such a
person.'
But it continued by holding that a person could rely on a Directive against the State
regardless of the capacity that the State was acting in. The fact that the authority was
acting in its capacity as an employer rather than a public authority made no difference.
The Court’s response to the argument of the United Kingdom government that this
would put state employees in a better position than private employees was to observe
45
that the distinction would have been avoided if the Directive had been implemented
correctly by the United Kingdom in the first place!
In Dori v Recreb Sri (Case C-91/92) [1994] ECR I-3325, Advocate General Lenz
subsequently argued in his opinion that the Court of Justice should find that directives
are capable of being horizontally directly effective. However, the Court of Justice in that
case did not take up his recommendation and confirmed that directives can only have
vertical direct effect.
Activity point
Read paragraphs 43 to 73 of the opinion of Advocate General Lenz in Dori v Recreb
Sri and consider the Court of Justice’s response in paragraphs 23 to 25 of its judgment
in the same case. These are available from the official European Union Law website
(eur-lex.europa.eu) and the website of the Court of Justice (curia.europa.eu).
What were the arguments put to the Court by the Advocate General in favour of the
proposition that directives should have horizontal directly effect? Why did the Court
reject these?
4.8.3 An emanation of the State – an expanding concept

The judgment of the Court of Justice in Marshall made it clear that a directive could be
relied upon against a health authority because the health authority was an organ of the
state. Around that time, directives were also relied upon against the following bodies:
 Tax authorities (Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR
53)
 Local or regional authorities (Fratelli Costanzo Spa v Comune di Milano (Case
C-103/88) [1989] ECR I-1839)
 A constitutionally independent police force responsible for the maintenance of
public order and safety (Johnston v Chief Constable of the RUC (Case 222/84)
[1986] ECR 1651).
None of these cases involved a body or individual who had been responsible for
enacting legislation to implement the directive. Nevertheless, the bodies involved had
been treated, whether implicitly or explicitly, as organs of the state or, to use the phrase
which was introduced in Johnston, as emanations of the state. Neither Marshall nor
any other of these cases provided clear criteria for establishing when a body was to be
considered to be an organ or emanation of the state. It was not until Foster v British
Gas plc (Case C-188/89) [1990] ECR I-3313 that the Court of Justice provided specific
criteria. The action in Foster had been brought by six women who had been forced to
retire the age of 60 in accordance with the policy of British Gas. This was five years
earlier than their male counterparts were requirement to retire. The applicants sought
to rely on Directive 76/207 (the Equal Treatment Directive). At the time of their
dismissal, British Gas was a nationalised industry, although it had subsequently been
privatised. The House of Lords sought a preliminary ruling from the Court of Justice on
whether, at the time of their dismissal, British Gas was a body of such a type that the
applicants are entitled to rely directly upon Directive 76/207 in English courts and
tribunals.
The Court of Justice began by summarising the broad powers and duties that British
Gas had under the Gas Act 1972 and the powers that the Secretary of State had over it
under that Act. It then answered that question by taking the following steps:
46
1. Step one: the bipartite test

The Court of Justice noted the types of bodies which had already been treated as
emanations of the state and held in paragraph 18 that a directive could be relied
on against organisations or bodies which:
 Were subject to the authority or control of the State; or
 Had special powers beyond those which result from the normal rules
applicable to relations between individuals.
This is the bipartite test.
2. Step two: the tripartite test
The Court of Justice added in paragraph 20 that it followed from this that a body,
whatever its legal form, which:
 Has been made responsible, pursuant to a measure adopted by the State,
for providing a public service;
 Under the control of the State; and
 Has for that purpose special powers beyond those which result from the
normal rules applicable in relations between individuals;
is included in any event among the bodies against which the provisions of a
directive capable of having direct effect may be relied upon.
This is the tripartite test. It is a cumulative test in that all the elements must be
satisfied. The use of the phrase ‘included in any event’ by the Court of Justice
appeared, at first sight at least, to indicate that the tripartite test was not meant to
be the principal test for an emanation of the state. It suggested that the bipartite
test constituted the principal test for identifying which bodies are emanations of
the state whilst the tripartite test was meant to identify just one category of those
bodies. To put it another way, bodies that fell within the tripartite test would
comprise a subset of those bodies identified as emanations of the state under the
bipartite test.
3. Step three: the answer
The Court of Justice then provided its answer to the question asked by the House
of Lords. In paragraph 22 and the operative part of the decision, it simply held
that Directive 76/207 may be relied upon against a body which satisfied the
tripartite test. No mention was made of the bipartite test or of the words ‘included
in any event’.
The answer left little doubt as to which test was to be applied to the facts of the case
itself. But the overall judgment left uncertainty as to which test was supposed to be
applied in other situations in order to identify an emanation of the state. Much
academic ink has been spilt over subsequent years in debating whether the criteria
specified in the bipartite test or those in the tripartite test form the correct formula for
identifying an emanation of the state and in what circumstances.
In the United Kingdom, it fell to the House of Lords, in Foster v British Gas (No.2)
[1991] 2 AC 306 to apply the Court of Justice’s ruling in Foster to the facts of that case.
In accordance with the formal answer provided by the Court of Justice, it applied the
tripartite test and held that British Gas was an emanation of the State. Under the Gas
Act 1972, British Gas provided a public service by supplying gas to citizens of the state
generally. It did so under the control of the state as the Secretary of State could dictate
47
its policies and the State retained its surplus revenue. British Gas also had a special
monopoly power under which it could prevent anyone else from supplying gas in the
United Kingdom without its consent.
The tripartite test was also applied by the courts of England and Wales in the following
two cases:
 The Court of Appeal held in Doughty v Rolls Royce Plc [1992] 1 CMLR 1045 that
Rolls Royce was not an emanation of the state despite all of its shares being
owned by the Government and its nominees. It operated as a ‘commercial
undertaking’ which traded with the government on an ‘arm’s length’ commercial
basis. It was not providing a public service and it did not have any special
powers.
 The High Court in Griffin v South West Water Services Ltd [1995] IRLR 15 held
that a privatised water company satisfied all three elements of the tripartite test. It
had been made responsible, pursuant to a measure adopted by the State, for
providing a public service by acting as a water and sewage undertaker under
statute. The Secretary of State had appointed it as the water and sewage
undertaker for the South West and exercised wide ranging powers of control over
it. It also had a range of special powers such as to impose hosepipe bans, to
make by-laws, to enter land and to lay pipes.
Nevertheless, this does not mean that the tripartite test was treated by the courts of
England and Wales as the sole test. In Doughty, Lord Musthill opined that, whilst the
tripartite test should be applied in a general case of the same type as Foster, the words
‘included in any event’ made it clear that the tripartite test was not to be applied in
every case. The Court of Appeal subsequently declined to apply the full tripartite test in
National Union of Teachers v Governing Body of St Mary’s Church of England School
(Aided) Junior School [1997] CMLR 630 when it decided that the Board of Governors of
a Church of England School, which had voluntarily accepted state aid and entered the
state education system, was an emanation of the state. Schiemann LJ held that it was
wrong to treat the tripartite test in Foster as if it were a statutory definition. This case,
he observed, was not of the same general type as Foster and Doughty. Those two
cases involved commercial undertakings in which the Government had a stake. This
case involved the provision of a public service by a school which had entered the state
school system. It was sufficient, he concluded, that the Board of Governors was
providing a public service and that the Secretary of State and the Local Education
Authority were able to exercise a sufficient degree of control over the school. There
was no need to demonstrate any special powers.
It is arguable that the conclusion reached in St Mary’s Junior School was compatible
with the bipartite test. The first time that the Court of Justice was called upon to revisit
the question of what constitutes an emanation of the state was in Kampelmann v
Landschaftsverband Westfalen-Lippe (Cases C-243 to 258/96) [1997] ECR I-6907,
almost a year after St Mary’s Junior School. The case involved claims against a
regional authority (‘Landschaftsverband’) responsible for, amongst other things, the
construction, maintenance and management of highways; and against two public
undertakings (‘Stadtwerke’), each of which were responsible for the supply of energy to
a town. In reaching its decision, the Court of Justice did not refer to the tripartite test at
all. Instead, in accordance with the bipartite test from Foster, it held the Directive could
be relied upon against organisations or bodies which are subject to the authority or
control of the State or have special powers beyond those which result from the normal
rules applicable to relations between individuals. In a reflection of the bodies which
were at issue in the case, it also cited the following as examples of bodies which would
48
satisfy that test: local or regional authorities or other bodies which, irrespective of their
legal form, have been given responsibility, by the public authorities and under their
supervision, for providing a public service. It left it to the national court to apply this to
the facts of the case. The bipartite test has later cited again by the Court of Justice in
Sozialhilfeverband Rohrbach v Arbeiterkammer Oberösterreich (Case C-297/03) [2005]
ECR I-4305 when it decided that two limited liability companies were emanations of the
state. The companies had been established and were owned by a local authority
association for the purpose of providing social assistance to disabled persons by
supplying them with a workplace.
Nevertheless, there have also been several other cases in which the EU courts have
chosen to rely upon or cite the tripartite test instead. In one significant example, the
Court of First Instance held that a body was not an emanation of the state because it
failed the tripartite test in Salamander AG, Una Film City Revue GmbH and others v
European Parliament and Council of the European Union (Cases T-172/98 and
T-175/98 to T-177/98) [2000] ECR II-2487. This was not a direct effect case per se.
The applicants were seeking an annulment of Directive 98/43/EC relating to the
advertising and sponsorship of tobacco products. To be able to bring the annulment
action, they needed to prove that they were directly and individually affected by the
Directive. (This test is discussed in Section A2.3.2 of Appendix 2 of these Study
Notes.) Una Film, which distributed advertising films in cinemas, argued that it was
directly and individually affected because it was under the control of the state, was an
emanation of the state as a result and so the Directive would have direct effect against
it. The Court of First Instance held that, even if it was under the control of the state, it
did not provide a public service under measures adopted by the State and it did not
have special powers.
An example of a case in which a company was held to be an emanation of the state
under the tripartite test is Reiser Internationale Transporte GmbH v Autobahnen und
Schnellstrassen Finanzierungs AG (Asfinag) (Case C-157/02) [2004] ECR I-1477. This
concerned an Austrian company which had been incorporated as a private company
but whose sole shareholder was the Austrian State. It had been granted a contractual
licence by the State making it responsible for the construction, planning, operation,
maintenance and financing of Austrian motorways and expressways and authorising it
to levy tolls and user charges, in its own name and on its own account, in order to
recoup its expenses. The government had the right to check all company measures, to
demand information about its activities at all times, to impose objectives about traffic
organisation and to impose the tolls. In addition the company had to submit costed
plans for maintenance work to the government. The Court of Justice held that the
requirements of the tripartite test were fulfilled. The company was an emanation of the
State.
An important recent case in which the tripartite test was employed by the Court of
Justice is Portgás – Sociedade de Produção e Distribuição de Gás SA v Ministério da
Agricultura, do Mar, do Ambiente e do Ordenamento do Território (Case C-425/12)
[2013] ECR I-0000. Portgás is a private undertaking which has the exclusive right to
distribute gas in the North Coast region of Portugal under a concession granted by a
contract with the Portuguese Government. In a preliminary reference, the Court of
Justice was asked to determine whether the authorities of a Member State could rely
on Directive 93/38, which concerned procurement procedures, against a private
undertaking which is the exclusive holder of a public service concession. The Court of
Justice broke this down into two distinct issues:
 First, the Court of Justice determined whether or not the directive could have
direct effect against Portgás. It held that the mere fact that Portgás, as the
49
exclusive holder of a public service concession, fell within the group of entities
which were covered by the directive was not enough. It had to satisfy the tripartite
test. The court felt that it was not clear that Portgás did. Whilst Portgás did hold
the public service concession, it appeared that the Portuguese State was not a
majority shareholder in the company and did not appoint the members of its
management and supervisory bodies. Neither did the Portuguese State issue
instructions concerning the operation of its public service activity. The court also
noted that the mere fact that Portgás enjoyed certain special and exclusive rights
under its concession contract did not mean that it had special powers.
Nevertheless, the Court of Justice left it to the national court to establish whether
or not the test had been satisfied.
 Secondly, the Court of Justice made it clear that it was not only individuals who
can rely on directives against a Member State and its emanations. Other
authorities of the Member State can do so as well. Therefore, if the tripartite test
was satisfied by Portgás, Directive 93/38 could be enforced by the Portuguese
authorities against Portgás.
It is not entirely clear from these cases precisely when the bipartite test will be relied
upon by the Court of Justice and when the tripartite test will be used. It is perhaps
helpful to remember that the Court of Justice is able to transcend precedent in a way
that is a lot harder for an English or Welsh court and it may well simply be applying the
approach most appropriate to the immediate factual circumstances of the case.
4.9 Criminal liability

One further limitation to direct effect concerns criminal liability and was established by
the Grand Chamber of the Court of Justice in Criminal Proceedings Against Berlusconi
(Joined cases C-387/02, C-391/02 and C-403/02) [2005] ECR I-3565. The case arose
from the prosecution of several people in Italy on charges of falsifying accounts in
relation to various companies during the 1980s and 1990s. One of them, Berlusconi,
had been a chairman of a media group at the time that the accounts at issue in his
case were filed. He later became Prime Minister of Italy. While he was Prime Minister,
the Italian Civil Code was amended to reduce substantially the penalties for the
relevant offence. This had the effect of reclassifying the offence from an indictable
offence to a summary offence with the result that it reduced the time limit within which a
prosecution could be brought under Italian law. The prosecutors argued that this was
not compatible with the obligation on Member States under Directive 68/151 (‘the First
Companies Directive’) to provide an appropriate penalty for a failure to disclose
accounts. The Grand Chamber held that the directive could not have direct effect
against the accused because a directive cannot, of itself and independently of an
implementing law, have the effect of determining or aggravating the liability in criminal
law of persons who act contrary to the provisions of that directive. Reliance on
Directive 68/151 would have resulted in a manifestly more severe criminal penalty.
Consequently, the directive could not be given direct effect to set aside the more
lenient criminal penalties imposed by Italian law. In arriving at this conclusion, the court
drew on a corresponding principle developed in respect of another method of
enforcement called indirect effect in Criminal Proceedings Against Kolpinghuis
Nijmengen BV (Case 80/86) [1987] ECR 3969. (Indirect effect is discussed in Section
4.11 below. Kolpinghuis Nijmengen is discussed in Section 4.11.2). There was also a
second more familiar reason provided by the Grand Chamber in Berlusconi for why
Directive 68/151 could not have direct effect: the directive could not be relied upon
against a private individual.
50
4.10 The limitations of direct effect

Direct effect is a powerful principle but it has its limitations. First, the conditions for
direct effect must be satisfied. Under the Van Gend en Loos criteria, a provision of EU
law can only have direct effect where it is sufficiently clear and precise and
unconditional. Moreover, directives, one of the most important and frequently used
forms of EU law, can only have vertical direct effect.
Whilst the scope for finding that a directive has direct effect has been expanded
through a generally broad application of the concept of an emanation of the state in the
courts, that concept can only be stretched so far. Many people who, by virtue of
seeking to enforce a claim under a directive against another individual, will be denied
rights which others, in an otherwise similar position, could successfully enforce against
the State.
The Court of Justice has responded to such limitations by developing two further
methods of enforcement in national courts. They are indirect effect and state liability.
These two methods will now be examined in turn.
4.11 Indirect effect

Before Marshall was decided, the Court of Justice had already recognised that
directives, even if not directly effective, are capable of having ‘indirect effect’ in that
their provisions can be used by national courts in interpreting the meaning and scope
of national legislation. This principle was established in Von Colson & Kamann v Land
Nordrhein-Westfalen (Case 14/83) [1984] ECR 1891.
4.11.1 The Von Colson principle

Von Colson concerned two female social workers who applied for jobs with the prison
service of a German Federal State. Both had been rejected in favour of less well-
qualified male applicants on the basis that there would be problems and risks in
employing female workers in a male prison. They argued that they had been
discriminated against on the ground of sex. In this case, there was a German law
implementing Directive 76/207 (the Equal Treatment Directive) on which the women
could rely. Their argument was successful before the West German Labour Court.
However, even though discrimination had been established, under national law they
were only entitled to nominal damages in the form of travelling expenses. Article 6 of
the Directive had required Member States to ‘introduce into their national legal systems
such measures as are necessary to enable all persons … to pursue their claims by
judicial process’. The West German court made a preliminary reference to the Court of
Justice asking whether it was required by the Directive to order the prison to employ
the women or, if not, what other sanction was to be applied.
The Court of Justice found that Article 6 of the Equal Treatment Directive was not
sufficiently clear, precise and unconditional to be directly effective (see Section 4.4
above). However, that was not the end of the matter. The Court turned to Article 5 EC
(now see Article 4(3) TEU), which requires that Member States ‘take all appropriate
measures’ to ensure that their obligations under EU law are fulfilled, and drew from this
the principle of indirect effect. Because Article 5 was binding on ‘all authorities of
Member States’, the Court of Justice found that national courts, as part of the state, are
required to interpret domestic laws implementing a directive in conformity with the
wording and purpose of the directive. The court said that:
‘... in applying the national law and in particular the provisions of national
law specifically introduced in order to implement Directive 76/207, national
51
courts are required to interpret their national law in the light of the wording
and the purpose of the directive in order to achieve the result referred to in
Article 189(3) [now Article 288(3) TFEU].
... It is for the national court to interpret and apply the legislation adopted for
the implementation of the directive in conformity with the requirements of
community law, in so far as it is given discretion to do so under national
law’.
Two points are worth nothing about this formulation. The first is that it left uncertainty
as to whether or not indirect effect would be available where the law in question was
not passed specifically to implement a directive. Secondly, it specified that the duty to
interpret extended only so far as the national court was given discretion to do so under
national law.
The Court of Justice left it to the West German court to apply the interpretative duty to
its national law but made it clear that, whilst the Directive did not specify a form of
sanction, any sanction that was imposed by the national court had to be such as to
guarantee real and effective judicial protection of the right to equal treatment under the
Directive and to have a real deterrent effect of the employer. Consequently, if an award
of compensation was made, that award had to be adequate in relation to the damage
sustained and therefore had to be more than purely nominal.
Von Colson concerned a vertical claim by the two female social workers against an
emanation of the state, the prison service of a German Federal State, but the logic of
the reasoning in Von Colson effectively dispenses with any requirement to distinguish
between vertical and horizontal claims. This was borne out in Harz v Deutsche Tradax
(Case 79/83) [1984] ECR 1921. That case had similar facts to Von Colson and had
been referred to the Court of Justice at the same time by the West German Labour
Court. However, in contrast to Von Colson, the claim in Harz was made against a
private company. That distinguishing fact was irrelevant in terms of the approach of the
Court of Justice which handed down its judgement on the same day as Von Colson.
Consequently, the interpretive duty imposed on national courts by the principle of
indirect effect applies irrespective of whether a case can be characterised as vertical or
horizontal and so applied as equally to the claimant in Harz as it had to the claimants in
Von Colson.
4.11.2 Clarification of the Von Colson principle

There were ambiguities in the way that the Court of Justice had outlined the nature and
scope of the interpretative obligation in Von Colson. In particular, two important
questions remained to be resolved:
1. To what extent could the principle of indirect effect apply to non-implementing
laws and, in particular, those passed before the EU made a rule in the area
covered by the existing national law?
2. What was the precise meaning of the expression ‘in so far as it is given discretion
to do so under national law’ which had been used by the Court of Justice in Von
Colson to describe the limit to the interpretative obligation it had outlined?
Both these issues arose in Marleasing SA v La Comercial Internacional de
Alimentación SA (Case C-106/89) [1990] ECR I-4135. The case originated in Spain
between two private companies, Marleasing, a creditor of La Comercial, and concerned
an EU directive, the Company Law Directive 68/151, and pre-existing provisions of the
Spanish Civil Code. Spain had not implemented the Directive and the deadline for
implementation had passed. Marleasing sought to have the defendant company
52
declared void on the basis that it alleged that the company had been created to defraud
creditors by putting assets beyond their reach. It sought the declaration on the ground
of ‘lack of cause’ because it lacked a lawful cause. This ground was provided for by the
Spanish Civil Code. In response, La Comercial relied on the later unimplemented
directive, which included an exhaustive list of grounds on which a declaration of nullity
could be declared. Lack of cause was not among them. The case was referred to the
Court of Justice.
Direct effect was not available as a means through which Directive 68/151 could be
given effect in the domestic law of Spain because the case involved a horizontal action
between two private companies. However, following Von Colson, indirect effect was
available. The Court of Justice held 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.'
This contained a noticeable change in the way that the limit to the interpretative
exercise which national courts were required to undertake was defined. Whereas the
Court of Justice in Von Colson had required national courts to interpret their national
law only in so far as they were given discretion to do so under national law, the Court in
Marleasing had now simply required that they interpret national law only in as far as it
was possible to do so. Nevertheless, the Court appeared to be retaining a limit to the
interpretative exercise. However, no such limit appeared when the Court of Justice
gave its answer at the end of the judgment. The Court simply held that:
'a national court … is required to interpret its national law in the light of the
wording and the purpose of that directive in order to preclude a declaration
of nullity of a public limited company on a ground other than those listed in
Article 11 of the Directive.'
There was no mention here of the national court only being required to interpret its
national law in so far as it is possible to do so to make it conform to the directive. This
led several critics of the judgment to maintain that the Court of Justice had, in effect,
ordered the Spanish court to override the Spanish civil code under the guise of
interpretation.
Nevertheless, the Court of Justice’s decision in Marleasing did clarify two things. First,
it made it clear that the provisions of an unimplemented directive could be used to
interpret national law, even in a purely horizontal action between individuals. Secondly,
it is also clear from this decision that it does not matter if the national law had been
made before or after the directive: the directive can still be used to interpret that law.
Indeed, the Grand Chamber of the Court of Justice has held in Pfeiffer v Deutsches
Rotes Kreuz, Kreisverband Waldshut eV (Cases C-397 to 403/01) [2004] ECR I-8835
that the obligation to interpret national law in conformity with EU law requires the
national court to consider national law as a whole.
In the years following Marleasing, the Court of Justice has confirmed that there are
limits to how far the interpretative obligation can be pushed to give indirect effect to EU
law. The first case to do this was Wagner Miret v Fondo di Garantía Salarial (Case C-
334/92) [1993] ECR I-6911 which, like Marleasing, originated in Spain. The case
concerned Directive 80/987 which required each Member State to establish guarantee
institutions to pay wages and other outstanding claims owned to the employees of
companies which had become insolvent. Spain already had a national law which
53
provided for a guarantee fund but this specifically excluded senior management from
the ambit of the fund. No steps were taken to amend the Spanish law following the
adoption of Directive 80/897 as it was considered unnecessary to do so. Wagner Miret
was a senior manager of an insolvent company and so, as a member of the excluded
class, he could not apply to the fund. Instead, he sought to rely directly on Directive
80/987 which did not require or sanction the exclusion of senior management from
compensation in the event of their company becoming insolvent. On a reference from
the Spanish court, the Court of Justice held that the directive was not directly effective
because it was too imprecise to satisfy the conditions for direct effect. When it came to
consider indirect effect, the Court confirmed that, following Marleasing, national courts
were required ‘as far as possible’ to interpret national law in conformity with the
wording and purpose of a directive. It accepted the national court’s finding that it was
not possible to interpret the national law in a way that was consistent with the
requirements of the directive. The Court of Justice thereby confirmed that indirect effect
would not be possible where the national law expressly contradicts the provision of EU
law. Subsequently, in Criminal Proceedings Against Pupino (Case C-105/03) [2005]
ECR I‑5285, the Court of Justice has simply held that national courts are not required
to interpret national law contra legem, that is, against the clear meaning of its words.
The Court of Justice has also made it clear that it accepts that there are other limits to
the interpretive obligation placed on national courts by the Von Colson principle. In
Adeneler v Ellinikos Organismos Galaktos (ELOG) (Case C-212/04) [2006] ECR
I-6057, the Grand Chamber of the Court of Justice held that the obligation on national
courts to interpret national law in conformity with a directive exists only once the
deadline for the implementation of that directive has passed. Another limitation to the
applicability of indirect effect was established in Criminal Proceedings Against
Kolpinghuis Nijmengen BV (Case 80/86) [1987] ECR 3969. This case concerned
Directive 80/777 which required Member States to prohibit water from being marketed
as natural mineral water where it did not satisfy certain specified requirements. Dutch
law had been enacted to implement this but it had not yet come into force. A Dutch
public prosecutor sought to give indirect effect to this directive in a criminal prosecution
he brought against a Dutch company for marketing carbonated tap water as mineral
water. He charged the company with stocking for sale and delivering goods intended
for trade and human consumption which are of unsound composition and argued that
‘unsound composition’ should be interpreted in the light of Directive 80/777. On a
preliminary reference, the Court of Justice held that indirect effect was limited by the
general principles of EU law, in particular the principles of legal certainty and non-
retroactivity. (The general principles are discussed in Appendix 1 of these Study
Notes.) These principles prevented a Member State from relying on a directive itself
and independently of an implementing law to determine or aggravate criminal liability.
While most of the case law dealing with indirect effect concerns the indirect effect of
directives, there is no reason why other forms of Community law cannot also have
indirectly effect. For example, Pupino concerned a framework decision. Indeed, the
Court of Justice has effectively recognised that even recommendations and opinions,
the non-binding forms of EU law, can influence the interpretation of the domestic law of
Member States by their national courts (see Grimaldi v Fonds des Maladies
Professionnelles (Case C-322/88) [1989] ECR 4407).
4.12 IDT Card Services

More detailed guidance on what the interpretative obligation entails in England and
Wales has been laid down by the English Court of Appeal in HM Revenue and
54
Customs v IDT Card Services Ireland Ltd [2006] EWCA Civ 29. The Court in this case
outlined the following principles:
 There is no need to find that the statutory language should be ambiguous before
interpreting the legislation.
 The interpretation can change the meaning of the legislation in a way that
involves a substantial departure from the language. It can read the language
more restrictively or more expansively and can read words into the legislation.
 However, the court must not rewrite legislation in a way that goes beyond
interpretation. It cannot read words into the legislation that go against the grain of
the legislation. Nor can it adopt a meaning that departs from a fundamental
feature of the legislation or a cardinal principle of it.
 The interpretation cannot entail the court making a decision which involves it
making policy choices that it is not equipped to make nor where there will be
practical repercussions which the court is not equipped to evaluate.
Of course, these principles are not applicable outside the United Kingdom.
4.13 State liability

The principle of state liability allows an individual to recover compensation from a
Member State where he or she has incurred loss as a result of the failure of that
Member State to fulfil its obligations under EU law. Following the logic which had driven
its rejection of horizontal direct effect of directives and relying on Article 5 (now Article
4(3) TEU), as it had with indirect effect, the Court of Justice sought to lay responsibility
for such failures fairly and squarely at the feet of Member States. As such, the principle
may provide a remedy to a person in circumstances where neither direct effect nor
indirect effect is applicable. Equally, it also applies where both remedies are available.
The case which first established the principle of state liability is Francovich & Bonifaci v
Italian Republic (Cases C-6/90 & C-9/90) [1991] ECR I-5357. The employers of
Francovich and Bonifaci had become insolvent which resulted in them not being paid
outstanding wages. Directive 80/987 appeared to cover just such a situation. It required
each Member State to establish guarantee institutions from which employees of
insolvent companies could recover at least some of their lost wages. However, Italy
had not implemented the Directive and the deadline for implementation had passed.
Moreover, the Commission had found Italy in breach of its obligations under EU law in
not having implemented the Directive (Commission v Italy (Case 22/87) [1989] ECR
143). As there was no national law under which Francovich and the other claimants
could recover their losses, they turned to the Directive. The Italian court referred the
case to the Court of Justice.
Neither direct effect nor indirect effect could be relied upon in this case: the Directive’s
provisions did not satisfy the conditions for direct effect (see Section 4.4 above) and
there was no pre-existing national law which could be interpreted through indirect effect
in conformity with its object and purpose. What the Court of Justice did find, however,
was that Italy could be held liable for not having implemented this Directive in breach of
its obligations under EU law:
'It is a principle of Community law that the Member States are obliged to
make good loss and damage caused to individuals by breaches of
Community law for which they can be held responsible.'
55
The Court of Justice justified its decision on the basis that the Article 5 EC (now Article
4(3) TEU) requirement on Member States to fulfil their Treaty obligations also included
remedying the consequences of breaching those obligations. In addition, the
effectiveness of EU law would be circumscribed were Member States not obliged to
provide a remedy in situations where they caused loss to a person in breaching their
obligations under EU law.
The Court identified three conditions which had to be satisfied before the principle of
state liability could take effect:
‘The first of those conditions is that the result prescribed by the directive
should entail the grant of rights to individuals. The second condition is that
it should be possible to identify the content of those rights on the basis of
the provisions of the directive. Finally, the third condition is the existence of
a causal link between the breach of the State’s obligation and the loss and
damage suffered by the injured parties’.
Francovich had involved a failure by a Member State to take any steps to implement a
directive. The principle was subsequently applied in Wagner Miret v Fondo di Garantía
Salarial (Case C-334/92) [1993] ECR I-691. This case has been discussed earlier in
Section 4.11 in the context of indirect effect. It will be recalled that Spain had failed to
take any steps to bring its national law into line with Directive 80/897, the same
directive as that in Francovich. The reason for this was that the existing Spanish law
already complied with the Directive in so far as it provided for a guarantee fund.
However, the senior management of insolvent companies was specifically excluded by
the relevant Spanish law from the ambit of the guarantee fund. This did not comply with
the Directive as no such exclusion had been provided for by it. The Court of Justice
held that the Spanish State was liable to compensate a senior manager of an insolvent
company for the loss of his unpaid salary as this loss had been caused by Spain’s
failure to implement the Directive properly in respect of such senior managers.
The scope of the principle was expanded and the conditions for its application were
refined in the joined cases of Brasserie du Pêcheur SA v Germany and R v Secretary
of State for Transport ex p Factortame Ltd (No 4) (‘Factortame III’) (Cases C-46/93 &
C-48/93) [1996] ECR I-1029). Brasserie du Pêcheur concerned a claim by French
brewers against Germany for damages after being forced to stop beer exports to
Germany. Factortame concerned a claim for damages by Spanish fishermen against
the UK after legislation was passed which effectively prevented them from fishing in UK
waters by requiring fishing vessels to be British owned and managed from the United
Kingdom. Both concerned claims arising from primary Treaty provisions rather than a
directive as had been the case in Francovich.
The Court of Justice held that the principle of state liability applied to any case in which
a Member State breaches EU law, irrespective of whichever organ of the State was
responsible, including a national legislature, and even if the measure had direct effect.
It also held that it was not necessary for the Member State to have had limited
discretion as to how it should act as Italy had in Francovich. State liability could also
arise where the Member State had a wide discretion. What was necessary was that the
breach be ‘sufficiently serious’. Under these circumstances, the three conditions which
must be satisfied for a claim in state liability to be established were set out in Brasserie
du Pêcheur in the following terms:
1. The rule of law infringed must be intended to confer rights on individuals.
2. The breach must be sufficiently serious.
56
3. There must be a direct causal link between the breach of the obligation resting on
the state and the damage sustained by the injured parties.
The Court stated that the ‘decisive’ question in determining whether or not a breach
was sufficiently serious was whether the Member State had ‘manifestly and gravely
disregarded the limits of its discretion’. It provided a list of factors which could be taken
into account in answering this question:
 The clarity and precision of the rule breached.
 The measure of discretion left to the Member State by the rule.
 Whether the breach was intentional.
 Whether the breach was excusable.
 The extent to which a position taken by a Union institution may have contributed
to the breach.
 The extent to which the Member States had adopted or retained national
measures contrary to EU law.
The Court also made clear that, beyond finding that a breach is sufficiently serious,
there is no need to establish fault on the part of the Member State.
A good illustration of the application of the test in Brasserie du Pêcheur is provided by
R v HM Treasury, ex p British Telecommunications plc (Case C-392/93) [1996] ECR
I-1631. BT sought damages for losses it suffered following from the manner in which
the UK implemented Directive 90/351, dealing with procurement procedures in the
telecommunications sector. The case was referred to the Court of Justice. While the
Court agreed that the UK had misunderstood what was required by the Directive and
incorrectly transposed it into national law, it was held not to be liable in damages. The
breach was excusable for a number of reasons, including:
 The lack of precision in the relevant provision of the directive.
 The UK’s interpretation of what was required was made in good faith.
 The same interpretation of the provision as made by the UK had also been made
by other Member States.
 That interpretation ‘was not manifestly contrary to the wording of the directive or
the objective pursued by it’.
 There was no guidance available through either case law of the Court of Justice
or from the Commission, which had not raised the matter with the UK when it had
implemented the Directive.
This can be contrasted with R v Ministry of Agriculture, Fisheries and Food, ex p
Hedley Lomas (Ireland) Ltd (Case C-5/94) [1996] ECR I-2553. Hedley Lomas sought
damages from the Ministry of Agriculture, Fisheries and Food (MAFF) in the United
Kingdom for refusing to grant export licences to allow live animals to be exported from
the United Kingdom to Spain. MAFF accepted that the refusal to grant the licenses was
a restriction on the free movement of goods contrary to Article 35 TFEU but sought to
justify it on the grounds of the protection of the health and life of animals under Article
36 TFEU. (On these two Articles, see Sections 6.7 and 6.3 of these Study Notes
respectively.) It argued that a number of slaughterhouses in Spain were not properly
complying with Directive 74/577 on the stunning of animals before slaughter. The Court
of Justice held that Article 36 TFEU could not be relied upon as Directive 74/577 had
already been adopted to achieve the objective for which Article 36 was being invoked,
57
namely to ensure that animals are stunned before slaughter. MAFF should have
trusted the Spanish authorities to have carried out inspections of their slaughterhouses
instead of unilaterally adopting corrective or protective measures. The Court found that,
in this context, the first condition for state liability in the test in Brasserie du Pêcheur
was fulfilled because Article 34 TFEU conferred rights on exporters. It left it to the
national court to determine whether or not the third condition for state liability, which
concerned causation, was satisfied. In respect of the requirement in the second
condition that a breach be sufficiently serious, the Court of Justice held that:
‘Where the Member State in question was not called upon to make any
legislative choices and had only considerably reduced, or even no,
discretion, the mere infringement of Community law may be sufficient to
establish the existence of a sufficiently serious breach’.
The Court left it to the national court to apply this but the clear implication here was that
the condition would be fulfilled on the facts of the case. Indeed, the Court emphasised
the point by noting that MAFF had produced no proof of non-compliance with the
Directive.
The decision in Hedley Lomas made it clear that the sufficiently serious test was not
confined only to situations in which Member States had wide discretion as the Court
had indicated in Brasserie du Pêcheur, but it was also applicable to situations in which
the Member State had limited discretion or no discretion at all, albeit that it would be
easily satisfied. This meant that the sufficiently serious test was applicable to the very
kind of situation which had been at issue in Francovich. That made it more pressing to
resolve the precise relationship between the Francovich test and the Brasserie du
Pêcheur test. This task was undertaken by the Court of Justice in Dillenkofer v
Germany (Joined Cases C-178-9 & 188-190/94) [1996] ECR I-4845). The Court sought
to reconcile the two by holding that the conditions in Francovich and those in Brasserie
du Pêcheur were the same in substance. A failure by a Member State to take steps to
implement a directive once the deadline for implementation has passed, as had
occurred in Francovich, is of itself a sufficiently serious breach under the Brasserie du
Pêcheur test. The suggestion here is that any breach which would satisfy the
Francovich test would also satisfy the Brasserie du Pêcheur test. In the event, the
Court in Dillenkofer chose to apply the Brasserie du Pêcheur test to a failure by
Germany to implement Directive 90/314 on package travel, package holidays and
package tours for a year and a half after the deadline. This had resulted in holiday
makers not being able to benefit from rights in the Directive designed to ensure that the
money they paid for a package holiday would be refunded if the package organiser
became insolvent. The first two conditions of the Brasserie du Pêcheur test were held
to be satisfied but it was left to the national court to apply the third concerning
causation.
State liability has now been extended to include breaches of EU law made by national
courts where the three Brasserie du Pêcheur conditions can be determined. However,
such an action is confined to exceptional cases involving errors that are manifest, such
as the failure of a national court to make an obligatory reference to the Court of Justice
for a preliminary ruling (Köbler v Republik Österreich (Case C-224/01) [2003] ECR
I-10239). Finally, it should be noted that an analogous form of liability for damage
caused to individuals by infringements of EU law arising from breaches of EU
competition law by private undertakings has now also been established in Courage
Limited v Crehan (Case C-453/99) [2001] ECR I-6297. This is discussed in Section
10.11.
58
4.14 Concluding remarks on the three methods of

enforcement
Activity point
Before reading this conclusion, consider direct effect, indirect effect and state liability
and their interrelationship. Are there any situations in which an individual would still be
unable to enforce their rights under EU law even once these methods have been
considered?
The Court of Justice has attempted to integrate EU law into the national legal systems
of Member States in ways which have given individuals a range of options through
which to pursue rights under EU law in their national courts. However, a successful
claim may still remain elusive. None of the three methods of enforcement which the
Court has developed is complete in itself and none entirely resolves the limitations of
the others. It is possible for a claimant to fall through the cracks of all three:
 Direct effect may not be available because the conditions for direct effect are not
satisfied. In particular, this may happen because the claim is based on a directive
against a private party.
 Indirect effect may fail because it may not be ‘possible’ to interpret national law in
conformity with the object and purpose of the relevant EU law.
 State liability only provides compensation and, in any event, will not be
established where a breach is not considered ‘sufficiently serious’.
Nevertheless, it can be said is that a person is much more likely to be able to rely on
rights under EU law with this trinity of methods for enforcing them in national courts
being available than if they were not. This can also act as an incentive for Member
States to fulfil their obligations under EU law. Van Gend en Loos, the starting point for
this whole process, is considered to be one of the most important cases in EU law for a
reason. With it, the people of the Member States were brought directly into the EU in a
way which transformed it into something much more than simply the sum of its Member
State parts.
59
60
5
Free Movement of
Goods I: Articles 28–30
and 110 TFEU
61
5.1 Free movement of goods

5.1.1 The broader perspective
Article 26(2) TFEU states:
‘The internal market shall comprise an area without internal frontiers in
which the free movement of goods, persons, services and capital is
ensured in accordance with the provisions of the Treaties’.
The four freedoms articulated in this provision are thus regarded as the essential
characteristics of the internal market. The first of these freedoms, the free movement of
goods, is one of the cornerstones of the EU.
Two introductory points are important in relation to the freedom of movement of goods.
First, the definition of ‘goods’ is very broad. In Commission v Italy (‘Italian Art’) (Case
7/68) [1968] ECR 423, the Court of Justice rejected an argument that the concept of
goods was to be equated with commercial goods or goods in general use. Instead, it
defined goods as ‘products which can be valued in money and which are capable, as
such, of forming the subject of commercial transactions’. On that basis, it concluded
that the concept included objects of artistic, historic, archaeological or ethnographic
interest.
Secondly, it is necessary to bear in mind the rationale for free movement of goods
when considering the detail of the law in this area. The objective of the Treaties in this
context is the removal of obstacles to the free circulation of goods between Member
States. This objective is necessary not only for the achievement of the internal market
itself but also for the achievement of a customs union that economists regard as an
essential step for the integration of markets. A customs union is an agreement between
States to abide by two principles: a ‘free trade area’, where goods pass between
countries without the imposition of restrictions such as customs duties; and a system
for the charging of a ‘common customs tariff’ on goods coming into the free trade area
from other countries. The first principle is regarded as the internal aspect of a customs
union; the second is its external aspect. For example, goods between Italy and the
United Kingdom should move freely between these countries (the internal aspect),
whereas a Japanese manufacturer who wishes to export to Italy from Japan could be
subject to a tariff, although it must be set at the same level as that which would apply
had the manufacturer sought to export from Japan to the United Kingdom or any other
Member State (the external aspect). Note that if the EU was simply a free trade area,
its Member States would be able to set separate duties on imports from third countries.
The TFEU provides for the creation of a customs union that comprises both principles
set out above. Article 28(1) TFEU states:
‘The Union shall comprise a customs union which shall cover all trade in
goods and which shall involve the prohibition between Member States of
customs duties on imports and exports and of all charges having equivalent
effect, and the adoption of a common customs tariff in their relations with
third countries’.
This general provision is supplemented by more specific provisions that regulate both
the internal and external aspects of the customs union. These provisions, as
interpreted by the Court of Justice, are the rules relating to the free movement of
goods. This chapter and the next chapter will discuss the main provisions which deal
with the internal aspect of the customs union.
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Free Movement of Goods I: Articles 28–30 and 110 TFEU
5.1.2 The relevant Treaty provisions

Three main provisions of the TFEU deal with the internal aspect of the customs union
and seek to remove obstacles to the free movement of goods across the Member
States:
1. Article 30 TFEU prohibits customs duties and charges having equivalent effect.
2. Article 110 TFEU prohibits discriminatory taxation.
3. Articles 34, 35 and 36 TFEU prohibit quantitative restrictions and all measures
having equivalent effect (Articles 34 and 35), and permissible derogations from
this prohibition (Article 36).
The first two prohibitions – Articles 30 and 110 – concern barriers to trade between
Member States that are of a pecuniary nature. The difference between Articles 30 and
110 is that the former prohibits charges that are levied simply because goods have
crossed the frontier of the Member State, whereas the latter regulates charges that are
levied as a system of internal taxation within the Member State. The prohibitions
contained in Article 34 and Article 35 are designed to remove ‘hidden’ obstacles to
trade between Member States of a non-pecuniary nature. This Chapter examines
Article 30 and Article 110. The next chapter discusses Articles 34 to 36.
5.2 Article 30 TFEU: customs duties and charges having

equivalent effect
Article 30 provides:
‘Customs duties on imports and exports and charges having equivalent
effect shall be prohibited between Member States. This prohibition shall
also apply to customs duties of a fiscal nature’.
5.2.1 Direct effect

The first case to establish that Treaty articles are capable of direct effect was Van
Gend en Loos. This concerned Article 12 EEC which prohibited increases in customs
duties by Member States. The practical effect of the ruling was that Van Gend en Loos,
who was importing a chemical into Holland, was entitled to invoke Article 12 in a
national court to argue that a customs duty imposed on this product was not
permissible. Article 12 EEC has since been replaced by Article 30 TFEU which
prohibits customs duties and which, in accordance with Van Gend en Loos, clearly also
has direct effect.
5.2.2 Customs duties

The thrust of Article 30 is to prohibit customs duties between Member States. This is a
tariff, however small, specifying the rate of duty to be paid by the importer to the State
solely for the reason that the goods are being imported into that State. Customs duties
have the effect of making the imported goods more expensive relative to rival domestic
goods and hence constitute an obstacle to free trade. What matters is not the purpose
of the charge but its effect. Therefore, in the Italian Art case, an Italian tax on the export
of objects of artistic, historic, archaeological and ethnographic interest which was
introduced for the purpose of safeguarding and protecting Italy’s national heritage by
discouraging the export of such objects. It was held to be unlawful as it hindered the
export trade in goods by imposing a pecuniary burden on them.
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5.2.3 Charges having equivalent effect

The prohibition against customs duties would still be illusory if it were possible for
countries to impose charges on imported goods that are not strictly classifiable as
customs duties but which achieve the same effect. Hence, the prohibition in Article 30
extends to charges on imported goods that have an equivalent effect to customs duties
(CEEs).
The most comprehensive definition of CEEs has been provided in Commission v Italy
(‘Statistical Levy’) (Case 24/68) [1969] ECR 193. The case concerned a levy imposed
by Italy on all imports and exports for the purpose of collecting accurate statistical
material relating to trade patterns. The Court of Justice held that the levy as a CEE and
so was prohibited by what is now Article 30 TFEU. It defined a CEE thus:
‘Any pecuniary charge, however small and whatever its designation and
mode of application, which is imposed unilaterally on domestic or foreign
goods by reason of the fact that they cross a frontier and which is not a
customs duty in the strict sense constitutes a charge having equivalent
effect … even if it is not imposed for the benefit of the State, is not
discriminatory or protective in effect and if the product on which the charge
is imposed is not in competition with any domestic product’.
The definition consists of a mixture of material elements which the Court of Justice
considered relevant for identifying a CEE and other elements which the Court made
clear were irrelevant. Stripped of the irrelevant elements, the definition boils down to
this:
‘Any pecuniary charge … which is imposed unilaterally on domestic or
foreign goods by reason of the fact that they cross a frontier and which is
not a customs duty in the strict sense …’
Note that the charge need not be levied at the border so long as it is levied by reason
of crossing the border.
One particularly striking aspect of the full definition provided in Statistical Levy is the
array of considerations which the Court made abundantly clear were to be treated as
irrelevant for identifying a CEE. They are as follows:
 The size of the charge — Even a nominal charge would fall foul of the prohibition.
Thus, in the Statistical Levy case itself, a small charge of 10 lire on each importer
was sufficient to breach Article 30.
 Its designation — it does not matter what label is attached to the charge.
 Its mode of application.
 That the charge is not imposed for the benefit of the State.
 That the charge is not discriminatory.
 That the charge is not protective in effect.
 That the product on which the charge is imposed is not in competition with any
domestic product.
The Court of Justice in Statistical Levy sought to justify this strict approach on the basis
that the prohibition on CEEs was intended to supplement the prohibition on customs
duties by preventing it from being circumvented and thereby increasing its efficiency.
The prohibition on customs duties found in the treaty is general and absolute. This is
because any pecuniary charge imposed on goods by reason of the fact that they cross
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the frontier constitutes an obstacle to the free movement. It followed that, like the
prohibition on customs duties, the prohibition on CEEs do not permit any exceptions.
The strictness of this position can be illustrated by Sociaal Fonds voor de
Diamantarbeiders v Chougol Diamond Co (Cases 2 & 3/69) [1969] ECR 211 which was
decided at the same time as Statistical Levy and by the same panel of judges
employing the same reasoning. The Court of Justice held that a charge on diamonds
imported into Belgium was a CEE even though it was clearly not protectionist in nature
as Belgium did not produce diamonds and the purpose of the charge was solely to
provide a fund for additional social security benefits for diamond workers.
Activity point
Consider the definition of CEEs set out in the Statistical Levy case.
Does this definition place too great a restriction on the discretion of Member States?
5.2.4 Charges that do not constitute a customs duty or a charge having

equivalent effect
Article 30 contains an absolute prohibition. A charge designated as a customs duty or a
CEE is unlawful regardless of the purpose of the charge. There are no defences that
may be invoked by the Member State seeking to levy the charge. However, not all
charges on imports will be classified as customs duties or CEEs for the purpose of
Article 30. In Commission v Germany (Case 18/87) [1988] ECR 5427, the Court of
Justice observed that a charge will not fall within Article 30 where:
1. It ‘relates to a general system of internal dues applied systematically and in
accordance with the same criteria to domestic and imported products’ alike.
2. It constitutes payment ‘for a service in fact rendered to the economic operator of
a sum in proportion to the service’.
3. It ‘attaches to inspections carried out to fulfil obligations imposed by Community
law’.
Each of these situations is now considered in turn.
5.2.4.1 Internal dues
In the first situation outlined in Commission v Germany, the charge will not fall within
Article 30 because it is an internal tax and so will be governed by Article 110 instead.
Such a charge cannot be governed by both Articles because, as the Court of Justice
held in Alfons Lütticke GmbH v Hauptzollamt Saarlouis (Case 57/65) [1966] ECR 205,
CEEs and internal taxation are governed by two systems are mutually exclusive. The
difference between an internal tax and a CEE will be explored in more depth below at
Section 5.3.2.
5.2.4.2 Payment for a service rendered
In the Statistical Levy case, the Court of Justice accepted that its approach to customs
duties and CEEs did not preclude a charge forming consideration (payment) for a
specific service actually rendered to the importer and in proportion to that service from
being lawful. The reasoning behind this appears to have been that such a charge will
not have been unilaterally imposed on goods by reason of them crossing a frontier.
However, the Court emphasised that this would not be the case where it resulted in the
Member State circumventing the restrictions on customs duties and CEEs. This
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vigilance was borne out in its approach to the charge in the case itself. It will be
recalled that the charge had been imposed on importers and exporters to finance the
collection of accurate statistical information about the movement of goods. The Italian
Government argued that it was consideration for a service as both importers and
exporters were able to benefit from the information collected. This argument was
rejected by the Court. It held that any advantage which importers and exporters would
receive from it was so general and so difficult to assess that it could not be regarded as
consideration for a specific benefit actually conferred on them.
The need for the importer specifically to benefit was echoed by the Court of Justice in
Bresciani v Amministrazione Italiana delle Finanze (Case 87/75) [1976] ECR 129. This
case concerned a levy which was charged to cover the cost of compulsory veterinary
inspections on animal products entering Italy. The animal products in this case had
been raw cow hides. The Court of Justice held that the inspections had been imposed
in the general interest of public health and so they could not be regarded as a service
to the importer. Consequently, the levy was a CEE. The cost of the inspections should
have been met by the general public as it was the public as a whole who benefitted
from the inspections, not the importer.
In Commission v Belgium (‘Customs Warehouses’) (Case 132/82) [1983] ECR 1649,
the Court of Justice made it clear that the service must be provided at the request of
the importer. This case involved charges on goods deposited in customs warehouses
situated in the interior of Belgium. The Court held that a charge for the temporary
storage of goods in the warehouses at the request of the importer was not a CEE as
this was a charge for a service. But the levying of the storage charge on goods
presented by the importer at the warehouses solely for the purpose of undergoing
compulsory customs clearance operations there, even when the goods were exempt
from storage and the importer had not requested that they be placed in storage, was a
CEE as it was not a charge for a service. It made no difference that importers had the
choice to use customs facilities at the border where the procedures were free or that
that there were advantages for importers to be able to have the goods cleared through
customs near to places for which the goods were bound. The customs operations were
compulsory no matter where they took place.
5.2.4.3 Inspections required by EU law
Bresciani established that a charge to cover the cost of an inspection where that
inspection was imposed unilaterally by a Member State in its own national interest is a
CEE. In contrast, a charge imposed by a Member State to cover the costs of an
inspection is not a CEE where the inspection was required by EU law in order to
promote the free movement of goods. The leading case on this is Commission v
Germany (‘Animal Inspections’). The German government charged a fee to cover the
costs of veterinary inspections on imported live animals. The inspections were required
under a Directive regulating the protection of animals during international transport.
The Court of Justice identified four requirements that need to be fulfilled for an
inspection charge not to constitute a CEE:
 The charge must not exceed the actual costs of the inspections.
 The inspections must be obligatory and uniform for all the relevant products in the
Union.
 The inspections must be prescribed by EU law in the general interest of the
Union.
 The inspections must promote the free movement of goods, in particular by
neutralising obstacles that could have arisen from unilateral inspection measures.
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The Court held that the inspection fee satisfied these requirements and so was not a
CEE.
5.2.4.4 Inspections required by international treaties
The same position applies to charges for inspections carried out as a result of rules
imposed by international treaties. In Commission v Netherlands (Case 89/76) [1977]
ECR 1355, the Court of Justice held that a charge for an inspection was not a CEE
where the obligation to inspect had been imposed on all Member States by an
international treaty which was designed to encourage the free movement of goods.
Activity point
How can the decision of the Court of Justice in Bresciani be reconciled with those in
Commission v Germany and Commission v Netherlands?
5.3 Article 110 TFEU: discriminatory internal taxation

Article 110 provides as follows:
‘(1) No Member State shall impose, directly or indirectly, on the products
of other Member States any internal taxation of any kind in excess of
that imposed directly or indirectly on similar domestic products.
(2) Furthermore, no Member State shall impose on the products of other
Member States any internal taxation of such a nature as to afford
indirect protection to other products.’
Article 30, as has been seen, prohibits customs duties and CEEs so as to ensure that
goods that cross frontiers in the Union do not suffer from a competitive disadvantage
compared to domestic goods. Yet Article 30, by itself, would still be insufficient to
achieve the objective of the free movement of goods because a Member State could
impose internal fiscal barriers to trade by, for example, imposing higher levels of
internal taxation on imported products than on domestic products. These barriers
would, of course, have the effect of increasing the importer’s costs, thereby placing the
importer at a competitive disadvantage. Article 110 is designed to ensure that internal
fiscal barriers to trade are eliminated.
5.3.1 Direct effect

Article 110 was recognised by the Court of Justice as having direct effect in Alfons
Lütticke GmbH v Hauptzollamt Saarlouis (Case 57/65) [1966] ECR 205.
5.3.2 The scope of Article 110

The Court of Justice has defined a tax which is regulated by Article 110 in Commission
v France (‘Reprographic Machinery’) (Case 90/79) [1981] ECR 283 as one which:
‘relates to a general system of internal dues applied systematically to
categories of products in accordance with objective criteria irrespective of
the origin of the products.’
It is important to distinguish between a charge that is prohibited under Article 30 and a
tax that is subject to Article 110. This is in part because, as was noted earlier, the Court
of Justice has held that the two provisions are mutually exclusive (Lütticke). But it is
also because Article 30 and Article 110 have different effects. The strict approach
taken by the Court of Justice to customs duties and CEEs means that a charge which
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falls within Article 30 will simply be unlawful, irrespective of whether or not it is

discriminatory or protectionist. In contrast, an internal tax which is governed by Article
110 will be permissible, as long as it does not discriminate against imports under Article
110(1) and is not protectionist under Article 110(2). Therefore, Article 110 has much
less of an impact than Article 30 on the autonomy of the Member States to determine
their own taxation policies.
A comparison between the test for a CEE in Statistical Levy and the test for an internal
tax in Reprographic Machinery should reveal two particular differences between them.
First, a CEE will be charged by reason of goods crossing the frontier. In contrast, a tax
which is governed by Article 110 is an ‘internal due’. Second, a CEE is imposed
unilaterally either on domestic exports or on foreign imports. In contrast, a tax which is
governed by Article 110 applies ‘irrespective of the origin of the products’,
notwithstanding that it may apply to imported goods in a way that is different from
domestic products.
This distinction can be illustrated by contrasting two cases. In Dansk Denkavit ApS v
Danish Ministry of Agriculture (Case 29/87) [1988] ECR 2965, the Court of Justice held
that Article 30 TFEU (as it is now) covered ‘any charge levied on the occasion or by
reason of importation specifically affecting an imported product to the exclusion of a
similar domestic product’. On the strength of that, the Court concluded that a charge
levied to fund the cost of checking samples of imported foodstuffs containing additives
was not a CEE but was part of an internal system of dues covered by Article 110 as the
levy was also imposed on domestic products using the same criteria. This can be
contrasted with Bresciani. It will be recalled that this case concerned charges imposed
on importers to cover the cost of the public health inspections on animal products
entering Italy which, in the case itself, had consisted of imported raw cow hides. The
Court held that the charge was a CEE. It was irrelevant that the domestic products
suffered a similar burden through other charges as these other charges were not
applied according to the same criteria and at the same stage of production and so were
part of a different system of taxation.
In Reprographic Machinery, the Court of Justice made it clear that a charge which is
applied systematically to categories of products irrespective of the origin of the
products will be governed by Article 110 TFEU even where domestic production of the
goods is, in practice, negligible or non-existent. The case concerned a levy on
reprographic machinery such as offset printing machines, microfiche scanners and
photocopiers. Only 1% of the reprographic equipment put into the French market was
produced in France. The remaining 99% was imported. The Commission argued that
this meant that, in practice, the levy was borne by importers alone and so constituted a
CEE. The Court of Justice held that the fact that French production was extremely
limited compared to imports did not in itself justify the conclusion drawn by the
Commission. The levy was part of a general system of internal dues because of the
reason for which the levy was imposed, the purpose for which the money was to be
used and the fact that it formed part of a wider tax scheme.
Finally, it should be noted that Article 30 will govern a charge where it is applied to both
domestic and imported goods solely because they are both crossing the frontier. This
explains why the charge in the Statistical Levy case fell under Article 30 rather than
Article 110.
5.3.3 Article 110(1) – similar products

Article 110 is divided into two paragraphs. Article 110(1) prohibits discriminatory
taxation in regard to the imported goods and similar domestic goods. Article 110(2)
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prohibits Member States from using taxation to protect domestic goods that, though not
similar to the imported goods, are in competition with them. Each provision is
discussed in turn.
Article 110(1) obliges Member States to tax similar imported and domestic goods in the
same way. This leads to two basic requirements which must be fulfilled for the tax to be
unlawful. First, the imported goods and the domestic goods in question must be similar.
If they are, then the taxation regime of the Member State must not discriminate against
the imported goods when compared to the domestic products.
5.3.3.1 Similar goods
The central test is whether, at the same stage of production or marketing, the products
had similar characteristics and met the same needs from the point of view of
consumers (Rewe-Zentrale des Lebensmittel-Großhandels GmbH v Hauptzollamt
Landau/Pfalz (Case 45/75) [1976] ECR 181). In commenting on this test, the Court of
Justice has made it clear that the similarity between products will be determined not on
the basis of whether they are strictly identical in nature but on the basis of their similar
and comparable use (Commission v France (‘Spirits’) (Case 168/78) [1980] ECR 347).
The characteristics will be determined on an objective basis. It is the needs which are
determined from the point of view of customers (John Walker & Sons Ltd v Ministeriet
for Skatter og Afgifter (Case 243/84) [1986] ECR 875 and Commission v Denmark
(Case 106/84) [1986] ECR 833).
An example is provided by Commission v Denmark (Case 106/84) [1986] ECR 833. In
this case, wine made from grapes was taxed at a higher rate than wine made from fruit.
All wine made from grapes was exclusively imported into Denmark. In contrast, liqueur
type fruit wine was almost exclusively produced in Denmark whilst table wine made
from fruit was typically produced in Demark. The Court of Justice held that wine made
from fruit and wines made from grapes were similar:
‘With regard to wine of the table-wine type, it should be noted in the first
place that wine made from grapes and wine made from other fruit are
manufactured from the same kind of basic product, namely agricultural
produce, and by the same process, namely natural fermentation. Their
organoleptic properties, in particular their taste and their alcohol content,
are similar … Moreover, in view of their similar characteristics the two
categories of beverages can meet the same needs from the point of view of
consumers inasmuch as they can be consumed in the same way, namely
to quench thirst, as refreshments and at meal times.
With regard to wine of the liqueur type, the methods of manufacturing wine
from grapes and from other fruit may be regarded as identical, since the
end product is invariably obtained by the addition of ethyl alcohol following
initial fermentation for some length of time and, in some cases, by the
addition of other substances, such as juice or honey. Accordingly, in view of
their comparable characteristics and similar properties, the two categories
of products meet the same needs from the point of view of consumers,
since they are consumed as aperitifs by some and as dessert wine by
others’.
Contrast this with John Walker & Sons Ltd v Ministeriet for Skatter og Afgifter (Case
243/84) [1986] ECR 875 which was decided at the same time as Commission v
Denmark. John Walker concerned a higher rate of tax imposed by Denmark on whisky,
which was not produced in Denmark, than was imposed on fruit liqueur wine which was
produced in Denmark. The Court of Justice held that they were not similar as their
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characteristics were manifestly different. Fruit liqueur wine is a fruit-based product

obtained by natural fermentation. Scotch whisky is a cereal-based product obtained by
distillation. Their organoleptic properties are also different as the alcoholic strength of
Scotch whisky is 40% by volume whereas the alcoholic strength of liqueur fruit wine
does not exceed 20% by volume. The alcohol content needed to have been more or
less in equal proportions. The Court of Justice added that the contention that the two
types of drink were consumed in the same way as an aperitif, even if it was
established, would not have been sufficient in itself to render them similar as a result.
Where it is established that the goods are similar goods, the next enquiry is whether
the Member State has discriminated against the imported goods.
5.3.3.2 Discrimination
Article 110(1) prohibits Member States from imposing, directly or indirectly, a higher tax
burden on the imported goods than that it imposes on its domestic goods. This has
been interpreted widely by the Court of Justice to require not only that imported goods
are subject to the same rates of taxation as domestically produced goods but also that
they are treated equally with domestic goods in respect of all taxation procedures
including the modes of assessment and other detailed rules of application (Commission
v Italy (Case 169/78) [1980] ECR 385).
The Court of Justice has identified two types of discrimination.
1. Direct discrimination
Direct discrimination is easily identifiable. It involves a tax system that overtly treats the
imported goods less favourably than the similar domestic goods. This will typically be
because the relevant tax law draws an overt distinction between domestic goods and
imported goods which discriminates against the imported goods. The Court of Justice
has consistently refused to accept that instances of direct discrimination can be
justified. For example, in Commission v Italy (‘Regenerated Oil’) (Case 21/79) [1980]
ECR 1, Italy had an ecological policy of charging lower tax on the sale of regenerated
oil than that imposed on normal oil. This benefit was only available to domestic oil
producers under Italian law. It was not available under Italian law to imported
regenerated oil. The Italian government argued that it had no way of knowing whether
imported oil was regenerated or not. The Court of Justice held that this could not justify
the direct discrimination against foreign regenerated oil and was hence a breach of
Article 110(1).
2. Indirect discrimination
A tax system will be indirectly discriminatory where, although it makes no overt
distinction between domestic goods and imported goods on its face, it has the effect of
discriminating against imported goods by placing them in a less favourable position
compared to the imported goods in practice. This may be because it has the practical
effect of placing domestic goods at a disadvantage compared to imported goods or
because it has the practical effect of undermining the competitive advantage which
imported goods would otherwise have had over the domestic goods.
An example of indirect discrimination is provided by Commission v Denmark (Case
106/84) [1986] ECR 833, which was discussed above in relation to the test for
similarity. It will be recalled that Denmark imposed a higher rate of tax on wine made
from grapes than it did on wine made from fruit. These rates were imposed irrespective
of the origin of the wine. However, Denmark did not produce any wine made from
grapes. It only produced wine made from fruit. All of the wine made from grapes was
imported into Denmark. The practical effect of this was that only imported wine was
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subject to the higher rate of tax while the wine produced in Denmark was only subject
to the lower rate of tax. The Court of Justice held that this was a breach of article
110(1) TFEU.
The identification of indirect discrimination can be less straightforward where the rate of
tax progressively increases in accordance with a set of criteria such as the engine size
of a car. This situation was addressed by the Court of Justice in Humblot v Directeur
des Services Fiscaux (Case 112/84) [1985] ECR 1367. Here, the French taxation of
cars was challenged by Humblot who had paid a large tax on a German Mercedes
Benz car with an engine size of 36 CV. (CV was the unit of engine size used in France
at the time. It is short for ‘chevaux vapeur’ (steam horses)). The tax regime involved a
tiered system comprising two distinct taxes on cars. A differential tax imposing a
gradually increasing rate of tax to a maximum of 1100 francs was applied on all cars up
to an engine size of 16 CV. Any car with an engine over 16 CV was subject to a special
tax at a high flat rate of 5000 francs. This was evidently almost five times the level of
tax applicable to cars of 16 CV. On the surface, this system of car tax appeared neutral
between imported and domestic cars. Cars were taxed on the basis of their engine
size, not on the basis of their origin. However, French manufacturers only produced
cars with engine sizes up to 16 CV. This was the maximum engine size which was
subject to the lower rate of tax. The practical effect of this was that French cars were
subject only to the lower rate of tax while the only cars which were subject to the higher
rate of tax were imported ones. The Court of Justice held that the system of car tax had
discriminated against imported cars with engine sizes over 16CV because its effect
was to cancel out any competitive advantage which these larger engine imported cars
would otherwise have had in the eyes of consumers over French cars which all had
smaller engines. It encouraged consumers who would have bought the larger engine
cars, all of which were imported, to consider buying smaller engine French cars
instead.
This decision can be contrasted with Commission v Greece (Case 132/88) [1990] ECR
I-1567 in which a tiered tax system was held to be lawful, even though once again only
imported products fell within the highest category. Like Humblot, this case involved the
taxation of cars. Greece had imposed two taxes which increased on the basis of the
cylinder capacity of the car. The increase in the taxes became more pronounced at
1,201cc and again at 1,801cc. One of the taxes, which was payable when the car was
first registered, rose by 50% between 1,800cc and 1,801cc. However, Greece only
produced cars up to 1,600 cc. The Court of Justice held that the Commission had failed
to prove that the tax system actually had a discriminatory or protective effect against
imported cars. Any consumers who were discouraged from buying a car over 1,800cc
would be able to choose from the range of cars between 1,800cc and 1,600cc, which
were still all imported in any event, or from the range of cars below 1,600cc which
comprised both imported models and models manufactured in Greece.
It is not entirely easy to reconcile the judgment in Commission v Greece with that in
Humblot by focussing solely on the reasoning of the Court of Justice in each of these
cases. However, it is possible to reconcile the cases by contrasting two features of the
tax systems involved. First, remember that the basis of the decision in Humblot was
that the rate of tax for cars over 16CV cancelled out the competitive advantages which
the larger engine imported cars had over the smaller engine French cars. It
discouraged consumers from considering cars over 16CV, all of which were imported,
and encouraged them to consider purchasing French cars which had engine sizes of
16CV or below. In contrast, all of the cars with engine sizes immediately below the
relevant 1,800cc threshold in Commission v Greece were still only imported. The
increase in tax at 1,800cc was unlikely to encourage consumers to buy Greek cars as
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no Greek cars were manufactured with engine sizes over 1,600cc. Second, the
disparity in the levels of taxation in Commission v Greece was not as extreme as they
were in Humblot and, therefore, it was less likely to cancel out the competitive
advantage of the larger engine imported cars over smaller engine Greek cars.
It is important to appreciate here that the decisions of the Court of Justice in Humblot
and Commission v Greece were each based on the question of the discriminatory
effect of the relevant tax increase rather than simply on the magnitude of that increase.
As the Court of Justice held in Commission v Denmark (‘Registration Duty’) (Case
C-47/88) [1990] ECR I-4509, Article 110 TFEU ‘does not provide a basis for censuring
the excessiveness of the level of taxation which the Member States might adopt for
particular products, in the absence of any discriminatory or protective effect.’
 Objective justification for indirectly discriminatory taxation
In contrast to direct discrimination, taxation measures which appear to discriminate
indirectly against imported goods may be capable of being legitimately justified on an
objective non-discriminatory basis. The principles for determining this were set out by
the Court of Justice in a frequently repeated passage in Chemial Farmaceutici SpA v
DAF SpA (Case 140/79) [1981] ECR 1:
‘In its present stage of development community law does not restrict the
freedom of each member state to lay down tax arrangements which
differentiate between certain products on the basis of objective criteria,
such as the nature of the raw materials used or the production processes
employed. Such differentiation is compatible with community law if it
pursues economic policy objectives which are themselves compatible with
the requirements of the treaty and its secondary law and if the detailed
rules are such as to avoid any form of discrimination, direct or indirect, in
regard to imports from other member states or any form of protection of
competing domestic products’.
In Chemial Farmaceutici SpA itself, Italy had taxed synthetic alcohol at 12,000 lire per
hectolitre. Synthetic alcohol was not produced in Italy so this tax fell only on importers.
In contrast, alcohol produced by fermentation was taxed at only 1,000 lire per
hectolitre. This type of alcohol was manufactured in Italy. The substantial difference in
the rates of taxation appeared on the surface to be a classic case of indirect
discrimination as it had the practical effect of placing synthetic alcohol, all of which was
imported, at disadvantage against domestically manufactured alcohol by fermentation.
However, the Court of Justice held that the difference in the rates of taxation was
justifiable, even though the two types of alcohol could be used interchangeably. The
tax arrangements drew an objective distinction between the two types of alcohol. The
difference in the level of taxation between them pursued a legitimate industrial policy of
promoting the distillation of agricultural products as against the manufacture of alcohol
from petroleum derivatives. Beyond the basic rates of taxation, the other detailed
legislative rules governing both taxes were not discriminatory.
It should be noted that justifications for indirectly discriminatory taxation are not limited
to purely economic policy objectives. The Court of Justice has accepted that other
objectives can justify indirect discrimination. For example, in Commission v Greece,
Greece had sought to justify its tiered system of car tax on the basis of social policy as
the tax bands reflected different income groups. The Court of Justice accepted that
social policy could provide a justification and emphasised that setting levels of taxation
on the basis of social policy was not, in itself, incompatible with Article 110.
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5.3.4 Article 110(2) TFEU: non-similar products

Article 110(2) regulates the taxation of products which are not similar. It prohibits the
imposition of any taxation on products imported from other Member States which is of
such a nature as to afford indirect protection to domestic products.
The test for determining when Article 110(2) applies was set out by the Court of Justice
in Commission v France (‘Spirits’) (Case 168/78) [1980] ECR 347. The Court held that
Article 110(2) applied to goods that ‘without being similar within the meaning of the first
paragraph, are nonetheless in competition, even partial, indirect or potential, with
certain products of the importing country’. In that case, France had imposed an
additional manufacturing tax on spirits obtained from cereals (such as whisky and
Geneva) which was not imposed on spirits made from fruit and wine (such as brandy
and Calvados). Nearly all cereal-based spirits were imported. The Court of Justice
concluded that there was no need to determine whether they were similar products as
it was impossible to reasonably contest that cereal-based spirits were in at least partial
or potential competition with domestic-produced wine and fruit-based spirits, and it was
also impossible to deny that the tax had protective effect. The two types of spirits had
sufficient characteristics in common to constitute at least in certain circumstances an
alternative choice for consumers.
The approach of the court reflected an economic analysis based on the substitutability
of the products: if one product is rendered more expensive, are consumers likely to
switch to the other product?
A useful illustration of the mechanics of Article 110(2) is provided by Commission v UK
(‘Wine and Beer’) (Case 170/78) [1980] ECR 417 and [1983] ECR 2265. The
Commission had brought infringement proceedings against the United Kingdom for
imposing a higher rate of tax on wine than on beer. It contended that beer and wine
were in competition and that, since the United Kingdom had joined the European
Communities, there had been a relative increase in duty on wine of 102% compared to
a relative increase for beer had been 59% so that the tax burden on wine judged by
volume had become approximately five times that of beer. This had the effect of
branding wine as a luxury product.
In its initial judgment ([1980] ECR 417]), the Court of Justice agreed with the
Commission that wine and beer were in competition. Both were alcoholic beverages
which were the product of natural fermentation and both served the same purpose of
quenching thirst or accompanying meals. They were substitutable to a certain degree.
This was notwithstanding that, as the United Kingdom had maintained, beer was a
popular drink in the United Kingdom whilst, as a matter of social custom, consumption
of wine was unusual and special. The Court of Justice held in this respect that the
measure of the degree of substitution could not be restricted to the consumer habits of
one Member State or region. Consumer habits vary in time and space and so the tax
policy of the State must not crystallise consumer habits to the advantage of national
industries. In a follow up judgment ([1983] ECR 2265), the Court of Justice concluded
that, in view of the substantial differences in the quality and price of wine, the decisive
competitive relationship was between beer and the lightest and cheapest varieties of
wine. It found that, irrespective of whether the tax ratio between these two kinds of
beverages was judged by reference to volume or to alcohol content or by comparing
tax as a proportion of the average price, it was clear that the tax burden on the cheaper
types of wine was considerably higher than that on beer. This did have the effect of
stamping wine with the hallmarks of a luxury product which could scarcely constitute a
genuine alternative to beer in the eyes of the consumer.
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The decision in Commission v UK can be compared with that in Commission v Belgium

(Case 256/85) [1987] ECR 3299. In the latter case, wine in Belgium was subject to a
VAT rate of 25% whilst beer was subject to a rate of 19%. The Court of Justice
reiterated that wine and beer were in a competitive relationship and held that, in
determining the protective effect of the tax system:
‘Any assessment of the compatibility of a given tax with the second
paragraph of article 95 [now article 110 TFEU] must take account of the
impact of that tax on the competitive relationship between the products
concerned. The essential question is therefore whether or not the tax is of
such a kind as to have the effect, on the market in question, of reducing
potential consumption of imported products to the advantage of competing
domestic products’.
The Court of Justice concluded that, as the retail price of a litre of wine in Belgium was
four times that of beer, the Commission had failed to prove that the difference of only
6% between the VAT rates applied to the two products was capable of influencing
consumer behaviour and therefore of having a protective effect in favour of beer.
Finally, it should be noted that, whereas a Member State which has infringed Article
110(1) must equalise the tax regime between the similar imported and domestic
products, a Member State which has been found to have infringed Article 110(2) need
only remove the protective effect. This may not necessarily require equalisation within
the tax regime between the non-similar imported and products. For example, after
Commission v UK (‘Wine and Beer’), the United Kingdom lowered the tax on wine and
increased the tax on beer but did not apply the same regime to both. This was
approved by the Commission.
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6
Free Movement of
Goods II: Articles 34–36
TFEU
75
Introduction
The previous chapter discussed the rationale for the EU rules regulating the free
movement of goods and the Treaty provisions relating to fiscal barriers to trade such as
customs duties and internal discriminatory taxation. This chapter examines the Treaty
provisions concerning non-fiscal barriers to the free flow of goods between Member
States. These are articles 34, 35 and 36 TFEU. The most basic examples of non-fiscal
barriers are bans by Member States on the importation of particular goods from other
Member States and quotas on the quantity of goods which can be imported. Such bans
and quotas were common across Europe before the EEC was established. Non-fiscal
barriers can also take a variety of other forms such as restrictions on sales or rules
specifying the physical characteristics of goods. Even measures regulating the
promotion of goods and their use can have the effect of impeding the flow of goods
between Member States. A Member State may maintain that it is entitled to impose
such measures and that it is justified in doing so because, for example, the goods in
question are immoral or that there is a need to guarantee their safety or that they are
harmful to the environment. A commercial entity dealing with these goods may
disagree as may the Commission. The relevant Treaty articles have been drafted in
terms which seldom provide a straightforward answer in themselves. The Court of
Justice has been required to develop principles to govern such situations as a result.
This has lead to a rich and sometimes complex jurisprudence.
The bulk of this chapter will be devoted to Article 34 TFEU which applies to restrictions
on imports. It will examine which bodies are bound by Article 34 and the types of
restrictions which are prohibited by it. The chapter will also consider the grounds under
which a restriction can be justified. These are derogations which are provided by Article
36 TFEU and mandatory requirements which have been developed by the Court of
Justice. The chapter will finish by examining Article 35 TFEU which deals with
restrictions on exports.
6.1 Who is bound by Article 34 TFEU?

The principal entities which are bound by Article 34 TFEU are the Member States.
However, Article 34 has been applied not only to public bodies within Member States
but also to measures adopted by quasi-public bodies. For example, in R v Royal
Pharmaceutical Society of Great Britain, ex parte Association of Pharmaceutical
Importers (Cases 266 & 267/87) [1989] ECR 1295, Article 34 was applied to measures
adopted by the body responsible for regulating the pharmaceutical profession in the
UK. Thus, measures adopted by professional bodies, such as the Royal
Pharmaceutical Society, on which a Member State has conferred regulatory powers
may fall under the scope of Article 34.
Purely private bodies and individuals remain outside the ambit of the Article. However,
two points should be noted in this context:
 The Court of Justice has made it clear in Commission v Ireland (‘Buy Irish’) (Case
249/81) [1982] ECR 4005 that Member States cannot circumvent their obligations
under Article 34 TFEU simply by relying on a private company. This case
concerned a campaign to promote Irish goods launched by the Irish government.
The Irish government had established a company called the Irish Goods Council
to pursue the campaign, appointed the Council’s management committee,
granted it public subsidies and defined its aims. The Court of Justice held that the
Irish government could not rely on the fact that the campaign was conducted by a
private company in order to escape any liability it may have under the provisions
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Free Movement of Goods II: Articles 34–36 TFEU
of the treaty. The campaign was in breach of Article 34 as it influenced traders’

choice and frustrated the objectives of EU law.
 The Court of Justice has also held in Commission v France (‘Spanish
Strawberries’) (Case C-265/95) [1997] ECR I-6959 that a Member State will be in
breach of its obligations under Article 34 where it has failed to take necessary
and appropriate measures to prevent the free movement of goods being
obstructed by private individuals. In this case, the Court found that, for over a
decade, the French authorities had failed to take adequate measures to prevent
certain groups of French farmers engaging in violent campaigns directed at
agricultural products from other Member States such as strawberries from Spain
and tomatoes from Belgium. The acts of violence had included attacking lorries
which were carrying such agricultural products, threatening wholesalers and
retailers who were selling such agricultural products and destroying the
agricultural products themselves.
6.2 Article 34 TFEU: restrictions on imports

Article 34 provides as follows:
‘Quantitative restrictions on imports and all measures having equivalent
effect shall be prohibited between Member States’.
The key concepts here are ‘quantitative restrictions’ and ‘measures having equivalent
effect to quantitative restrictions’ (‘MEQRs’).
6.2.1 Quantitative restrictions

Quantitative restrictions were defined by the Court of Justice in Geddo v Ente
Nazionale Risi (Case 2/73) [1973] ECR 865. They are ‘measures which amount to a
total or partial restraint … of imports, exports or goods in transit’.
The classic example of a quantitative restriction is a ban on imports such as was at
issue in R v Henn and Darby (Case 34/79) [1979] ECR 3795. This case concerned a
ban on the importation of pornographic material into the United Kingdom. The
defendants were convicted of violating the relevant statutory offence. The Court of
Justice held that the statutory offence breached Article 34 because it banned the import
of the material. A ban is the most extreme form of a quantitative restriction.
Apart from bans on imports, quotas on imports also constitute quantitative restrictions
in violation of Article 34. An example is a licensing system that only allows importers to
import a specific quantity of a product (see International Fruit Company NV v
Produktschap voor Groenten (Cases 51-54/71) [1971] ECR 1107).
A measure constituting a quantitative restriction causes the most harm to the free
movement of goods. The only way in which a quantitative restriction can be lawful is if it
can be justified on one of the grounds in Article 36. This article sets out an exhaustive
list of circumstances in which Article 34 may be derogated from. These derogations are
discussed later in Section 6.3.
6.2.2 Measures having equivalent effect

MEQRs cover a wide range of measures that can be regarded as disguised barriers to
trade. Examples of MEQRs are national rules that regulate the physical requirements
that a product has to satisfy – for example, its shape or packaging – before it may be
sold to the public. It is in relation to MEQRs that the Court of Justice’s jurisprudence
has become particularly complex. There are two sources to consider in order to
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analyse how EU law defines MEQRs. The first source is Directive 70/50 which has
been influential. The second source is the Court of Justice’s definition in Procureur du
Roi v Dassonville (Case 8/74) [1974] ECR 837.
6.2.2.1 Directive 70/50
This Directive was a transitional measure that only applies to national measures which
were in place at the time that the EEC Treaty was signed. It indicates the way that the
Commission understood MEQRs at the time of its enactment and there can be little
doubt that it influenced subsequent case law.
The Directive divided MEQRs into two groups:
 Distinctly applicable measures. These are measures that do not apply equally
to domestic and imported goods. Such measures discriminate against imports
because they make importation more difficult or costly relative to the domestic
product. One example provided by the Directive is national rules that demand
higher standards in respect of imported goods than domestic goods (Article 2 of
Directive 70/50).
 Indistinctly applicable measures. These are measures which do apply to both
domestic and imported goods without drawing a distinction between them (Article
3 of Directive 70/50). They can sometimes still place imported goods at a
disadvantage in practice but not always.
This distinction helps to explain much of the Court of Justice’s subsequent case law.
6.2.2.2 The Court of Justice’s definition in Dassonville
Four years after the adoption of Directive 70/50, the Court of Justice in Procureur du
Roi v Dassonville (Case 8/74) [1974] ECR 837 provided its definition of an MEQR. It
held that:
‘All trading rules enacted by Member States which are capable of hindering,
directly or indirectly, actually or potentially, intra-Community trade are to be
considered as measures having an effect equivalent to quantitative
restrictions’.
This is known as the Dassonville formula. It was outlined without any mention of
Directive 70/50 being made in the judgment, although the Directive had been referred
to in submissions made to the Court by the parties. The formula is framed in wide
terms and has also been interpreted widely:
 The Dassonville formula does not define MEQRs in terms of distinct or indistinct
applicability. Instead, it simply requires that the trading rule must be capable of
hindering trade between Member States in order to be classified as an MEQR.
There was never any doubt that this encompasses distinctly applicable measures
since they hinder trade by placing imported goods at a disadvantage in
comparison to competing domestic goods. But the wording of the formula, which
contains no reference to discrimination, suggested that its reach may be wider.
Yet it was not initially clear whether or not the Court of Justice would be willing to
consider indistinctly applicable measures as being capable of hindering such
trade given that they applied equally to domestic and imported goods within a
Member State. As will be seen shortly, that question was finally settled by the
Court of Justice in Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein
(Case 120/78) [1979] ECR 649 which held that an indistinctly applicable measure
relating to alcohol content was an MEQR prohibited by Article 34 TFEU (see
Section 6.2.2.4 below.) Subsequent cases have further widened the scope of
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indistinctly applicable measures which can fall within Article 34. Nevertheless, the
distinction between distinctly applicable measures and indistinctly applicable
measures remains important because the defences which are available for each
category differ. Distinctly applicable measures can only be justified, if at all, under
Article 36 TFEU. Indistinctly applicable measures are treated more leniently: they
may be justified either under Article 36 or by reference to ‘mandatory
requirements’. These defences are discussed below in Sections 6.3 and 6.4.
 The formula refers to ‘all trading rules enacted by Member States’ which are
capable of hindering such trade. This is a wide proposition in itself. However, the
Court of Justice has widened the concept of a ‘measure’ under Article 34 TFEU
further in subsequent cases. In Commission v Ireland (‘Buy Irish’) (Case 249/81)
[1982] ECR 4005, which was discussed in Section 6.1 above, the Court held that
the prohibition in Article 34 TFEU is not confined purely to binding measures
adopted by a Member State but extended to a promotional campaign launched
by the Government of that Member State which had a potential effect comparable
to that resulting from binding measures. Another example of the Court of Justice
adopting a wide interpretation of ‘measures’ under Article 34 TFEU is provided by
Commission v France (‘Spanish Strawberries’) (Case C-265/95) [1997] ECR
I-6959 which was also discussed in Section 6.1 above. It will be recalled that the
Court held that the failure of France to take measures to prevent private
individuals using violence to obstruct the free movement of goods was also an
MEQR. This included, inter alia, the failure to mount criminal prosecutions and
the failure of the French police in some instances to be present despite being
forewarned or to intervene when present.
 The formula specifies that the hindrance to intra-Community trade can be indirect
and/or merely potential. Accordingly, the Court made it clear in Buy Irish that
there is no need for trade between Member States to have actually been
hindered so long as there was the potential for this to occur. (Buy Irish is
discussed further in Section 6.2.2.3 below. See also Section 6.1.)
It should be noted that, in accordance with the wording of Article 34, the measure must
hinder trade between Member States. Article 34 will not apply where the hindrance is to
trade that is purely internal within a Member State and there is no potential for it to
affect trade between Member States.
6.2.2.3 Case law on distinctly applicable MEQRs
The Court of Justice’s case law reveals a wide variety of MEQRs which may be
classified as distinctly applicable measures. Some examples are set out below:
(a) Imposing additional requirements on imported goods
In Firma Denkavit Futtermittel GmbH v Minister für Ernähgrung (Case 251/78) [1979]
ECR 3369, feeding-stuffs of animal origin, in this case milk-based feeding-stuffs, could
only be imported into West Germany if they satisfied two conditions. First, the importer
had to produce a certificate from the exporting Member State confirming that they had
undergone a heating process to destroy any salmonellae which may have been
present. Secondly, samples from the consignment had to be subject to an inspection
by a West German veterinary institute to ensure that the consignment was free from
salmonellae. These two requirements were held to be MEQRs prohibited by Article 34
TFEU. The Court of Justice left it to the national court to determine whether or not the
requirements could be justified on the basis of an Article 36 derogation (on which, see
Section 6.3 below).
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(b) Restricting the channels through which goods can be imported

This MEQR arises where the national rules prevent goods from being imported through
certain channels. Dassonville itself provides a good illustration of this. The case
concerned a Belgian law which required goods bearing a designation of origin, such as
Scotch whisky, to carry a certificate of origin issued by the government of the State in
which the goods were produced in order to prove the designation’s authenticity. A
father and son imported Scotch whisky from France into Belgium in order to sell it
there. They did not have certificates of origin for the whisky and faced serious
difficulties in obtaining them, so they forged the certificates. They were prosecuted
when the forgeries were discovered by a Belgian inspector of foodstuffs. Following a
preliminary reference from the Belgian court, the Court of Justice held that the
requirement to obtain certificates of origin for imported goods was an MEQR as the
certificates could only be obtained with great difficulty if the goods were not imported
directly from the country of origin.
(c) National rules giving preference to domestic goods
An example is provided by the Buy Irish case which was discussed earlier in Section
6.1 and also addressed in Section 6.2.2.2. It will be recalled that the Irish Government
had launched a campaign to promote Irish goods and had set up the Irish Goods
Council to implement it. The Irish government argued that Article 34 was not concerned
with promotional campaigns but only with binding measures adopted by the Member
States. It also pointed out that the campaign had not had the effect of restricting
imports in any event as the proportion of imported goods sold in Ireland had actually
increased! Both arguments were rejected by the Court of Justice. The Court held that,
regardless of the means used to implement it, the campaign was designed to increase
the proportion of Irish goods sold in Ireland at the expense of imported goods and it
had been capable of influencing the conduct of traders and consumers in Ireland. It
thereby had the potential to affect the volume of imports into Ireland from other
Member States. It was an MEQR as a result.
A second example is provided by another case involving Ireland, Commission v Ireland
(‘Irish Souvenirs’) (Case 113/80) [1981] ECR 1625. Irish rules required imported
jewellery that incorporated motifs suggesting that they were souvenirs from Ireland,
such as a shamrock motif, to bear an indication of the country in which it was made
and the word ‘foreign’. The defence of the Irish government was that consumers
wanted to buy souvenirs that had been made in the country they were visiting and
needed such origin-marking to distinguish such items. The Court of Justice held that
buyers did not need to know where the particular product came from and hence the
rules constituted an MEQR that violated Article 34. It added that there was nothing in
Article 34 to stop domestic manufacturers marking a product with the place of
manufacture.
The European Union now has a scheme for ensuring that agricultural products and
foodstuffs which originated from a particular place or region and are produced there
retain the exclusive right to be identified with that place or region. This was first
established by Regulation 2081/92 but is now governed by Regulation 1151/2012. The
Regulation provides for the granting of PGI status (Protected Geographical Indication)
which protects a geographical source such as Scottish beef and the granting of PDO
status (Protected Designation of Origin) which protects a particular method of
manufacture such as that for Blue Stilton cheese. These are granted to products whose
quality or characteristics are essentially attributable to their geographical origin.
Examples include Parma ham, feta cheese, Melton Mowbray pork pies, Kalamata
olives, Dortmunder Bier and, last but not least, Newcastle Brown Ale. Member States
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are required under the Regulation to ensure that only products which have been
granted PGI or PDO status are able to use the product name protected by that status.
6.2.2.4 Case law on indistinctly applicable MEQRs
It was noted in Section 6.2.2.2 above that the definition of an MEQR in Dassonville
made no reference to the measures having to be distinctly applicable. All that they had
to do was to hinder trade. This suggested that indistinctly applicable measures could
also be prohibited by Article 34 TFEU. This was confirmed by the Court of Justice in
the landmark case of Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein
(Case 120/78) [1979] ECR 649 which is better known as Cassis de Dijon.
The case concerned a German law which specified a minimum alcohol level of 25% for
fruit liqueurs. Cassis de Dijon was a blackcurrant fruit liqueur made in France. The law
was indistinctly applicable because it applied equally to domestic and imported liqueurs
but it had the effect of impeding the importation of French cassis which had an alcohol
content of between 15% and 20%. The Court of Justice accepted that the German
requirement amounted to an MEQR, The Court of Justice articulated two important but
contradictory principles in Cassis de Dijon. The first of these was the presumption of
mutual recognition. The presumption is derived from the following statement by the
Court:
‘There is therefore no valid reason why, provided they have been lawfully
produced and marketed in one of the Member States, alcoholic beverages
should not be introduced into any other Member State’.
This amounts to a principle that goods lawfully produced and marketed in, say Italy,
can in principle be sold in another Member State, say Portugal, without further
restriction. Therefore, on the facts of the Cassis de Dijon case, the French Cassis de
Dijon was entitled to be sold in Germany because was produced and marketed lawfully
in France. This principle can be justified on the basis that rules which are indistinctly
applicable can still place an importer at a disadvantage compared to domestic
producers. This is because the imported goods will have to satisfy the regulatory
regime that applies to its product in at least two jurisdictions: their home Member State
as well as the Member State into which the product is being imported. The two regimes
will usually differ and each will impose additional burdens and probably result in
increased costs. The importer will have to incur a ‘dual burden’. On the other hand, the
competing domestic products will only have to satisfy the requirements of the domestic
regime and so will only incur a single burden. This places the imported goods at a
disadvantage compared to the domestic products. The principle of mutual recognition
addresses this by only requiring that the imported goods only need to comply with the
regulatory regime of their home Member State.
The second principle that was established in Cassis de Dijon is the principle of
mandatory requirements. This is a defence which will be examined later in Section 6.4.
First, it is necessary to turn to another defence that is available. This is provided by the
Article 36 derogations.
6.3 Defences I: Article 36 TFEU derogations

As we have seen, Article 34 prohibits two types of barriers to trade that Member States
may seek to adopt: quantitative restrictions and MEQRs. MEQRs may in turn be
broken down into distinctly and indistinctly applicable MEQRs. Article 36 provides a
defence for the Member State in relation to all these barriers to the free movement of
goods. It does so by listing six grounds which a Member State may rely upon to justify
the restriction. These are called derogations.
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They are:
1. Public morality;
2. Public policy;
3. Public security;
4. The protection of health and life of humans, animals or plants;
5. The protection of national treasures possessing artistic, historic or archaeological
value; or
6. The protection of industrial and commercial property.
However, the Article 36 adds that the derogations cannot be relied upon if the measure
employed by the Member State constitutes arbitrary discrimination or a disguised
restriction on trade. Furthermore, the Court of Justice has also required any measure
adopted by a Member State to achieve the objectives set out in Article 36 to be
proportionate. This means that the measure must be both necessary and suitable to
attain the objective pursued by the derogation and that it also must not go further than
is necessary to achieve that objective (see Section A1.3.5 in Appendix 1).
The most important derogations are briefly explained in the next sections.
6.3.1 Public morality

The key cases in regard to this derogation are Henn and Darby (discussed in Section
6.2.1 above) and Conegate v HM Customs & Excise Commissioners (Case 121/85)
[1986] ECR 1007. Both emanated from the UK. It will be recalled that Henn and Darby
concerned a UK ban on the import of pornographic films and magazines. This
constituted a quantitative restriction. Nevertheless, the UK was able to rely on the
public morality derogation under Article 36. The Court of Justice held that ‘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’. The UK government was also not
arbitrarily discriminating against imported goods as there was no lawful trade in such
goods in the UK.
In Conegate, the Court of Justice held that the derogation was not available to the UK.
The UK sought to prevent the import of life-size inflatable ‘love-love’ dolls from
Germany. The difficulty faced by the UK in attempting to invoke the public morality
derogation was that the same goods could be lawfully manufactured in the UK. This
meant that the ban arbitrarily discriminated against imported goods.
6.3.2 Public policy

This derogation is construed extremely narrowly by the Court of Justice. It has been
successfully invoked only once before the Court of Justice. This was in R v Thompson
(Case 7/78) [1978] ECR 2247 which concerned Article 35. Article 35 deals with
restrictions on exports. (Article 35 is discussed in Section 6.7 below). The case
concerned a ban in the United Kingdom on the export of silver coins in order to prevent
them from being melted down or destroyed. The Court of Justice accepted that the ban
on exports stemmed from the need of the State to protect the right to mint coinage.
This justified the ban on the ground of public policy as it involved a fundamental
interest of the State. Two points are worth noting about this case. The first is that the
export ban went hand in hand with an equivalent ban on silver coins being melted
down or destroyed in the United Kingdom itself. The second point is the Court’s
observation that the right to mint coinage involved a fundamental interest of society.
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The need for the measure to protect a fundamental interest of society in order for the
public policy derogation to be successfully invoked has been a theme which has run
through the core freedoms that underpin the internal market. (See Section 7.8.1.2 (free
movement of persons), Section 8.6.1 (freedom of establishment) and Section 9.6.1
(freedom to provide services).)
An example of a case where the Court of Justice rejected the public policy defence is
Cullett v Centre Leclerc Toulouse (Case 231/83) [1985] ECR 305 which is discussed in
Section 6.3.3 below in relation to public security.
6.3.3 Public security

The leading case in which the public security derogation was applied by the Court of
Justice is Campus Oil Ltd v Minister for Industry and Energy (Case 72/83) [1984] ECR
2727. In 1982, the only oil refinery in Ireland had been acquired by the Irish State. This
was because the foreign owners of the refinery had announced their intention to close
it. If it had closed, all supplies of refined petroleum products would have had to have
been obtained from abroad, primarily from the United Kingdom. An order was made by
the Irish Minister for Industry and Energy requiring importers of petroleum products to
buy at least 35% of their total requirements from the State-owned oil refinery at prices
which the Irish government fixed on the basis of the costs incurred in the operation of
the refinery. This was intended to ensure that the refinery could dispose of its products.
The Court of Justice held that this was an MEQR but it accepted that the restriction
was capable of being justified on the grounds of public security. This was because
petroleum products are of fundamental importance for the existence of the State since
its institutions, its essential public services and even the survival of its inhabitants
depend on them. An interruption of supplies of petroleum products can seriously affect
public security as a result. The presence of a refinery on national territory reduces the
risks of that supply being interrupted in a crisis. The measures adopted by the Irish
government were necessary to ensure the continuing operation of the Irish refinery
when the refinery was unable freely to dispose of its products at competitive prices.
Campus Oil can be contrasted with Commission v Greece (Case 347/88) [1990] ECR
I-4747. Here, Greek law gave the Greek State the exclusive right to import and to refine
petroleum products. Distributers of petroleum products in Greece had been required to
obtain their supplies exclusively from the Greek State but this had been replaced by a
new system of marketing quotas under which each distribution company was permitted
to obtain a percentage of its petroleum products from a supplier of its choice.
Distributors were also required to submit annual procurement programmes for approval
by the Greek authorities. The Court of Justice held that these measures infringed
Article 34 TFEU. It rejected the Greek government’s argument that they were justified
on the ground of public security as they were essential to guarantee a regular supply of
petroleum products by ensuring that the public sector refineries were able to dispose of
their products and thereby remain in operation. The Court found that Greece had failed
to prove that the public-sector refineries would be unable to dispose of their products
on the market at competitive prices without these measures. The measures were
unnecessary and, therefore, disproportionate as a result.
Another example in which an attempt to rely on the public security derogation failed is
provided by Cullett v Centre Leclerc Toulouse (Case 231/83) [1985] ECR 305. The
Leclerc group started to sell petrol at prices below the minimum price set by French
law. A competing petrol station operator brought proceedings against Leclerc on the
basis of the French legislation. The Court of Justice accepted Leclerc’s argument that
the way that the minimum price was calculated infringed Article 34 as it cancelled out
any competitive advantage that imported petrol would have over petrol refined in
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France. The French government sought to justify the imposition of the fixed minimum
price on the grounds of public policy and public security by reason of the threat to
public order and security which would result if local retailers were faced with
unrestricted competition. The Court of Justice rejected this argument on the basis that
the French government had not proven that it would not be able to deal with these
threats or possible disruptions using the existing means at its disposal.
6.3.4 The protection of health and life of humans, animals or plants

The protection of health and life of humans, animals or plants is the most frequently
invoked derogation to the free movement of goods. It is, of course, often the case that
the EU institutions adopt harmonised measures to deal with threats to health and life
such as BSE and foot-and-mouth disease. This derogation only applies in the absence
of such harmonisation. Generally, the Court of Justice carefully scrutinises claims by
Member States that a restriction is necessary on the grounds of the protection of
health. Objective evidence must be provided. Therefore, in Commission v Germany
(‘Beer Purity’) (Case 178/84) [1987] ECR 1227, an attempt by the West German
Government to rely on this derogation to justify a general ban on additives in beer
failed because the ban covered additives used in other Member States which had not
been proven to pose a threat to public health. The ban was disproportionate as a result
as it had not been proven to be necessary.
If, on the other hand, the scientific evidence as to the possible health risk is
inconclusive, the Court of Justice may allow Member States to decide the degree of
health protection required. So in Criminal Proceedings Against Sandoz BV (Case
174/82) [1983] ECR 2445, the Court of Justice was prepared to accept that a ban in the
Netherlands on selling foods containing vitamins — specifically muesli bars in this case
— without authorisation was justified where the excessive consumption of vitamins was
harmful but scientific evidence had not been able to determine which sufficient certainty
the precise quantities at which they became harmful.
Nevertheless, the need for the restriction must be genuine. It must not be a disguised
restriction on trade, In Commission v United Kingdom (‘Imports of Poultry Meat’) (Case
40/82) [1982] ECR 2793, the United Kingdom government sought to justify a ban on
the importation of poultry meat, eggs and egg products into the United Kingdom on the
ground of the need to control Newcastle disease in poultry. This was rejected by the
Court of Justice after the Court concluded that the real reason for the ban was to
protect British producers against imports from other Member States. The ban had been
imposed in time for the Christmas season following a remarkable rise in imports into
the United Kingdom of these poultry products. This rise had led to heavy pressure
being applied on the Government by poultry producers, the media and others to reduce
imports, particularly imports from France. The Court of Justice held that the ban was a
disguised restriction on trade.
Alongside the life and health of humans, Article 36 also permits derogations for the
purpose of protecting the life and health of animals and plants. This evidently covers
situations in which the life and health of animals and plants are directly threatened.
Indeed, in Criminal Proceedings Against Bluhme (Case 67/97) [1998] ECR I-8033, a
prohibition on keeping any bees except the Læsø brown bee on the island of Læsø
was held to be justified under the derogation as its purpose was to preserve the Læsø
brown bee. This was an indigenous animal population with distinct characteristics
which was under genuine threat of disappearing. The ban contributed to the
maintenance of biodiversity by ensuring the survival of its population.
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It would now appear that the derogation may extend to even wider forms of
environmental protection following PreussenElektra AG v Schleswag AG (Case
C-379/98) [2001] ECR I-2099. This case was about German legislation requiring
electricity distribution undertakings to purchase at fixed minimum prices electricity
produced from renewable energy sources in their area of supply in Germany. The
Court of Justice held that the legislative policy was justified as it was designed to
protect the health and life of humans, animals and plants. Moreover, Article 6 of the EC
Treaty (now Article 11 of the TFEU) required environmental protection to be integrated
into the definition and implementation of other Community policies.
For a further example of the application of this derogation to environmental protection,
see Åklagaren v Mickelsson and Roos (Case C-142/05) [2009] ECR I-4273 which is
discussed in Section 6.6 below.
6.3.5 Other derogations

The sixth derogation, the protection of industrial and commercial property, is a
specialised area within EU law. It mainly deals with the extent to which a domestic
trader’s intellectual property rights such as trademarks and copyright may be employed
by that trader to exclude an importing trader’s presence in the domestic market.
Essentially, the approach adopted is that the courts will recognise a domestic trader’s
ownership of intellectual property rights but will strictly monitor the trader’s exercise of
these rights to ascertain whether the rights are being improperly used to impede the
free movement of goods. A detailed discussion of this derogation is beyond the scope
of the course.
Activity point
Consider whether the exhaustive list of derogations in Article 36 strikes a fair balance
between the need for Member States to restrict imports where national interests require
this and the objective of the free movement of goods.
6.4 Defences II: mandatory requirements for indistinctly

applicable MEQRs
As was noted above, Article 36 derogations may be invoked in respect of both
quantitative restrictions such as quotas and all types of MEQRs. This section considers
an additional defence that is only available in relation to indistinctly applicable MEQRs.
This is the defence of mandatory requirements.
The precursor to the mandatory requirements defence lay in the Court of Justice’s
judgment in Dassonville. In that case, the Court of Justice stated that:
‘In the absence of a Community system guaranteeing for consumers the
authenticity of a product's designation of origin, if a Member State takes
measures to prevent unfair practices in this connexion, it is however subject
to the condition that these measures should be reasonable and that the
means of proof required should not act as a hindrance to trade between
Member States and should, in consequence, be accessible to all
Community nationals.’
This suggested that it may be possible to justify an MEQR on grounds other than those
listed in Article 36.
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However, it was not until the Cassis de Dijon case (Case 120/78) [1979] ECR 649 that
the mandatory requirements defence was first established. It will be recalled that
Cassis involved a German law which set a minimum alcohol level of 25% for fruit
liqueurs. The restriction was indistinctly applicable because it applied equally to both
domestic and imported goods. Cassis de Dijon had an alcohol content of between 15%
and 20% and so did not comply with the German requirements. The Court of Justice
held that goods which have been lawfully produced and marketed in one Member State
can be marketed in another Member State without incurring further restriction. This is
now known as the presumption of mutual recognition. It is the first of two important
principles established by the Court. The Court also accepted that this presumption can
be rebutted:
Obstacles to movement within the community resulting from disparities
between the national laws relating to the marketing of the products in
question must be accepted in so far as those provisions may be recognized
as being necessary in order to satisfy mandatory requirements relating in
particular to the effectiveness of fiscal supervision, the protection of public
health, the fairness of commercial transactions and the defence of the
consumer.
This is the second important principle laid down by the Court in the Cassis de Dijon
case. It provides that an indistinctly applicable MEQR can be justified where it is
necessary to satisfy mandatory requirements. These are additional grounds beyond
those found in Article 36 which justify an indistinctly applicable MEQR. Whereas the
grounds for derogation are provided by the treaty itself, mandatory requirements have
to be established by the Court of Justice. Only an indistinctly applicable MEQR may
benefit from them and, once again, the Member State’s restriction must satisfy the
principle of proportionality. Mandatory requirements have also been referred to by the
Court of Justice in other cases as ‘imperative requirements’ but are increasingly now
being called ‘overriding reasons relating to the public interest’.
In Cassis de Dijon, the German government made two arguments in seeking to justify
the MEQR. The first was a public health argument. This maintained that the minimum
alcohol rule helped prevent alcoholism because the consumption of lower alcohol
beverages induces alcohol tolerance amongst consumers which leads to the
consumption of higher quantities of alcohol by them. The second argument was that
the MEQR was necessary to protect consumers against unfair practices by producers
and distributors who pass off cheaper low alcohol products as liqueurs. The Court of
Justice held that the arguments raised by the German government were not sufficient
to justify the restriction. The argument that the MEQR was necessary to save members
of the German public from becoming alcoholics was illogical as other beverages with
low and moderate alcohol content were widely available on the German market.
Moreover, the MEQR was not necessary to protect consumers as labelling
requirements could ensure that consumers were aware of the alcohol content of
products and thus make an informed decision about whether to purchase the more
expensive products with higher alcohol content. In other words, the Court of Justice
decided that the German government in this case could not point to a mandatory
requirement of sufficient force to justify the MEQR.
The Court of Justice subsequently made it clear in Criminal Proceedings Against Gilli
and Andres (Case 788/79) [1980] ECR 2071 that mandatory requirements can only
justify indistinctly applicable MEQRs. Distinctly applicable MEQRs cannot be justified
by this means. This was reiterated in the Irish Souvenirs case which was discussed in
Section 6.2.2.3 above.
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6.4.1 Application of the Cassis de Dijon principles

There have been a number of cases where the two principles in Cassis de Djion have
been applied. The first point to note about these decisions is that the presumption of
mutual recognition is a powerful weapon in the armoury of a trader who seeks to import
goods from another Member State. An example is Walter Rau Lebensmittelwerke v de
Smedt PvbA (Case 261/81) [1982] ECR 3961. Belgian legislation required all
margarine in Belgium to be sold in cubic packs. This requirement applied irrespective
of origin of the margarine. The Court of Justice held that it was an MEQR because it
made the sale of imported margarine more difficult by requiring producers from other
Member States to package their margarine in special packs just to sell it in Belgium.
This increased costs and made the product more expensive. Indeed, it had the
practical effect of ensuring that there was practically no margarine of foreign origin on
the Belgian market. The Belgian Government defended the law by relying on the
mandatory requirement of consumer protection. It argued that the measure was
necessary to prevent consumer confusion between margarine and butter because the
cube form of margarine was deeply rooted in the habits of Belgian consumers. The
Court of Justice accepted that the prevention of consumer confusion was potentially a
legitimate justification. However, it found that the Belgian restriction was not
proportionate in this case as consumers could be protected just as effectively by other
measures, such as labelling requirements, which hindered trade less.
Another example is Commission v Italy (‘Relabelling of Cocoa Products’) (Case
C-14/00) [2003] ECR I-513. This concerned an Italian law that required cocoa and
chocolate products containing vegetable fats other than cocoa butter had to be sold as
‘chocolate substitute’. The Court of Justice held that this was an MEQR because it
forced foreign manufacturers of such products to use a different sales name on the
packaging from that which they used in the Member State in which the products were
manufactured and thereby to incur additional packaging costs. This was liable to
obstruct trade between Member States. That was all the more so because the word
‘substitute’ could be perceived by consumers as implying that these products were
inferior. The Court of Justice rejected the objection of the Italian government that this
conclusion would effectively place Italian manufacturers of chocolate, who used only
cocoa butter, at a competitive disadvantage compared with imports which used
vegetable fats. The Court emphasised that Article 34 TFEU is not designed to prevent
domestic goods being discriminated against. It is only concerned with restrictions on
imports and the Italian measure was liable to impede imports. The measure was an
MEQR as a consequence. The phenomenon in which domestically produced goods are
placed at a disadvantage compared with imported goods is known as reverse
discrimination.
The Court of Justice in the Cocoa Products case also rejected a further argument by
the Italian government which sought to justify the Italian law on the ground that it
protected consumers by prevented them from being misled about the nature of the
product. The Court held that the addition of vegetable fats to cocoa products did not
substantially alter their nature and that consumers could be sufficiently informed by a
less restrictive labelling requirement that the product contained vegetable fat.
Walter Rau and Cocoa Products illustrate that the Court of Justice will balance the
mutual recognition principle against any mandatory requirements argued by the
Member State concerned. In regard to the mandatory requirements, it is crucial to note
that the four mandatory requirements that were listed in Cassis de Dijon have not been
interpreted as an exhaustive list. The Court of Justice has added other national
interests that function as mandatory requirements. Apart from the original four
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mandatory requirements (the effectiveness of fiscal supervision, the protection of public

health, the fairness of commercial transactions and the defence of the consumer), the
Court of Justice has, for instance, recognised that the protection of cultural activities
such as the protection of cinemas may be a ‘mandatory requirement’. In Cinéthèque
SA v Fédération Nationale des Cinémas Français (Cases 60 & 61/84) [1985] ECR
2605, a French law which banned the sale or hire of videos of films during the first year
of their release was held to be capable of being justified as being necessary to
encourage the French public to go to the cinema and protect the profitability of
cinematographic production. The rule applied equally to domestic and imported films
and it was a proportionate means of achieving the objective of protecting
cinematographic production. Another mandatory requirement that has been recognised
by the Court of Justice is the protection of the environment. Thus in Commission v
Denmark (‘Disposable Beer Cans’) (Case 302/86) [1988] ECR 4607, laws that required
drinks to be produced in standard size containers for recycling were justified on the
basis that they proportionally met the objective of protecting the environment. Both of
these cases are good examples of situations in which the Court of Justice will regard
the presumption of mutual recognition as being legitimately rebutted.
The same balancing between ‘mandatory requirements’ and Treaty obligations can be
seen at work in Schmidberger v v Republik Österreich (Case C-112/00) [2003] ECR
I-5659 where the Austrian government was the first Member State government to use
protection of fundamental rights as a justification for restricting a Treaty freedom when
it allowed a one-day environmental demonstration to temporarily close the Brenner
motorway. This was a major trade route through Austria. The citizens’ fundamental
freedom of expression and assembly was accepted by the Court of Justice as a
justified restriction on free movement of goods. This was, of course, a further extension
of the mandatory requirement category.
However, there are limits to how far the Court of Justice is prepared to extend the
scope of mandatory requirements. In PreussenElektra AG v Schleswag AG (Case
C-379/98) [2001] ECR I-2099, it simply ignored the recommendation of Advocate
General Jacobs that the mandatory requirement of environmental protection should be
capable of being invoked for distinctly applicable measures. As may be recalled, this
case concerned a German law which required electricity distribution undertakings to
purchase at fixed minimum prices electricity produced from renewable energy sources
in their area of supply in Germany. This was evidently a distinctly applicable measure.
The Advocate General based his recommendation on the contention that the Court of
Justice had relied on the mandatory requirement of environmental protection in four
earlier cases in which, in his view, it was at least doubtful whether the measure was
indistinctly applicable. Rather than take up his precise invitation, the Court of Justice
held that the law in question was designed to protect the health and life of humans,
animals and plants and so fell within the Article 36 derogation.
6.5 Selling arrangements

6.5.1 Early cases and the adoption of the Keck test
One further development that has sparked controversy has been in relation to selling
arrangements. ‘Selling arrangements’ are those rules that concern who sells the
product and when, where and how the seller goes about it. The Court of Justice was
initially inconsistent about whether or not they would be MEQRs but in several cases it
held that they could be on account that they could hinder inter-state trade. The first of
these cases was Criminal Proceedings Against Oosthoek's Uitgeversmaatschappij BV
(Case 286/81) [1982] ECR 4575. This concerned a Dutch law which prohibited free
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gifts being offered or provided within a commercial activity. The compatibility of this law
with Article 34 had been raised during an appeal by a company against its conviction
and fine for offering a dictionary, an atlas or a small encyclopaedia as a free gift to all
subscribers to an encyclopaedia. In its ruling on a preliminary reference from the Dutch
Regional Court of Appeal, the Court of Justice observed that legislation which restricts
or prohibits advertising and sales promotions may reduce the volume of imports by
adversely affecting the opportunities for the imported products to be marketed. Such
legislation may thereby act as an obstacle to the free movement of goods and so may
constitute an MEQR. However, it concluded that the Dutch ban on free gifts in this case
could be justified on the grounds of consumer protection and fair trading because
offering free gifts as a means of sales promotion may mislead consumers as to the real
prices of the products and distort the conditions on which genuine competition is
based.
Another such case is Cinéthèque which was addressed earlier in Section 6.4.1. It will
be recalled that this case involved a ban on the sale or hire of video-films during the
first year in which the film was released. This was held to be an MEQR because the
prohibition hindered the importation of videos from other Member States. However, as
was observed earlier, the Court held that it could be justified on the basis of a
mandatory requirement as it was a proportionate means of achieving the objective of
protecting cinematographic production. A further case in which a selling arrangement
was held to be an MEQR was Torfaen Borough Council v B & Q plc (Case 145/88)
[1989] ECR 3851. This concerned a British law which required most shops to be closed
on Sundays. Some DIY stores catering to home decorating consumers breached this
law by beginning trading on Sundays. When prosecuted, B&Q’s defence was that the
Sunday trading rules was an MEQR prohibited by Article 34.The Court of Justice held
that it was an MEQR because, by preventing goods from being sold on a Sunday, it
impeded imports from other Member States as less would be sold. However, it held
that it was capable of being justified on the socio-cultural grounds, as Sunday was
traditionally treated as being special, but left it to national courts to decide whether the
restriction on trade was necessary and proportionate. Different UK courts arrived at
differing conclusions. The issue was finally settled in Stoke-on-Trent City Council and
Norwich City Council v B & Q plc (Case C-169/91) [1992] ECR I-6635 in which the
court of Justice reaffirmed that the Sunday trading rules were MEQRs but found them
to be proportionate restriction which was justified on sociocultural grounds.
Although the Court of Justice in each of these cases held that the MEQR was justified
or capable of being justified by one or more mandatory requirements, the decisions
were heavily criticised in some quarters for holding that the measures were MEQRs in
the first place. The reason was because none of them placed a dual burden on
imported goods. The burden imposed on the imported goods by the selling
arrangements was equal to that imposed on domestic goods. Moreover, all it seemed
to do was to encourage more legal challenges to more types of measure.
The Court of Justice responded to this in Criminal Proceedings Against Keck and
Mithouard (Cases C-367 & C-268/91) [1993] ECR I-6097. The case arose from the
prosecution of two supermarket managers for selling goods at a loss in contravention
of French law. In their defence, they pleaded that the law itself contravened Article 34
as it constituted an indistinctly applicable MEQR. The law deprived them of a method of
promoting their goods and thus reduced the volume of sales of goods imported by
them into France. The Court of Justice expressly declared its intention to clarify and re-
examine its case law in regard to Article 34 in view of the ‘increasing tendency of
traders’ to employ Article 34 to argue that any restriction on their commercial freedom
was unlawful. It reaffirmed that the Cassis principles would continue to apply to national
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rules that lay down requirements to be met by the products such as those relating to
designation, form, size, weight, composition, presentation, labelling and packaging. But
it held that selling arrangements would no longer be considered to be MEQRs so long
as they fulfilled the following two conditions:
1. They apply to all affected traders operating within the national territory; and
2. They affect in the same manner in law and in fact the marketing of domestic and
imported products.
Put simply, a selling arrangement that satisfied these conditions would no longer fall
within Article 34 TFEU. This was the position in Keck. The French law was a selling
arrangement that complied with the two requirements set out above so it was not an
MEQR. Therefore, Article 34 did not apply at all to the arrangement.
The Court of Justice has identified a number of selling arrangements as falling outside
of Article 34 in subsequent cases. For instance, in Criminal Proceedings Against
Tankstation ’t Heukste vof and JBE Boermans (Cases C-401 & C-402/92) [1994] ECR
I-2199, Dutch rules regarding the closure of all petrol stations at night and which
applied to all traders operating in the national territory did not fall within Article 34. The
rules affected domestic and foreign producers in the same way in law and fact. A
similar decision was reached with regard to Sunday trading rules in Punto Casa SpA v
Sindaco del Commune di Capena (Cases C-69 & C-258/93) [1994] ECR I-235. This
marks a shift in approach by the Court of Justice from its earlier decisions in Torfaen
and Stoke-on-Trent because, in contrast to those two cases, there was no need to
prove that the Sunday treating rules could be justified. Under the Keck test, they simply
did not fall within Article 34 in the first place.
6.5.2 Selling arrangements that fall within Article 34 TFEU under the Keck
test
However, not all selling arrangements will be treated as leniently as those at issue in
the cases discussed above. Keck itself had made it clear that a selling arrangement
must satisfy the following two conditions in order to avoid it engaging Article 34:
1. It must apply to all affected traders operating within the national territory; and
2. It must affect the marketing of domestic and imported products in the same
manner in law and in fact.
There have been several cases in which selling arrangements have failed or have been
held to have been capable of failing this test. An example is provided by Fachverband
der Buch und Medienwirtschaft v LIBRO Handelsgesellschaft mbH (Case C-531/07)
[2009] ECR I-3717. An Austrian law set minimum prices for imported German language
books. The Austrian defence that, as the rules were applied equally to both imports and
domestic books without distinction, this was a straightforward Keck situation was found
to be untrue. Part of the law applied only to imported books and prevented importers
from setting prices according to the conditions of the import market. As a consequence
this was an MEQR. As it was an MEQR, it was still open to the Austrian government to
seek to justify it by reliance upon either an Article 36 derogation or a mandatory
requirement. Its argument that books were cultural assets and as such fell under the
protection of national treasures derogation under Article 36 failed on the ground that
cultural diversity in general cannot be considered as coming under the protection of
national treasures. The final defence that the MEQR could be justified by means of a
mandatory requirement for the protection of books as cultural objects failed on the
ground of proportionality as the protection of books could have been achieved by
measures less restrictive for the importer.
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One area where the conditions laid down by Keck have had an impact is in respect of
restrictions on advertising. One of the leading cases here is
Konsumentombudsmannen v De Agostini (Svenska) Förlag AB (Cases C-34 to 36/95)
[1997] ECR I-3843. The case concerned a Swedish ban on television advertising
directed at children under 12 years old and a ban on misleading advertisements for
skincare products and detergents. The Court accepted that these restrictions were
selling arrangements but went on to consider whether the arrangement complied with
the two requirements set out above. The first requirement was satisfied: the ban
applied to all traders operating within the territory. But the Court of Justice held that the
second requirement – that the ban must affect all traders in the same manner in law
and fact – may not be satisfied. The Court accepted that a ban on advertising may
have a greater impact on products from other Member States than it would on domestic
products, particularly as De Agostini had maintained that television promotion was the
only effective manner of reaching its target consumers so as to penetrate the Swedish
market. The Court of Justice decided to leave the determination of whether the ban
discriminated in fact against imported products to the national court. Nevertheless,
what is important here is that the Court had accepted in principle that if discrimination
did exist, the arrangement would be considered an MEQR under Article 34 and so it
would be prohibited unless it could be justified by a mandatory requirement.
De Agostini was followed by Konsumentombudsmannen v Gourmet International
Products Aktiebolag (Case C-405/98) [2001] ECR I-1795. Swedish law banned the
advertising of alcoholic drinks on radio and TV and in magazines and other
publications, unless the magazine was distributed solely at the point of sale of the
beverage. Gourmet published a magazine that reached members of the public and that
contained advertisements for alcohol in breach of the Swedish legislation. The Court of
Justice held that this type of selling arrangement fell within Article 34. The arrangement
impeded access by foreign producers to the alcoholic beverage market more than
domestic producers because consumers would be more familiar with the existing
domestic goods. So the arrangement constituted an indistinctly applicable MEQR. The
Swedish Government’s argument that the MEQR was justifiable in terms of the public
health derogation in Article 36 was left for the national court to determine.
These two cases can be contrasted with Herbert Karner Industrie – Auktionen GmbH v
Troostwijk GmbH (Case C-71/02) [2004] ECR I-3025. This concerned an
advertisement for an auction which stated that the goods came from an insolvent
estate. This was contrary to an Austrian ban on announcements and notices intended
for a large circle of persons which state that the goods advertised originate from an
insolvent estate when they no longer form part of that insolvent estate. The ban had the
aim of preventing consumers being given a misleading impression about potential
prices at auctions of goods bought from insolvent firms. The Court of Justice held that
this was a lawful selling arrangement which fell outside of Article 34 TFEU. In contrast
to Di Agostini and Gourmet Internationale, this did not lay down a total ban on all forms
of advertising. It merely prohibited adverts in which a large number of people are
targeted and only of the fact that the goods were previously from an insolvent estate. It
did not prohibit other adverts relating to the goods and it did not affect imported goods
any more than it affected domestic goods.
6.5.3 Distinguishing product requirements from selling arrangements

One problem that the Court of Justice has encountered is that it has not always proven
easy to distinguish selling arrangements from product requirements. This is because
promotional material may be included on the packaging or other content of the product
itself. This can be illustrated by Verein gegen Unwesen in Handel und Gewerbe Köln v
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Mars GmbH (Case C-470/93) [1995] ECR I-1923. This involved a sales promotion in
which Mars sold ice cream bars 10% larger than the usual size and marked the
wrappers ‘10%’ with a coloured flash on the end of the wrappers. This was challenged
by German consumer authorities on the ground that it created the impression that the
10% increase was free and the graphical impression created by the flash made the bar
seem even bigger. In its defence, Mars argued that any prohibition on it selling the ice
cream was an MEQR contrary to Article 34. The Court of Justice held that the
restriction was not a selling arrangement but was a product requirement as it related to
the wrappers which were part of the product. The manufacturer would have to change
the wrappers and thereby incur additional costs.
A further example of this issue can be found in Vereinigte Familiapress Zeitungsverlags
und Vertriebs GmbH v Bauer Verlag (Case C-368/95) [1997] ECR I-3689. The Austrian
Unfair Competition Act prohibited the sale of newspapers and magazines which
contained competitions giving big money prizes. Proceedings had been brought
against a German magazine being sold in Austria which had included a crossword
puzzle. Readers who successfully completed the puzzle were entered into a prize
draw. The Austrian government argued that the prohibition was a selling arrangement
because competitions were merely a method of sales promotion. The Court of Justice
disagreed and held that it was a product requirement because the competition
appeared in the magazine itself and the restriction would require the contents of the
magazine to be altered. The prohibition was therefore an MEQR. But the Court of
Justice noted that the prohibition was designed to protect small publishers who could
not afford to offer big prizes against competition from other publishers who could. It
accepted that the protection of the diversity of the press was a mandatory requirement
which could justify the restriction. It was left to the national court to decide whether the
Austrian law was a proportionate method of ensuring press plurality or whether it could
be achieved less restrictively.
6.5.4 Conclusion on selling arrangements

To sum up, it is possible to conclude from Keck itself that indistinctly applicable rules
on selling arrangements prima facie fall outside the scope of application of Article 34
TFEU. However, even if a rule is about selling, it will still be within Article 34 if it has a
differential impact, in law or fact, on domestic traders and importers (De Agostini and
Gourmet Intenationale). But requirements which have to be met by the products
themselves will fall within Article 34 even if they relate to sales promotions which
appear on or in the product itself (Mars and Familiapress).
6.6 Restrictions on the use of products

Notwithstanding the qualification introduced by the Keck test, the Court of Justice’s
approach to MEQRs under Article 34 TFEU has resulted in a wide range of restrictions
being capable of falling within its ambit. A flavour of the kinds of restrictions which may
now be considered MEQRs has been provided by the Court of Justice in Nationale
Raad van Dierenkwekers en Liefhebbers VZW v Belgium (Case C-219/07) [2008] ECR
I-4475:
‘Any legal provision of a Member State prohibiting goods which have not
been previously authorised from being marketed, acquired, offered, put on
display or sale, kept, prepared, transported, sold, disposed of for valuable
consideration or free of charge, imported or used, constitutes a measure
having an effect equivalent to a quantitative restriction within the meaning
of Article [34 TFEU].’
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In the following year, the Grand Chamber of the Court of Justice in Commission v Italy
(‘Trailers’) (Case C-110/05) [2009] ECR I-519 went further still. It held that MEQRs
were not confined to measures which have a discriminatory object or effect and to
indistinctly applicable product requirements but also consisted of any other measure
which hinders the access to the market of a Member State of products originating in
other Member States. On the strength of this, it concluded that a prohibition on the use
of two, three and four wheel motorcycles to tow trailers on roads in Italy was a
restriction on the free movement of trailers designed for motorcycles. This was
because consumers would have no interest in buying them as a result of the prohibition
and so it hindered their access to the market. The prohibition thereby constituted an
MEQR under Article 34 unless it could be justified. The Grand Chamber found that the
restriction could be justified on the ground of the need to ensure road safety.
The reasoning of the Grand Chamber was applied by the Court of Justice soon
afterwards in another case concerning the use of products. This was Åklagaren v
Mickelsson and Roos (Case C-142/05) [2009] ECR I-4273. The case arose not from a
commercial dispute but from the prosecution of two jet-ski users for breaching a
Swedish law which only permitted jet-skis to be used on general navigable waterways
and on other waterways designated by local authorities. At the time, which was only
three weeks after the law had come into force, no waterways had been designated
which meant that jet skis could only be used on general navigable waterways. The
Court of Justice held that the Swedish law had the effect of preventing users of such
watercraft from using them for the specific and inherent purposes for which they were
intended or of greatly restricting their use. This hindered access to the market for
personal watercraft because consumers, knowing that the use permitted by the
national law is very limited, will have only a limited interest in buying that product. The
measure was an MEQR as a result unless it could be justified. The Court found that
this restriction was capable of being justified on the ground of environmental protection,
both in the form of a mandatory requirement and by reason of the Article 36 derogation
for the protection of the protection of health and life of humans, animals and plants.
While a blanket ban on using all navigable waterways would have been
disproportionate, the restriction could be justified provided local authorities designated
waterways which meet the conditions in the Swedish law within a reasonable time. The
Court of Justice left it to the national court to determine whether or not the relevant
local authority had had the necessary time to designate the waterway at issue in the
case.
The overt adoption of a market access approach together with its employment in
extending Article 34 to restrictions on the use of products has embedded the move
beyond dual burden situations which began in the early selling arrangements cases. It
would now appear that any measure which hinders access to the market of a Member
State, such as by having the potential to reduce the volume of trade between Member
States, may be classifiable as an MEQR and thereby be prohibited by Article 34. There
is no need for the imported goods to be placed at any greater disadvantage by the
measure, even if only by incurring a dual burden, than domestic goods. Just how far
the Court will be willing to push this is not clear, although it is evident from the decision
in Fachverband der Buch und Medienwirtschaft v LIBRO Handelsgesellschaft mbH
(Case C-531/07) [2009] ECR I-3717 that it has not affected the application of the Keck
test to selling arrangements. Advocate General Kokott had warned in her opinion in
Mickelsson and Roos, which was delivered before the decision of the Grand Chamber
in Commission v Italy (‘Trailers’), about characterising national rules governing how
and where products may be used as MEQRs in such circumstances. This, she argued,
could result in speed limits on motorways or prohibitions on driving cross-country
vehicles off-road in forests being held to constitute MEQRs. She had recommended
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that the Keck test should be extended to restrictions on the use of products instead so
that such restrictions are excluded from Article 34 where the conditions in Keck are
satisfied. This recommendation was not taken up by the Grand Chamber in
Commission v Italy (‘Trailers’) or by the Court of Justice in Mickelsson and Roos. Time
will tell whether or not her fears were justified or unwarranted.
6.7 Article 35 TFEU: restrictions on exports

Article 35 is the mirror image of Article 34 except that the prohibition is directed at
exports and not imports. It prohibits quantitative restrictions and MEQRs in relation to
exports. There is much less case law in regard to Article 35 than Article 34, mainly
because Member States generally encourage exports in their own interests.
For the most part, the same structure of analysis will apply to Article 35 as has been
discussed at length with respect to Article 34. Like Article 34, Article 35 not only
prohibits quantitative restrictions such as the export ban on silver coins in R v
Thompson (see Section 6.3.2 above) and the refusal to grant export licences in R v
Ministry of Agriculture, Fisheries and Food, ex p Hedley Lomas (Ireland) Ltd (Case
C-5/94) [1996] ECR I-2553 (discussed earlier in Section 4.13 of Chapter 4). It also
prohibits distinctly applicable MEQRs. In the context of Article 35, measures are
distinctly applicable where they do not apply equally to goods marketed in the Member
State and those being exported from that Member State. Therefore, in Procureur de la
République de Besançon v Les Sieurs Bouhelier (Case 53/76) [1977] ECR 197, French
law required exports of watches to be authorised by export licences or to be
accompanied by standards certificates issued by the French technical centre for
industry. This was to guarantee quality standards. There was no equivalent
requirement for watches sold in France. The Court of Justice held that this was a
breach of Article 35. The fact that the obligatory quality standards only applied to
exported watches and not to those marketed in France was a form of arbitrary
discrimination which constituted an obstacle to intra-Community trade.
However, in contrast to the approach taken to imports following Cassis de Dijon, the
Court of Justice has long proven reluctant to apply Article 35 to indistinctly applicable
measures adopted by the Member State of export. This was made clear by the Court of
Justice in P.B. Groenveld BV v Produktschap voor Vee en Vlees (Case 15/79) [1979]
ECR 3409 which was decided a few months after Cassis de Dijon. Dutch law prohibited
all manufacturers of meat products from having horsemeat in stock in order to ensure
that horsemeat would not be exported by accident to countries where it is banned. This
measure was indistinctly applicable because it applied to all such manufacturers
irrespective of whether their meat products were to be marketed within Netherlands or
to be exported from the Netherlands. The Court of Justice held that such a measure
was not regulated by Article 35, even though it might have the effect of restricting
exports of meat. Article 35 will only apply to measures that have ‘as their specific object
or effect the restriction on the patterns of export and thereby the establishment of a
difference in treatment between the domestic trade of a Member State and its export
trade in such a way as to provide a particular advantage for national production or for
the domestic market of the state in question at the expense of the production or of the
trade of other Member States’. The Dutch measure did not do this.
The need identified in Groenveld for the measure to have placed the goods at a
disadvantage can explain the contrast between the attitude of the Court of Justice to
imports under Article 34 following Cassis de Dijon and its attitude to exports under
Article 35. It will be recalled that an early justification for treating indistinctly applicable
measures as MEQRs under Article 34 was based on the competitive disadvantage
which imports suffer as a result of the dual burden which such measures create for
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them. The dual burden arises where the imposition of indistinctly applicable measures
by the Member State into which the goods are being imported has the effect of creating
an extra burden on the imported goods in addition to the burden which those goods
already incurred from the regulatory measures of their home Member State. This
places the imported goods at a disadvantage when competing against goods produced
in the Member State of importation which only have to comply with the restrictions
imposed by that Member State when being marketed there (see Section 6.2.2.4
above). Exports, such as those in Groenveld, generally do not incur the same
disadvantage from the imposition of indistinctly applicable measures by the Member
State from which they were being exported. Such measures place the same burden on
the goods being exported from that Member State as they do on goods being marketed
within the same State. Any dual burden which such goods incur will be created by the
restrictions of the Member State into which they are being imported, which is governed
by Article 34 TFEU, and not by the indistinctly applicable measures of the Member
State form which they are being exported, which are governed by Article 35 TFEU.
This does not mean that indistinctly applicable measures imposed by the Member
State of export can never place exported goods at a disadvantage. The Grand
Chamber of the Court of Justice has recognised this in Criminal Proceedings Against
Gysbrechts (Case C-205/07) [2008] ECR I-9947 and confirmed that such indistinctly
applicable measures can constitute MEQRs under Article 35 when they place exported
goods at a disadvantage. Gysbrechts was the founder and manager of a Belgian
company which specialised in the sale of food supplements. The majority of its sales
were made online by means of the internet with the goods ordered being sent to the
purchasers by post. The company had required credit card details to be provided by
online customers when placing orders if they intended to pay by credit card.
Gysbrechts and the company had been convicted in Belgium of requiring a deposit or
payment from the consumer before the end of the seven working day period during
which Belgian law permits consumers to withdraw from a distance sales contract. They
appealed against the conviction and the Belgian appellant court had made a
preliminary reference to the Court of Justice. The Grand Chamber of the Court of
Justice held that the Belgian prohibition deprived traders of an efficient way of guarding
against non-payment, especially when the company had undertaken not to use the
credit card details before the expiry of the period for withdrawal. The consequences of
this were more significance for cross border sales than for domestic sales because of
the obstacles to bringing legal proceedings in another Member State. As a result, this
constituted an MEQR on exports under Article 35 TFEU, notwithstanding that the
Belgian rule was indistinctly applicable. The Grand Chamber went on to consider
whether or not the Belgian prohibition could be justified on the ground of an overriding
mandatory requirement. It held that the prohibition on taking payment before the expiry
of the withdrawal period could be justified on the ground of consumer protection but the
prohibition on taking credit card details went beyond what was necessary to protect the
consumer.
Yet the continuing requirement, reflected in Gysbrechts, that exports be placed at a
disadvantage by the indistinctly applicable measures of the Member State from which
they are being exported before those measures will be treated as MEQRs under Article
35 is increasingly at odds with the change in approach taken by the Court of Justice
over the years to indistinctly applicable measures of the Member State of importation
under Article 34. It has been observed above that the Court has extended the ambit of
Article 34 beyond situations in which imported goods are placed at a disadvantage
compared to domestic goods due to the dual burden created by indistinctly applicable
measures imposed by the Member State of importation. It is now sufficient merely that
such measures act as an obstacle to the free movement of the goods by hindering the
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access of those goods to the market, even if they place the same burden on both
imported and domestic goods. Given that, as will be seen in Chapters 7 to 9, a similar
shift has also taken place in relation to other freedoms underpinning the internal
market, it would not be surprising if the Court of Justice was to adopt a market access
approach to Article 35 at some point in the future.
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7
Free Movement of
Persons: Articles 20
and 45 TFEU
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Introduction
Securing the free movement of persons within the Union is one of the central aims of
the Treaties and one of the four essential freedoms of the EU internal market (Article 3
TEU). It is also one of the more controversial areas of EU law because, unlike the free
movement of goods, Member States have traditionally viewed the control of aliens as
one of their sovereign functions. This assertion is linked to concerns about the
implications of migration for employment, social welfare, crime and national security.
For this reason, the rights to freedom of movement for persons in the Treaty of Rome
were drafted in fairly conservative terms so as to give Member States continuing
control over migration. Nevertheless, the Court of Justice has adopted a broad
interpretation of the relevant Treaty provisions and secondary legislation to facilitate
migrants in their movement across national borders.
This chapter will begin by providing a brief overview of the historical development of the
free movement of persons. It will then consider three categories of persons who are
able to exercise rights to free movement. These are workers, Union citizens and their
family members. It will then examine the conditions under which these persons can
enter and reside in another Member State and the employment rights, rights to social
assistance and other financial benefits and education rights which they are entitled to.
Finally, it will discuss the circumstances under which a Member State can limit these
rights by means of derogations and by the public service exemption.
7.1 A brief overview of the historical development of the free

movement of persons
Initially, the free movement rights granted to EU nationals under the Treaty of Rome
1957 applied only to the ‘economically active’. This includes workers and self-employed
persons providing services and exercising establishment rights. The rights of the self-
employed and their families will be considered in the chapters on freedom of
establishment and freedom to provide services, although they will also be touched
upon in this chapter. This chapter will address the free movement of workers. Specific
employment, social and educational rights were provided to workers by Regulation
1612/68 (now Regulation 492/2011). This also provided certain family members of
workers with limited rights that were derived from the rights of the persons to whom
they are related.
In the early 1990s, secondary legislation further extended the scope of persons who
could benefit from freedom of movement by granting qualified rights to persons who
were not economically active (Directive 90/364 (persons with sufficient resources and
sickness insurance), Directive 90/365 (retired persons who had previously been
employees or self-employed) and Directive 93/96 (students)). At this time, the concept
of citizenship was introduced by the Maastricht revision of the EC Treaty. Article 8 TEU
(now Article 20 TFEU) conferred on all individuals holding nationality of one of the
Member States additional status of Union citizen. This included the right to move and
reside freely within Member States irrespective of whether or not they were
economically active. Since its introduction, the concept of citizenship has increasingly
been used to assert residence rights along with associated social and educational
rights.
Directive 2004/38, the so-called Citizenship Directive, now provides detailed rules
governing the free movement of persons. It consolidated various pieces of legislation
providing for free movement in a single directive but also introduced reforms. These
include detailed rules governing the rights of entry and residence for all Union citizens
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Free Movement of Persons: Articles 20 and 45 TFEU
regardless of whether they are economically active or not, the elimination of the need
for Union citizens to obtain a residence card, the introduction of a permanent right of
residence and greater safeguards for family members.
It should be noted that Article 7A of the Single European Act 1986 aimed for the
elimination of all border controls in the EU as of 1 January 1993. However, there
remained difficulties in the implementation of the objective because of opposition by the
UK and Ireland. The remaining Member States resolved this by signing a separate
agreement outside the EU framework to achieve the objective. This was the Schengen
Agreement. It abolished internal border controls amongst the signatory Member States
and introduced common visa controls. The Schengen Agreements have now been
incorporated into the Treaties by the Treaty of Amsterdam. However, Protocols exclude
the UK and Ireland from these provisions so that frontier controls remain when persons
enter those countries.
7.2 Free movement of workers

The free movement of workers is one of the central pillars of the free movement of
persons. The key provision relating to workers is Article 45 TFEU. The article consists
of four paragraphs which provide as follows:
‘1. Freedom of movement for workers shall be secured within the Union.
2. Such 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.
3. It shall entail the right, subject to limitations justified on grounds of
public policy, public security or public health:
(a) To accept offers of employment actually made;
(b) To move freely within the territory of Member States for this
purpose;
(c) To stay in a Member State for the purpose of employment in
accordance with the provisions governing the employment of
nationals of that State laid down by law, regulation or
administrative action;
(d) To remain in the territory of a Member State after having been
employed in that State, subject to conditions which shall be
embodied in regulations to be drawn up by the Commission.
4. The provisions of this article shall not apply to employment in the
public service.’
In its case law, the Court of Justice has repeatedly emphasised the importance of the
principle of freedom of movement and non-discrimination on the grounds of nationality
embodied in the article. In this regard, Article 45 represents an application, in the
specific context of workers, of the general principle in Article 18 TFEU that prohibits
any discrimination on the basis of nationality within the scope of application of the
Treaties.
Article 45 TFEU is supplemented by secondary legislation. This includes:
(a) Regulation 492/2011 which confers rights of equal treatment relating to
employment, tax and social advantages and access to education that can be
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enjoyed by workers and certain family members. It consolidated and replaced

Regulation 1612/68 and two other Regulations which formally provided these
rights.
(b) Directive 2004/38 which deals primarily with rights of entry and residence of
Union citizens and family members, including Union citizens who are workers.
This secondary legislation protects and facilitates the enforcement of the primary rights
set out in Article 45 and in other provisions of the TFEU. It also builds upon the
framework established by the Treaties by conferring additional rights upon workers and
their families in order to give them the incentive and ability to exercise the right of free
movement.
7.2.1 Economic activities and the scope of Article 45 TFEU

The scope of application of Article 45 TFEU has been interpreted by the Court of
Justice by reference to the objectives of the European Economic Community originally
listed in Article 2 of the Treaty of Rome. One of these objectives was the promotion
throughout the Community of a harmonious development of economic activities. On the
strength of this, the Court of Justice has long held that Article 45 TFEU applies only in
relation to activities which are of an economic nature. This has been broadly
interpreted. For example, in Walrave & Koch v Association Union Cycliste
Internationale (Case 36/74) [1974] ECR 1405, the Court of Justice held that the
practice of sport is subject to Article 45 TFEU, albeit only in so far as it constitutes an
economic activity having the character of gainful employment. This has led to several
cases in which participants in professional sports have been held to able to rely on
rights under Article 45. Walrave & Koch itself concerned two Dutch nationals who acted
as professional pace makers in motor-paced cycle races. They sought to challenge the
rules of the international body responsible for regulating such races. They maintained
that the rules providing for the composition of teams discriminated on the basis of
nationality. The Court held that Article 45 TFEU applied to rules of an international
sporting federation which were aimed at regulating in a collective manner gainful
employment. Likewise, the activities of professional and semi-professional footballers
who are in gainful employment have also been held to fall within Article 45 TFEU (see,
for example, Union Royal Belge des Sociétés de Football Association ASBL v Jean
Marc Bosman (Case C-415/93) [1995] ECR I-4921 which is discussed below in Section
7.7.1.3).
7.3 Definition of a ‘worker’

An individual has to be both a national of a Member State and a ‘worker’ in order to
obtain the full rights under Article 45 TFEU and Regulation 492/2011. Directive 2004/38
also provides Union citizens who are workers with a right to reside in another Member
State for longer than three months.
7.3.1 A Union definition

The treaties have never provided a definition of the term ‘worker’. Nevertheless, in
Hoekstra (née Unger) v Bestuur der Bedrijfsvereniging voor Detailhandel en
Ambachten (Case 75/63) [1964] ECR 177, the Court of Justice held that whether or not
a person is a worker was not to be defined by national law but was to be given a Union
meaning. This approach ensures that the definition is consistent across Member States
so that the free movement rules are not frustrated.
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7.3.2 An ’employment relationship’

As Walrave & Koch indicates, to be a worker, a person must be engaged in an
economic activity having the character of gainful employment. In Lawrie-Blum v Land
Baden-Württemberg (Case 66/85) [1986] ECR 2121, the Court of Justice held that:
’The essential feature of an employment relationship ... is that for a certain
period of time a person performs services for and under the direction of
another person in return for which he receives remuneration.’
Thus, the Court of Justice identified three essential criteria in order for an employment
relationship to arise: the individual must (a) perform services; (b) for and under the
direction of another; and (c) in return for remuneration. The individual’s particular
designation is irrelevant.
The Lawrie-Blum case involved a British national who went to Germany to train to be a
teacher. She passed her teaching examination at the University of Freiburg but was
refused admission to the preparatory service stage of training on the ground that she
was not a German national. The latter period of the preparatory service would have
involved her undertaking teaching for up to 11 hours a week at a secondary school for
which she would have been paid. The German authorities denied that a trainee teacher
is a worker as such a person is engaged in an educational activity and not an economic
one. The Court of Justice disagreed. It held that a trainee teacher undergoing the
preparatory service stage of training is a worker as the requirements for an
employment relationship are fulfilled. The preparatory service stage is undertaken
under the direction and supervision of the school to which the trainee teacher is
assigned. The trainee teacher is required to give lessons at the school. These lessons
are a service of some economic value to the school for which the trainee teacher is
paid.
7.3.3 An effective and genuine economic activity

In Levin v Staatssecretaris van Justitie (Case 53/81) [1982] ECR 1035, the Court of
Justice held that:
‘…the rules [governing the free movement of workers] cover only the
pursuit of effective and genuine activities, to the exclusion of activities on
such a small scale as to be regarded as marginal or ancillary.’
This case concerned a claim made under Article 45 by a British national whose
application for a residence permit had been refused by the Dutch authorities on the
ground that she was not in gainful employment. She maintained that her husband, who
was not a national of a Member State, had sufficient resources to maintain them both.
Nevertheless, as a precaution, she began working 20 hours a week as a chamber maid
in a hotel. The main issue addressed by the court in the case was whether an
individual earning an income less than the minimum required for subsistence as
defined under national law could be considered a ‘worker’ for the purpose of
Community law. The Court of Justice held that the rules on freedom of movement for
workers ‘concern persons who pursue or wish to pursue an activity as an employed
person on a part-time basis and who, by virtue of that fact obtain or would obtain only
remuneration lower than the minimum guaranteed remuneration in the sector under
consideration’. But it qualified this by adding that the activity must be genuine and
effective and not merely marginal and ancillary.
The effect of the court’s decision has been to ensure that the concept of a ‘worker’
includes part-time employment provided the work is neither nominal nor minimal. This
is so whether the worker is self-supporting or is wishing to make do with less than the
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national minimum income. In Kempf v Staatssecretaris van Justitie (Case 139/85)

[1986] ECR 1741, the Court of Justice held that this is also the case where the person
supplements his income by recourse to social security benefits provided by the
Member State. Kempf concerned a German music teacher who worked part time in the
Netherlands from 1981 to 1982 during which time he was in receipt of social security
benefits to top up his modest earnings. His work consisted of giving 12 lessons per
week in a school. His application for a Dutch residence permit was refused on the
ground that he had been having recourse to public funds in the Netherlands and so
was manifestly unable to meet his needs out of the income received from his
employment. The Court of Justice held that a person in effective and genuine part-time
employment cannot be excluded from the sphere of application of the rules on free
movement of workers merely because the remuneration he derives is below the level of
the minimum means of subsistence and because he seeks to supplement it by other
lawful means of subsistence. It is irrelevant whether those supplementary means of
subsistence are derived from property or from the employment of a member of his
family as was the case in Levin, or whether, as in Kempf itself, they are obtained from
the public funds of the Member State in which he resides, provided that the effective
and genuine nature of his work is established.
A further example is provided by Steymann v Staatssecretaris van Justitie (Case
196/87) [1988] ECR 6159. This concerned a German member of a religious community
in the Netherlands who had applied for a residence permit there on the ground that he
was pursuing an activity as an employed person. He carried out plumbing and general
household duties for the community and took part in its commercial activities which
included a discothèque, a bar and a launderette. He could only avoid taking part in it in
special circumstances. In return for this, the community provided for his material needs
including supplying pocket money, accommodation and food. His application was
rejected on the basis that participation in a religious community was not an economic
activity. However, the Court of Justice held that work carried out in connection with the
community’s commercial activities could amount to a genuine and effective economic
activity.
These cases can be contrasted with the much more cautious approach taken in Bettray
v Staatsecretaris van Justitie (Case 344/87) [1989] ECR 1621. This case involved a
drug addict of German nationality who was employed under a legislative scheme in the
Netherlands which was designed to provide employment for the sole purpose of
maintaining, restoring or improving the capacity for work of persons who were unable
to work under normal conditions. The Court of Justice held he was not engaged in an
effective and genuine economic activity, notwithstanding that the employment satisfied
the Lawrie-Blum test. This was because the work was just a means of rehabilitation or
reintegration. Its primary purpose was to enable him to recover his capacity to take up
ordinary employment or to lead as normal as possible a life. In other words, any
economic activity involved in the employment was purely ancillary to the primary social
objectives. The decision has been controversial and has subsequently been treated by
the Grand Chamber of the Court of Justice in Trojani v Centre Public d’Aide Sociale de
Bruxelles (CPAS) (Case C-456/02) [2004] ECR I-7573 as specific to the particular
circumstances of that case. In Trojani, a French national who, as part of a personal
socio-occupational reintegration programme in Belgium, was given accommodation in
a Salvation Army hostel where he did various jobs for about 30 hours a week in return
for board and lodging and some pocket money was held to satisfy the Lawrie-Blum test
but the Grand Chamber left it to the Belgian court to determine whether or not on the
facts the paid activity was an effective and genuine economic activity.
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7.3.4 Job seekers

The free movement of workers under Article 45 TFEU does not extend solely to
persons who are engaged in employment. It also entails the right to accept offers of
employment (Article 45(3)(a)) and the right to remain in the territory of a Member State
after having been employed in that State subject to conditions embodied in regulations
drawn up by the Commission (Article 45(3)(d)). In Hoekstra, the Court of Justice
observed that the latter right protects a person who has left his job and is capable of
taking another.
The Court of Justice extended the scope of Article 45 further in Procureur du Roi v
Royer (Case 48/75) [1976] ECR 497 by holding that it confers a right on nationals of a
Member State to enter and reside in the territory of another Member State in order to
look for work. This was developed further in R v Immigration Appeal Tribunal, ex parte
Antonissen (Case 292/89) [1991] ECR I-745 which concerned an order to deport a
Belgian national from the United Kingdom. He had entered the United Kingdom
seeking employment and had not secured work after the six-month period laid down in
UK law. The Court of Justice confirmed that Article 45 entails the right for nationals of
Member States to move freely within the territory of the other Member States and to
stay there for the purpose of seeking employment. It justified this on the basis that a
strict interpretation of Article 45 would jeopardize the chances that a national of a
Member State who is seeking employment would find employment in another Member
State and would thereby undermine the objective of Article 45 itself. However, the
Court qualified the right by accepting that it could be subjected to a temporal limitation.
The effectiveness of Article 45 only required that a person be given a reasonable time
in which to apprise themselves, in the territory of the Member State concerned, of
offers of employment corresponding to their occupational qualifications and to take,
where appropriate, the necessary steps in order to be engaged. Six months was a
reasonable period of time. Consequently, a Member State could require a national of
another Member State to leave the territory of that State if he has not found
employment there after six months unless the person concerned provides evidence
that he is continuing to seek employment and that he has genuine chances of being
engaged. This principle is now codified in Article 14(4)(b) of Directive 2004/38 (see
Section 7.6.3 below).
These temporal conditions result in a more limited right of residence for job seekers
under Article 45 TFEU than that that enjoyed by workers who are in employment. The
rights of job seekers founded on Article 45 TFEU are also more limited in other
respects. In particular, Article 7(2) of Regulation 492/2011 provides migrant workers
with a right to the same social and tax advantages as the nationals of the host Member
State in which they are residing. This right is not available to job seekers (see Section
7.7.3.1 below).
7.4 Union citizens

The concept of Union citizenship was introduced by the Treaty of Maastricht in 1992. It
is now provided for by Article 20(1) TFEU which states that:
‘Citizenship of the Union is hereby established. Every person holding the
nationality of a Member State shall be a citizen of the Union. Citizenship of
the Union shall be additional to and not replace national citizenship.’
Article 20(2) outlines various rights which Union Citizens are to enjoy.
One of these is the right to move and reside freely within the territory of the Member
States which is provided by Article 20(2)(a) and repeated in Article 21(1). However,
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Article 21(1) makes it clear that the right to move and reside freely is ‘subject to the
limitations and conditions laid down in the Treaties and by the measures adopted to
give them effect’. A similar qualification can be found in Article 20(2). These include the
limits and conditions provided by Article 45 TFEU and secondary legislation such as
Regulation 492/2011.
Since Martínez Sala v Freistaat Bayern (Case C-85/96) [1998] ECR I-2691, which is
discussed in Section 7.7.3.2 below, the concept of Union citizenship has proven to be a
powerful tool in the hands of the Court of Justice when used in conjunction with the
prohibition against discrimination on the grounds of nationality in Article 18 TFEU. This
has led to the central link between economic activity and free movement being eroded
as the circumstances in which non-economically active persons have been able to
benefit from free movement rights has expanded by reason of their ability to rely on
Union citizenship. In the landmark case of Grzelczyk v Centre Public d’Aide Sociale
(Case C-184/99) [2001] ECR I-6193, the Court of Justice even went so far as to
declare that:
‘Union citizenship is destined to be the fundamental status of nationals of
the Member States, enabling those who find themselves in the same
situation to enjoy the same treatment in law irrespective of their nationality,
subject to such exceptions as are expressly provided for.’
Detailed rules governing the free movement of Union Citizens are now provided for by
Directive 2004/38. These will be examined below. Article 2(1) of the Directive defines a
Union citizen as ‘any person having the nationality of a Member State’ for the purposes
of that Directive.
7.5 Who can workers and other Union citizens bring with
them?
7.5.1 Definition of family members
Article 45 TFEU does not expressly provide for the freedom of movement of the
families of workers. Nevertheless, it has long been recognised that the freedom of
movement of a worker would be inhibited if his family could not accompany him. To this
end, Article 10(1) of Regulation 1612/68 provided a worker with a right to install his
spouse and their descendants who are under the age of 21 years or are dependants
and to install dependent relatives in the ascending line of the worker and his spouse.
Article 10(2) of the Regulation placed the Member States under a further duty to
facilitate the admission of any other member of the worker’s family who was dependent
on the worker or living under his roof in the country he came from.
The application of the Regulation to unmarried cohabiting couples was considered by
the Court of Justice in Netherlands State v Reed (Case 59/85) [1985] ECR 1283. Here,
a British woman who was living with her British partner in the Netherlands was refused
a residence permit. The Court of Justice held that the term ‘spouse’ in Article 10 was
confined to a person who is married to the worker. Accordingly, an unmarried partner
could not claim rights as a ‘spouse’ under the Regulation. However, the court went on
to accept that Reed could rely instead on Article 7(2) of the Regulation which provides
that a worker shall enjoy the same social and tax advantages as national workers (see
Section 7.7.3.1 below). Dutch law permitted a foreign national who was living together
with a Dutch citizen in a stable relationship to reside in the Netherlands. The Court of
Justice held that this was a social advantage to the Dutch citizen and so had to be
available to the nationals of other Member States working in the Netherlands.
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Article 10 of Regulation 1612/68 has since been repealed by Directive 2004/38. Article
2(2) of the Directive now confers the status of a ‘family member’ for the purposes of
that Directive. It defines a family member in the following terms:
‘"Family member" means:
(a) A spouse;
(b) The partner with whom the Union citizen has contracted a registered
partnership, on the basis of the legislation of a Member State, if the
legislation of the host Member State treats registered partnerships as
equivalent to marriage and in accordance with the conditions laid
down in the relevant legislation of the host member State.
(c) The direct descendants who are under the age of 21 or are
dependants and those of the spouse or partner as defined in point
(b).
(d) The dependent direct relatives in the ascending line and those of the
spouse or partner as defined in point (b).’
The definition of family member under Article 2(2) includes registered partners. It also
brings within its scope the descendants of the registered partner who are under the age
of 21 or dependent and the registered partner’s direct dependent ascendants.
However, such persons will only be treated as family members where the registered
partnership meets the requirements in Article 2(2)(b). This requires not only that the
registered partnership must have been contracted on the basis of the legislation of a
Member State but also that it must be recognised as the equivalent of marriage by the
legislation of the host Member State. Six Member States do not recognise registered
partnerships at all. These are Bulgaria, Latvia, Lithuania, Poland, Romania and
Slovakia. The registered partnership must also be in accordance with the conditions
laid down by the legislation of the host member State. These conditions vary between
Member States. The form of registered partnership in the United Kingdom is called a
civil partnership. This is only available for homosexual couples. Finally, it should be
noted that Article 2(2) only includes registered partnerships. It does not extend to non-
registered cohabiting partnerships, even if the Union citizen has been living with his or
her partner for a number of years in a stable loving relationship.
7.5.2 Other beneficiaries

Article 3 of Directive 2004/38 confers the status of ‘beneficiaries’ on two further
categories of people:
1. Other family members, irrespective of nationality, falling outside Article 2(2) who
are dependants or members of the household of the migrant worker or whose
serious health problems require the personal care of such a person (Article
3(2)(a)). The legislation provides no definition of ‘dependant’. In Jia v
Migrationjverket (Case C-1/05) [2007] ECR I-1, the Grand Chamber of the Court
of Justice defined a ‘dependant’ as someone who needs the material support of
the Union citizen in order to meet their essential needs in their State of origin or
the State from which they have come at the time when they apply to join that
Union citizen.
2. The partner with whom the Union citizen ‘has a durable relationship, duly
attested’ (Article 3(2)(b)). This covers unmarried co-habiting partners, both
heterosexual and homosexual, who are not registered and so fall outside Article
2(2). Such partners would need to prove a lengthy relationship by whatever
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method they could (even if they are currently living apart) and the Member State
would then be obliged to undertake an extensive examination and provide
justification for a refusal. Recital 31 of the Preamble to the Directive prohibits
discrimination based on sexual orientation during implementation of the Directive
so a State must not discriminate in favour of unmarried heterosexual partners.
Beneficiaries are not ‘family members’ within the meaning of Article 2(2) and so are not
able to benefit from the rights conferred on family members. But Article 3 does place
the Member State under an obligation, in accordance with its national legislation, to
facilitate the entry and residence of the beneficiaries of the Union citizen.
7.6 Rights of entry and residence

Article 45 TFEU provides workers with the basic right to be able to move freely within
the territory of Member States for the purpose of accepting offers of employment, to
stay for the purpose of employment and to remain after having been employed.
Detailed rules providing for workers and their families to enter and reside in another
Member State were previously provided for by Regulation 1612/68 and Directive
68/360. Entry and residence rights were subsequently extended to economically
inactive nationals of Member States and their families by Directive 90/364 (persons
with sufficient resources and comprehensive sickness insurance), Directive 90/365
(retired persons) and Directive 93/96 (students). The introduction of Union citizenship
by the Maastricht Treaty in 1992 brought with it a more general right of Union citizens
to move and reside freely within the territory of Member States. As was noted above,
this is now provided for by Article 20(2)(a) and Article 21(1) TFEU.
These developments have now been consolidated into Directive 2004/38, which has
also added its own innovations. The Directive applies to all Union citizens, including
workers, and their family members. Under the Directive, Union citizens and their family
members have the following rights:
7.6.1 Rights of Exit and Entry

Union citizens and their family members may leave the home Member State and enter
the host Member State simply on the production of a valid passport or identification
card (Articles 4 and 5 respectively). If the spouse of the Union citizen is a non-EU
national, a visa may still be required to enter but Member States must offer every
facility for obtaining one (Articles 5(2) and 5(4)).
7.6.2 The Right of Residence

 Up to three months: Union citizens and family members who are accompanying
or joining them may reside for a period of up to three months without any
conditions other than that of holding a valid passport or identity card (Article 6).
They will retain this right so long as they do not become an unreasonable burden
on the social assistance system of the host Member State (Article 14(1)). It
should be noted that there is no obligation for the family members to reside under
the same roof as the citizen (see Diatta v Land Berlin (Case 267/83) [1985] ECR
567, discussed in Section 7.6.3 below).
 Over three months: The right of residence for longer than three months is
governed by Article 7. Under that article, the right is restricted to specified
categories of Union citizen and their family members:
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‘1. All Union citizens shall have the right of residence on the
territory of another Member State for a period of longer than
three months if they:
(a) Are workers or self-employed persons in the host Member
State; or
(b) Have sufficient resources for themselves and their family
members not to become a burden on the social
assistance system of the host Member State during their
period of residence and have comprehensive sickness
insurance cover in the host Member State; or
(c) (i) Are enrolled at a private or public establishment,
accredited or financed by the host Member State on
the basis of its legislation or administrative practice,
for the principal purpose of following a course of
study, including vocational training; and
(ii) Have comprehensive sickness insurance cover in
the host Member State and assure the relevant
national authority, by means of a declaration or by
such equivalent means as they may choose, that
they have sufficient resources for themselves and
their family members not to become a burden on the
social assistance system of the host Member State
during their period of residence; or
(d) Are family members accompanying or joining a Union
citizen who satisfies the conditions referred to in points
(a), (b) or (c).
2. The right of residence provided for in paragraph 1 shall extend
to family members who are not nationals of a Member State,
accompanying or joining the Union citizen in the host Member
State, provided that such Union citizen satisfies the conditions
referred to in 1(a), (b) or (c).’
7.6.3 Retention of Rights of Residence

The right to residence may be retained in the following circumstances:
 Job seekers: the general rule is that a Union citizen and his or her family cannot
be expelled so long as the Union citizen entered the host Member State in order
to seek employment and he or she can provide evidence that he or she is
continuing to seek employment and that he or she has a genuine chance of being
engaged (Article 14(4)(b)). This codifies the Court of Justice’s decision in
Antonissen (see the discussion in section 7.3.4).
 Unemployed: Article 7(3) provides for a Union citizen who was a worker or self-
employed to retain that status where they are temporarily unable to work as the
result of an illness or accident; have been made involuntarily unemployed and
registered as a job seeker; or embark on vocational training. These are subject to
conditions.
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Activity point
Read Article 7(3) of Directive 2004/38.
What are the precise conditions for an unemployed person to retain a right of
residence?
 Separation: Directive 2004/38 does not specifically provide for the separation of
married couples or registered partners. Nevertheless, the rights of a spouse will
remain unaffected by separation from the Union citizen so long as the marriage
has not been dissolved. This follows from the earlier case of Diatta v Land Berlin
(Case 267/83) [1985] ECR 567. In this case, a Senegalese national living and
working in Germany separated from her French spouse and initiated divorce
proceedings. Her application for her residence permit to be renewed was
subsequently rejected on the ground that she was no longer the member of a
family of the national of a Member State. The Court of Justice held that there was
no requirement that members of the family live permanently under the same roof
as the worker. As the marriage had not yet been dissolved, she had the right to
continue to reside in Germany. It is to be presumed that this principle will now
also apply to registered partnerships
 Divorce etc.: The Court’s decision in Diatta suggested that the right to reside
would be lost once the marriage had been dissolved. Article 13 of Directive
2004/38 now provides for the retention, in specified circumstances, of the right of
residence by family members in the event of a divorce or the annulment of the
marriage or the termination of a registered partnership. Article 13(1) provides that
this shall not affect the right of residence of a citizen’s family members who are
nationals of a Member State. They will also not be stopped from acquiring the
right of permanent residence after five years (as long as they satisfy the
requirements of Article 7(1) about economic independence). Article 13(2) allows
the retention of the right of residence by family members who are third country
nationals in four circumstances:
1. Where the marriage or registered partnership has lasted three years before
the initiation of termination proceedings, with one year being spent in the
host Member State (Article 13(2)(a)); or
2. Where such a person has the spouse or registered partner’s agreed or
court ordered custody of the Union citizens’ children (Article 13(2)(b)); or
3. Where the divorce or termination was as a result of particularly difficult
circumstances such as domestic violence (Article 13(2)(c); or
4. Where such a person has the spouse or registered partner’s agreed or
court ordered access to a minor in the host State (Article 13(2)(d)).
It should be noted that Article 13 does not affect the position under Diatta where
the spouses or registered partners have separated but the marriage or registered
partnership has not yet been dissolved.
 Death or departure of the Union citizen: Article 12 provides for the retention of
the right of residence of family members in the event of the death or departure of
the Union citizen. This is subject to conditions.
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Activity point
Read Article 12 of Directive 2004/38.
What are the conditions for a family member to retain a right of residence upon the
death or departure of a Union citizen?
7.6.4 The Right of Permanent Residence

The right of permanent residence is provided for by Chapter IV of Directive 2004/38.
Article 16 of the Directive provides Union citizens and family members with the right of
permanent residence where they have legally resided in the host Member State for a
period of five years. This is one of the most significant novelties of the new regime
introduced by the Directive. This right, once acquired, is not subject to the conditions
set out for a right of residence for up to five years. In particular, after five years of
continuous legal residence a citizen does not have to be economically active or
economically independent with comprehensive sickness insurance. Once acquired, the
right of permanent residence can be lost only through absence from the host Member
State for a period exceeding two consecutive years (Article 16(4)). Further precise
conditions governing the right are laid down in Chapter IV.
Article 17 provides for workers and self-employed persons to enjoy the right of
permanent residence before the completion of five years of residence once they have
retired, they have stopped working as a result of a permanent incapacity to work or,
having worked in the host Member State for three years, they work in another Member
State whilst maintaining a place of residence in the host Member State. These are all
subject to conditions.
Activity point
Read Articles 16 to 18 of Directive 2004/38.
What are the conditions for obtaining permanent residence? Can you identify a
difference between the treatment of workers and non-economically active Union
citizens for the purposes of obtaining permanent residence?
7.7 Employment rights

7.7.1 Rights of nationals of Member States
In addition to rights to stay and move freely within the territory of a Member State,
Article 45 TFEU also confers employment rights. Article 45(2) specifically provides that
the free movement of workers ‘entails 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’. Article 45(3)(a) adds that
the freedom also entails the right ‘to accept offers of employment actually made’.
These basic requirements are fleshed out in more detail by Regulation 492/2011.
Section 1 of the Regulation (Articles 1 to 6) addresses issues relating to the eligibility
for employment and access to employment. Section 2 of the Regulation (Articles 7 to
10) addresses equality of treatment issues once a worker is in employment.
The Court of Justice has interpreted Article 45 TFEU and Regulation 492/2011 widely
so as to prohibit not only direct discrimination on the basis of nationality but also
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indirect discrimination and even indistinctly applicable measures which, whilst not being
discriminatory, impede access to the employment market.
7.7.1.1 Direct discrimination
Direct discrimination arises where workers from other Member States are overtly
treated less favourably than nationals of the host Member State. An example of direct
discrimination can be found in Commission v France (French Merchant Seamen) (Case
167/73) [1974] ECR 359. This concerned a French ministerial order which imposed an
overall ratio of three French to one foreign national on ships of the merchant fleet and
reserved certain positions only to French nationals. The Court of Justice held that the
right to free movement of workers extended to sea transport and that the ministerial
order breached Article 45 TFEU and Article 4 of Regulation 492/2011. It was not
sufficient that verbal instructions had been given to the naval authorities that
Community nationals were to be treated as French nationals. The ministerial order
should have been amended.
7.7.1.2 Indirect discrimination
Indirect indiscrimination arises when a rule relating to employment is neutral in terms of
nationality but in practice it affects non-national workers more severely than nationals.
The Court of Justice first held that the prohibition on discrimination in relation to
employment rights extended to indirect discrimination in Württembergische
Milchverwertung-Südmilch AG v Ugliola (Case 15/69) [1970] ECR 363. This case
concerned an Italian who had interrupted his employment in West Germany in order to
fulfil his obligation as an Italian citizen to undertake compulsory military service in the
Italian army. He had then resumed his employment with the same employer in West
Germany. He wished his period of military service to be taken into account in
determining his seniority with his employer. West German law provided for the period
of military service to be taken into account in calculating the duration of a worker’s
employment but this only applied to workers who, irrespective of their nationality,
undertook military service in the West German military. The Court of Justice held that
this breached Article 45 TFEU as it indirectly discriminated against workers from other
Member States who undertook military service in their country of origin.
In contrast to direct discrimination, it may be possible to justify indirect discrimination
on objective public interest grounds. This can be illustrated by Sotgiu v Deutsche
Bundespost (Case 152/73) [1974] ECR 153. Workers in the West German Federal
Postal Service received a separation allowance when they were employed away from
home. This was increased by 10 DM per day for workers whose place of residence was
within Germany but by only 7.50 DM per day where their place of residence was
abroad. Sotgiu was an Italian national whose family was still residing in Italy. He was
only entitled to the smaller increase. The Court of Justice reiterated that Community
law prohibited not only direct discrimination on the basis of nationality but also indirect
discrimination which, by the application of other criteria such as the place of residence,
leads to the same result. However, the Court of Justice considered the distinction
drawn on the basis of the place of residence to be objectively justifiable. Payments to
workers who were resident in Germany were temporary as they were required to move
to their place of employment. Workers who retained their residence abroad were not
required to move and so their allowance was expected to continue indefinitely.
One ground for justifying discrimination is expressly provided by Article 3(1) of
Regulation 492/2011. This article prohibits discrimination by Member States in respect
of applications and offers for employment but then qualifies the prohibition by adding
that it ‘shall not apply to conditions relating to the linguistic knowledge required by
reason of the nature of the post to be filled.’ This was applied by the Court of Justice in
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Groener v Ministry for Education (Case 379/87) [1989] ECR 3967. The case concerned
the operation of Article 3(1) of Regulation 492/2011. Groener was a Dutch national who
had been engaged on a temporary basis as a part-time lecturer in art at a college in
Ireland. She had applied for a permanent full time position which would be taught
exclusively in English. However, the Minister for Education refused to appoint her as
she did not have the certificate of proficiency in the Irish language or an equivalent
qualification and had failed a beginner’s course in Irish Gaelic. The proficiency
requirement applied to anyone applying for a permanent full–time post as a teacher in
certain areas, irrespective of their nationality. The Court of Justice held that the
language condition was required by reason of the nature of the post to be filled as it
formed part of a policy of promoting Irish Gaelic, which was one of the official national
languages of Ireland, as a means of expressing national identity and culture. Teachers
had an essential role to play in this not only in their teaching but also in their
participation in the daily life of the school and their privileged relationship with their
pupils.
7.7.1.3 Non-discriminatory obstacles to accessing the employment market
More recently, the Court of Justice has extended its interpretation of Article 45 TFEU
further so as to prohibit measures which impede access to the employment market
without being either directly or indirectly discriminatory on the basis of nationality. This
initially arose from the Court of Justice’s judgement in Kraus v Land Baden-
Württemberg (Case C-19/92) [1993] ECR I-1663 which concerned a legal requirement
in Germany that a person must obtain authorisation from the relevant German federal
state before he or she could use an academic title obtained in a foreign higher
education establishment. The requirement applied irrespective of the nationality of the
person wishing to use the title in Germany. The case was brought by a German student
who had obtained a Masters in Law (LLM) from the University of Edinburgh and who,
having returned to Germany, had refused to make a formal application for authorisation
to use the academic title in Germany. The Court of Justice held that the activities of the
European Community include the abolition of obstacles to the free movement of
persons. The possession of an academic title may be such an obstacle as it may be a
pre-requisite for entry into a profession. Even if it is not a pre-requisite, it may still be
advantageous to the holder. Consequently, a national measure governing the
conditions under which an academic title obtained in another Member State may be
used would be prohibited in so far as it is liable to hamper or to render less attractive
the exercise by Community nationals, including those of the Member State which
enacted the measure, of the free movement of workers, even if the measure is
applicable without discrimination on grounds of nationality. However, the Court of
Justice went on to hold that such a measure could be justified if it pursued a legitimate
objective compatible with the Treaty and was justified by pressing reasons of public
interest. The Court concluded that, on the facts, the German measure could be justified
by the need to prevent the misleading use of academic titles so long as this was
proportionate.
The leading case is now Union Royal Belge des Sociétés de Football Association
ASBL v Bosman (Case C-415/93) [1995] ECR I-4921. Bosman was a Belgian footballer
whose contract had expired with his Belgian club. He wished to transfer to a French
club who wanted to engage his services. Under the transfer system of football
associations, his own club would not release him without payment of a transfer fee by
the club wishing to engage him. This rule was standard throughout football
associations in Europe and did not discriminate directly or indirectly against non-
nationals. The rule also did not discriminate against players transferring internally or
those going abroad. Despite this, the Court of Justice held that the transfer rules still
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directly affected players’ access to the employment market in other Member States and
so were capable of impeding the freedom of movement for workers. Consequently,
they constituted an obstacle to freedom of movement for workers prohibited by Article
45. The Court of Justice added that it could only be otherwise if those rules pursued a
legitimate aim compatible with the Treaty and were justified by pressing reasons of
public interest. But even if that were so, application of those rules would still have to be
such as to ensure achievement of the aim in question and not go beyond what is
necessary for that purpose.
7.7.2 Right of family members to take up employment

Article 23 of Directive 2004/38 confers the right to work on Union citizens’ family
members. It provides that:
‘Irrespective of nationality, the family members of a Union citizen who have
the right of residence or the right of permanent residence in a Member
State shall be entitled to take up employment or self-employment there. ’
It should be emphasised that this right is conferred on all family members, ‘irrespective
of nationality’, so that even non-EU nationals are entitled to work in the EU.
A family member exercising the right to work under Article 23 of Directive 2004/38
should also be able to benefit from the other rights governing eligibility for employment
and the conditions of employment enjoyed by workers. This follows from Gül v
Regierungspräsident Düsseldorf (Case 131/85) [1986] ECR 1573. This case concerned
a Turkish Cypriot doctor who was living in Germany with his British wife. His wife
worked as a hairdresser. He had been given temporary authorisation to practice
medicine but his application to renew this was refused. The Court interpreted the
predecessor of Article 23 of Directive 2004/38 as providing him with a right, as the
spouse of a national of a Member State employed in the territory of another Member
State, to take up any activity as an employed person on the same conditions as a
worker under Regulation 492/2011 and subject to the same rules governing access to
and the pursuit of the occupation as the nationals of the host Member State. He was
therefore entitled to rely on Article 3(1) of Regulation 492/2011.
7.7.3 Social assistance and other financial benefits
7.7.3.1 Social Advantages

Article 7(2) of Regulation 492/2011 provides that a worker who is a national of a
Member State ‘shall enjoy the same social and tax advantages as national workers’.
 ‘Worker’
In Collins v Secretary of State for Work and Pensions (Case 138/02) [2004] ECR I-
2073, the Court of Justice held that a jobseeker was not a ‘worker’ for the purpose of
Article 7(2) of Regulation 492/2011. This meant that a jobseeker would not be entitled
to the same social and tax advantages as the nationals of the host Member State on
the basis of that article.
 ‘Social advantage’
The Court of Justice has interpreted Article 7(2) expansively in order to confer a wide
range of benefits. In Cristini v S.N.C.F. (Case 32/75) [1975] ECR 1085, it held that
Article 7(2) includes:
‘all social and tax advantages, whether or not attached to the contract of
employment, such as reductions in fares for large families.’
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For example, ‘social advantages’ have been taken to include:

– Discretionary childbirth loans: Reina v Landeskreditbank Baden-Württemberg
(Case 65/81) [1982] ECR 33.
– Minimum income allowance: Hoeckx v Centre Public d'Aide Sociale de Kalmthout
(Case 249/83) [1985] ECR 973.
– The right of a non-national who lives together with a national in a stable
relationship to reside in the host State if this is available to national workers:
Reed (discussed above in Section 7.5.1).
– Funeral expenses benefits (O’Flynn v Adjudication Officer (Case C-237/94)
[1996] ECR I-2617).
Nevertheless, there are limits to the social advantages which will fall within Article 7(2).
In Ministère Public v Even (Case 207/78) [1979] ECR 2019, the Court of Justice
emphasised that the ‘social advantages’ are confined to:
‘... those which, whether or not linked to a contract of employment, are
generally granted to workers primarily because of their objective status as
workers or by virtue of the mere fact of their residence on the national
territory.’
This was a case brought by a French national who was resident in Belgium and in
receipt of a Belgian early retirement pension. Early retirement pensions were paid at a
rate which was reduced for each year of early retirement unless the recipient was a
Belgian national who had served with the Allied Forces in the Second World War and
was also in receipt of a war service invalidity pension from an allied nation for
incapacity to work attributable to an act of war. The only reason that the claimant could
not benefit from this exception was that he was not Belgian. The Court of Justice held
that Article 7(2) did not extend to the benefit claimed here as this was granted to
Belgians for the hardship they had suffered in service to their own country during the
war. It was not granted primarily by reason of their objective status as workers or as
residents on the national territory.
 Family Members
Members of a worker’s family can indirectly qualify for the right under Article 7(2) of
Regulation 492/2011. In Cristini v S.N.C.F. (Case 32/75) [1975] ECR 1085, this was
because a social advantage enjoyed by the worker operated in favour of his family
members. The case had been brought by an Italian national who was residing in
France with her four infant children. She was the widow of an Italian national who had
been working in France. French law provided families with more than three children
under 18 years of age with the right to cards entitling them to reductions in the fares of
SNCF (the state railway company) at the request of ‘the head of the household’. This
was only available to French nationals. The Court of Justice held that the widow and
her children were also entitled to the cards under Article 7(2) providing her husband
had applied for them before his death. In Inzirillo v Caisse d’Allocations Familiales
(Case 63/76) [1976] ECR 2057 the Court of Justice went one step further by holding
that the right under Article 7(2) extended to a social advantage which the family
member alone qualified for. In this case, an Italian national who lived and worked in
France had applied for an allowance for handicapped adults on behalf of his disabled
son who was also Italian. The application was refused on the ground that his son was
not French. The Court of Justice held that the son was entitled to the allowance under
Article 7(2), even though he had never worked, as he was living with his father, who
was a worker, and he was entitled to do under EU law as a dependant of his father.
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The Court noted, albeit in the context of a different Regulation (Regulation 1408/71),
that denying the child of a worker such allowances may induce the worker himself to
return to his home Member State which would defeat the objective of the free
movement of workers.
7.7.3.2 Union Citizens
The introduction of the concept of Union citizenship by the Maastricht Treaty has
served to widen the scope of the persons who are eligible for social assistance and
other financial benefits. This is as a result of a series of cases in which the Court of
Justice applied the right to freedom of movement under Article 20 TFEU in conjunction
with the prohibition of discrimination on the ground of nationality under Article 18 TFEU.
By reading these two articles together, it was able to hold that Union citizens who are
lawfully resident in a Member State have the right to equal treatment in all fields
covered by the Treaties. This has included equal treatment in respect of access to
social assistance. It has thereby enabled Union citizens who do not fall within Article 45
TFEU and Article 7(2) of Regulation 492/2011 to claim social assistance on the same
basis as the nationals of the host Member State.
The principle was first established in Martínez Sala v Freistaat Bayern (Case C-85/96)
[1998] ECR I-2691 which concerned a Spanish national who had lawfully resided in
Germany for a number of years. She had held various jobs over that period but was
now unemployed and receiving social assistance. She had applied for renewal of her
residence permit but was still waiting for it to be granted. Her application for a child
raising allowance for her newborn child was rejected on the ground that she was not
German and did not have a residence permit. The Court of Justice held that a Union
citizen who was lawfully resident in the host Member State had a right under Article 18
TFEU not to suffer discrimination on the ground of nationality in all situations which fall
within the scope of the Treaty. Consequently, Germany could not refuse to grant to her
the child raising allowance on the ground that she was not in possession of a residence
permit as German nationals were not required to have a residence permit.
The principle was subsequently applied in Grzelczyk v Centre Public d’Aide Sociale
(Case C-184/99) [2001] ECR I-6193. Grzelczyk was a French national studying in
Belgium. He had supported himself financially during the first three years of study but in
his fourth and final year he applied to the Belgian authorities for payment of a minimum
subsistence allowance called a minimex. The application was refused as Belgian law
provided for the minimex to be granted only to Belgian nationals who were resident in
Belgium and to non-nationals resident in Belgium who were stateless, refugees or fell
with Article 7(2) of Regulation 492/2011. The Court of Justice held that, whilst
Grzelczyk did not fall within Article 7(2) as he was not a worker, he was a Union citizen
who was lawfully resident in Belgium. In these circumstances, he could not be denied
the minimex when Belgium nationals were not subject to the same condition. (This
case is further discussed below in Section 7.7.5.)
The cases of Martínez Sala and Grzelczyk both involved the paradigm situation of a
national of one Member State relying upon free movement rights against a different
Member State in which they were residing. In D'Hoop v Office National de l'Emploi
(Case C-224/98) [2002] ECR I-6191, the Court of Justice held that Article 20 TFEU,
when read with Article 18 TFEU, could also prohibit discrimination by a Member State
against one of its own nationals where that discrimination resulted from the national of
the Member State exercising her right as a Union citizen to reside in another Member
State. The case concerned a Belgian national who sought a tideover allowance from
her own national government. This was a form of unemployment benefit for young
people who had just completed their studies and were seeking their first employment.
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Her application was refused on the ground that, whilst she had studied at a university in
Belgium, she had not completed all of her secondary education in Belgium as required
by Belgian legislation. Her secondary education had been undertaken in France. The
Court of Justice held that she was not a worker and so she could not rely on Article 45
TFEU or Regulation 492/2011. However, it allowed her to claim on the basis that she
was a Union citizen who had a right to freedom of movement. The requirement that
secondary education must be completed in Belgium in order to receive a tideover
allowance had placed her at a disadvantage simply because she had exercised that
right to move freely in order to pursue education in another Member State. However,
because the discrimination was indirect, the Court added that the requirement could be
justified if it was based on objective considerations independent of the nationality of the
persons concerned and was proportionate to the legitimate aim of the national
provisions. The Belgian authorities had not submitted any observations on this point.
D’Hoop was followed by Collins v Secretary of State for Work and Pensions (Case
138/02) [2004] ECR I-2073 in which the Court of Justice held that, whilst a job seeker
cannot claim entitlement to social advantages under Article 7(2) of Regulation
492/2011, he may still be able to rely on his Union citizenship. Collins had dual Irish
and American nationality. He had studied in the United Kingdom for one semester and
had returned for a stay of 10 months during which time he had done part time and
casual work. Seventeen years later, he returned to the United Kingdom and claimed
the jobseekers allowance. His application was denied as he was assessed as not being
habitually resident in the United Kingdom. The Court of Justice held that the right to
equal treatment enjoyed by Union citizens extended to benefits of a financial nature
intended to facilitate access to employment. The requirement of habitual residence
under UK law indirectly discriminated against nationals of other Member States who
were seeking work in the United Kingdom as it was easier for United Kingdom
nationals to satisfy. But it was objectively justifiable for a Member State to grant
jobseekers allowance only after it has established that a genuine link exists between
the person seeking work and the employment market of that State.
Article 24(1) of Directive 2004/38 now provides a general right to equal treatment for
Union citizens and their family members residing on the basis of that Directive in the
territory of the host Member. However, it is qualified in two ways. First, Article 24(1)
itself expressly states that this right is ‘subject to such specific provisions as are
expressly provided for in the Treaty and secondary law’. Second, Article 24(2)(a) of the
Directive provides that Member States are not obliged to confer entitlement to social
assistance during the first three months of residence or, where appropriate, during the
longer period that job seekers are entitled to remain under Article 14(4)(b).
The precise relationship between the principle of non-discrimination under Articles 20
and 21 TFEU read in conjunction with Article 18 TFEU and the right to equal treatment
under Article 24 of Directive 2004/38 was addressed by the Grand Chamber of the
Court of Justice in Dano and Dano v Jobcenter Leipzig (Case C-333/13) [2014] ECR
I-0000. Dano and her son were Romanian nationals who were living with her sister in
Germany. Dano had been issued with a German residence card of unlimited duration.
She had not worked in Germany and there was nothing to indicate that she was looking
for work. She had been receiving benefits for her son but her application for jobseekers
benefits provided to persons who were fit for work and in need of assistance was
rejected on the ground that she was a foreign national whose right to residence arose
solely out of the search for employment. The Grand Chamber held that the prohibition
on discrimination against Union citizens provided by Articles 20 and 21 TFEU read in
conjunction with Article 18 TFEU is to be exercised subject to the conditions and
limitations laid down by Article 24 of Directive 2004/38. This was because Articles 20
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and 21 TFEU both expressly required the free movement rights provided by them to be
exercised subject to the conditions and limits defined by the Treaties and secondary
measures (on which, see Section 7.4. above). Although Dano did not fall within the
exceptions in Article 24(2) of Directive 2004/38, she could only claim equal treatment
with German nationals under the terms of Article 24(1) of the same Directive if her
residence in the host Member State complied with the conditions for residence under
that Directive. She did not meet any of these conditions for residence. In particular, the
Grand Chamber emphasised that Article 7(1)(b) of Directive 2004/38 seeks to prevent
economically inactive Union citizens from using the host Member State’s welfare
system to fund their means of subsistence. Consequently, Dano could not invoke the
principle of equal treatment with nationals of the host Member State.
7.7.3.3 Further rules on social security benefits
Further rules concerning social security benefits are provided by Regulation 883/2004
on the coordination of social security systems. This replaced Regulation 1408/71 on
the application of social security schemes.
7.7.4 Educational rights

The original Treaty of Rome 1957 only made limited provision for education. This was
found in Article 128 EEC which merely provided for the Council, acting on a proposal
from the Commission, to lay down general principles for implementing a common
vocational training policy capable of contributing to the harmonious development both
of the national economies and of the common market. It was not until Regulation
1612/68 that specific rights were conferred. This provided workers with a right of equal
access to training in vocational schools and retraining centres (Article 7(3)) and the
children of workers with the same right of entitlement to general education,
apprenticeship and vocational training courses as nationals of the host Member State
(Article 12). These two rights are now found in Articles 7(3) and 10 respectively of
Regulation 492/2011.
However, the Court of Justice has been able to transform this field by means of a broad
nuanced purposive interpretation of these provisions so as to provide rights to equal
treatment in respect of access to education and to education grants. This has been
further aided by the subsequent introduction in the Maastricht Treaty of Union
citizenship and of a new title on Educational and Vocational Training.
7.7.4.1 Equal treatment and access to education
 Access to vocational schools and retraining centres
Article 7(3) of Regulation 492/2011 provides that
‘[a worker who is a national of a Member State] shall also, by virtue of the
same right and under the same conditions as national workers, have
access to training in vocational schools and retraining centres.’
In Brown v Secretary of State for Scotland (Case 197/86) [1988] ECR 3205, the Court
of Justice defined the term ‘vocational schools’ as referring solely to ‘establishments
which provide only instruction interposed between periods of employment or else
closely connected with employment, particularly during apprenticeships’. It added that
this is not the case as far as universities are concerned.
 Access to vocational training
Even though the treaty itself made no reference to any right of access to vocational
training, the Court of Justice established such a right in Gravier v City of Liège (Case
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293/83) [1985] ECR 593. This case concerned a student of French nationality who was
charged an enrolment fee for a higher education course in strip cartoon art in Belgium.
Belgian students were not required to pay this. The Court of Justice held that a course
in strip cartoon art was a form of vocational training. It did so by defining vocational
training broadly as:
‘any form of education which prepares for a qualification for a particular
profession, trade or employment or which provides the necessary training
and skills for such a profession, trade or employment … whatever the age
and the level of training of the pupils or students, and even if the training
programme includes an element of general education.’
The Court of Justice held that vocational training fell within the scope of the treaty by
using a teleological approach. First, it noted that access for workers to vocational
schools and retaining centres was already provided by Article 7(3) of Regulation
492/2011. Access to general vocational training courses for children of workers from
Member States was also provided for by Article 10 of the same Regulation (see below).
Next, the Court observed that the Council was empowered by Article 128 of the EEC
Treaty to lay general principles for implementing a common vocational training policy
and that the Council was gradually establishing such a policy. This, so the Court
maintained, constituted an indispensible element of the activities of the Community. In
particular, access to vocational training was likely to promote the free movement of
persons by enabling them to obtain a qualification in the Member State where they
intended to work and by enabling them to complete their training in the host Member
State. It followed from all this, according to the Court of Justice, that the conditions of
access to vocational training fell within treaty. This enabled the Court of Justice to
maintain that the prohibition against discrimination on the grounds of nationality under
Article 18 TFEU was applicable. It followed that the imposition of a fee on students of
other Member States as a condition of access to vocational training which was not
imposed on Belgian nationals was prohibited as a result.
In Blaizot v University of Liège (Case 24/86) [1988] ECR 379, the Court of Justice held
that University education will generally satisfy the definition of vocational training. The
only exceptions are courses which, because of their particular nature, are intended for
persons wishing to improve their general knowledge rather than to prepare themselves
for an occupation.
7.7.4.2 Equal treatment and education grants
The case of Gravier concerned fees charged for access to education. It did not
consider educational grants but it was evident that there would be significant financial
implications for Member States if the same reasoning was applied to educational
grants, albeit only those for vocational training. In the event, a more measured
approach was adopted by the Court of Justice when it came to address the issue of
educational grants in two landmark cases which were both decided by the same panel
of judges at the same time. Lair v Universität Hannover (Case 39/86) [1988] ECR 3161
concerned a French national who had worked intermittently for five years in Germany
after which she had begun a full time course of study at a German University. She had
been refused a maintenance grant by that university on the ground that she had not
been engaged in regular occupational activity in Germany for a total period of five
years prior to commencing the course. There was no equivalent requirement for
German nationals. Brown v Secretary of State for Scotland (Case 197/86) [1988] ECR
3205 involved a person of dual British/French nationality who had completed his
schooling in France. He was accepted by a British University to study electrical
engineering but before the course began he undertook and completed an eight-month
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work placement in Scotland for which a place in a university course was a prerequisite.
He was refused a student maintenance grant by the Scottish Education Department.
These two cases established the following principles:
 In Brown, the Court of Justice held that grants to students for maintenance and
training fell outside the scope of the treaty as educational policy has not been
entrusted to the Community. Consequently, the principle of non-discrimination
under Article 18 TFEU was not applicable. This conclusion stood in stark contrast
to the earlier approach to fees in Gravier.
 Nevertheless, in Lair, the Court of Justice held that maintenance and training
grants were social advantages within the meaning of Article 7(2) of Regulation
492/2011. This meant that any entitlement to a grant under that article would be
dependent on the person having the status of a worker. Yet the Court of Justice
was not prepared to confine this just to persons in a continuing employment
relationship. It held that a person who is no longer in an employment relationship
will retain the status of a worker for the purpose of qualifying for a grant if there is
a link between their previous employment and the later studies. This
presupposed a relationship between the purpose of the studies and the previous
employment, although that would not be required if the person had become
involuntarily unemployed and needed to retrain in another area field.
 However, the Court of Justice qualified this in Brown. Despite accepting that the
claimant in that case had been a worker within the meaning of Article 7(2) of
Regulation 492/2011 whilst undertaking his work placement, it held that he could
not rely on Article 7(2) as his status as a worker had been acquired exclusively as
a result of his being accepted for admission to university to undertake the studies
in question. He would not have been employed by his employer if he had not
already been accepted for admission to university. In such circumstances, the
employment relationship was merely ancillary to the studies to be financed by the
grant. In taking this approach, the Court of Justice has been able to guard against
students undertaking a short period of casual work and then using this as the
basis for claiming an entitlement to educational grants.
7.7.4.3 Worker’s children: access to education and education grants
The key provision in this area is Article 10 of Regulation 492/2011. Article 10 provides
that:
‘The children of a national of a Member State who is or has been employed
in the territory of another Member State shall be admitted to that State’s
general educational, apprenticeship and vocational training courses under
the same conditions as the nationals of that State, if such children are
residing in its territory’.
The reference to ‘admitted … under the same conditions’ has been broadly construed.
In Casagrande v Landeshauptstadt München (Case 9/74) [1974] ECR 773, the Court of
Justice held that it referred not only to admission but also to general measures
intended to facilitate educational attendance. This included educational grants. Such
grants had to be awarded under conditions which did not discriminate between the
children of national workers and the children of workers who are nationals of another
Member State. Thus, it was unlawful for German authorities to refuse a monthly
educational grant for school age children to the daughter of an Italian national working
in Germany on the ground that the daughter was not German.
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A wide interpretation of Article 10 was also provided by the Court of Justice in

Echternach and Moritz v Minister van Onderwijs en Wetenschappen (Cases 389 &
390/87) [1989] ECR 723 which was decided a year after Lair and Brown. The Court
held the following:
 The principle of equal treatment for the children of migrant workers under Article
10 extends to all forms of education, including courses at Universities and
technical colleges.
 The child of a migrant worker who had been studying in the host State retained
his rights under Article 10 where his working parent, having been employed in the
host State, had now returned to the State of origin and the child, having been
unable to pursue his studies in the State of origin, was required to remain and
complete his education in the host State.
 The Court reiterated that the children of migrant workers where entitled to
educational grants under the same conditions as the host Member State’s own
nationals. It observed, with reference to Article 7(2) of Directive 492/2011, that
educational grants were social advantages.
7.7.4.4 The effect of Union citizenship on education rights
The introduction of Union citizenship by the Maastricht Treaty (now Article 20 TFEU)
has had a significant impact in the field of education rights when read together with the
prohibition against discrimination based on nationality (Article 18 TFEU). This has been
aided by the introduction of a new chapter on Educational and Vocational Training in
the same Treaty (now Title XII TFEU) which provided for the EU to contribute to the
development of general education beyond vocational training. These two developments
were brought to bear by the Court of Justice in Grzelczyk v Centre Public d’Aide
Sociale (Case C-184/99) [2001] ECR I-6193 which was discussed earlier in Section
7.7.3.2. It will be recalled that the case concerned a French national studying in
Belgium who, in his fourth and final year had applied to the Belgian authorities for
payment of a minimum subsistence allowance called the minimex. This had been
refused because he was not a Belgian national and he did not fall into one of the
categories of foreign nationals who would be eligible for it under Belgian law. The Court
of Justice applied the principle in Martínez Sala v Freistaat Bayern (Case C-85/96)
[1998] ECR I-2691 that a Union citizen who, in accordance with Article 20 TFEU, was
lawfully resident in the host Member State had a right under Article 18 TFEU not to
suffer discrimination on the ground of nationality in all situations which fall within the
scope of the Treaty. In doing so, it had to overcome two difficulties:
1. The first difficulty that the Court of Justice had to confront was that Brown had
concluded that educational policy fell outside the scope of the treaty and so
Article 18 TFEU was not applicable. It disposed of that by holding that this was no
longer the case following the introduction of the new chapter on Educational and
Vocational Training in the Maastricht Treaty and the adoption of Directive 93/96
(now consolidated within Directive 2004/38) which provided for the free
movement of students.
2. The second difficulty was that Article 20 TFEU provides that the right of a Union
citizen to move and reside in another Member State is subject to the limitations
and conditions laid down in the Treaty and by secondary legislation. Directive
93/96 required that students satisfy the relevant national authority by a
declaration or by alternative means that they have sufficient resources to avoid
becoming a burden on the social assistance system of the host Member State.
(This is now found in Article 7(1)(c) of Directive 2004/38.) The Court responded to
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this by observing that, whilst the Directive made it clear that it did not establish
any right to maintenance grants, it did not preclude students from receiving social
security benefits on the same basis as students who were nationals of the host
Member State. It merely required a declaration that they have sufficient resources
and did not specify what level of income constitutes an unreasonable burden.
The decision in Grzelczyk made it clear that the principle of equal treatment for Union
citizens provided by Article 20 TFEU read in conjunction with Article 18 TFEU applied
to social security benefits which were available to national students. In doing so, the
Court had distinguished social security benefits from maintenance grants. As it
acknowledged in Grzelczyk, Article 3 of the Directive 93/96 had expressly provided that
the Directive did not establish any entitlement to the payment of student maintenance
grants by the host Member State. This raised the question as to whether or not
entitlement to maintenance grants continued to be confined to the principles in Brown
and Lair.
This issue was subsequently resolved by the Grand Chamber of the Court of Justice in
R (Bidar) v Ealing LBC (Case C-209/03) [2005] ECR I-2119. This case concerned a
French national who had entered the United Kingdom with his mother where she was
to receive medical treatment, had lived with his grandmother as her dependant and had
completed his secondary education there. He then began a degree course in
economics at a university in London. He was granted financial assistance in respect of
his tuition fees but his application for a student loan was rejected as, whilst he satisfied
the residence requirements under UK law, he did not satisfy the legal requirement of
being settled in the United Kingdom.
The Court of Justice repeated that educational policy now lay within the scope of the
treaty. It held that Article 3 of Directive 93/96 merely provided that the Directive itself
cannot provide the basis for a right to payment of maintenance grants. The Article did
not preclude the right to equal treatment in respect of student grants and loans from
arising from Article 20 TFEU read in conjunction with Article 18 TFEU. Therefore, a
Union citizen who enjoyed a right of residence in the United Kingdom under Article 20
TFEU had a right to equal treatment under Article 18 TFEU in respect of student grants
or loans. Bidar fulfilled these requirements.
Having established Bidar had a right to equal treatment, the Court of Justice moved on
to consider whether the residence and settlement requirements for a student loan
under UK law discriminated against him. It held that they were indirectly discriminatory
as they risked placing nationals of other Member States at a disadvantage. This led it
to determine whether or not such indirect discrimination could be objectively justified in
these circumstances. It held that it was permissible for a Member State to ensure that
the grants of assistance to cover the maintenance costs of students from other Member
States does not become an unreasonable burden which could have consequences for
the overall level of assistance which may be granted by that State. Consequently, a
Member State could limit assistance only to students who demonstrated a certain
degree of integration into the society of that Member State and it could do so by
requiring that the student had resided there for a certain length of time. On the facts,
the Court held that the three year’s residence requirement did serve to guarantee
sufficient integration into the society of the host Member State. But the additional
requirement that the student be settled in the United Kingdom did not as the rules
governing this effectively made it impossible for a student who is a national of another
Member State to obtain settled status. In Förster v Hoofddirectie van de Informatie
Beheer Groep (Case C-158/07) [2008] ECR I- 8507, the Grand Chamber of the Court
of Justice held that a condition of five years’ continuous residence could not be seen as
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excessive in order to ensure the degree of integration of migrants in the host Member
State.
It will be recalled that Article 24(1) of Directive 2004/38 now provides a general right to
equal treatment within the scope of the treaties for Union citizens and their family
members, although this is subject to any specific provisions in the Treaty or secondary
legislation. (See Section 7.7.3.2 above.) In the context of education, this right is further
qualified by Article 24(2)(b) which limits the persons to whom Member States can be
obliged to pay student maintenance grants and student loans, even for vocational
training. The only persons who can benefit from this right are workers, the self-
employed, persons who retain such status, their family members and persons with a
right to permanent residence. As was seen in Section 7.6.4 above, a person will
normally acquire the right to permanent residence after residing in the host Member
State for a continuous period of five years. This thereby dovetails with Förster.
7.8 Derogations to the free movement of persons

Article 45(3) TFEU provides for the free of movement for workers to be subject to
limitations justified on grounds of public policy, public security or public health. These
are known as derogations. Article 27(1) of Directive 2004/38 provides for the freedom
of movement of Union citizens and their family members to be derogated from on the
same grounds. The application of these derogations is subject to detailed substantive
and procedural rules provided for in secondary legislation. The rules were first set out
in Directive 64/221 but are now found in Chapter VI (Articles 27-33) of Directive
2004/38 which also partly codifies case law in the area.
7.8.1 Public policy and public security

Rules governing the public policy derogation and the public security derogation are
provided in Article 27(2). This states that:
‘Measures taken on grounds of public policy or public security shall comply
with the principle of proportionality and shall be based exclusively on the
personal conduct of the individual concerned.
Previous criminal convictions shall not in themselves constitute grounds for
taking such measures.
The personal conduct of the individual concerned must represent a
genuine, present and sufficiently serious threat affecting one of the
fundamental interests of society.
Justifications that are isolated from the particulars of the case or that rely
on considerations of general prevention shall not be accepted.’
These are not exhaustive and the Court of Justice remains free to develop its own
requirements.
7.8.1.1 National measures must be based exclusively on the personal conduct of
the individual concerned
The requirement that national measures must be based exclusively on the personal
conduct of the individual concerned had originally been provided for in Directive
64/221. The Court of Justice initially took a relatively deferential approach to it in Van
Duyn v Home Office (Case 41/74) [1974] ECR 1337. The case concerned a Dutch
national who wanted to work as a secretary for the Church of Scientology. Membership
of the church was permitted in the UK but she was refused entry into the UK because
British authorities considered the activities of the church socially harmful. The Court of
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Justice declared that the public policy derogation had to be interpreted strictly.
Nevertheless, it held that an individual’s present association with an organisation could
be considered personal conduct because it reflects participation in the activities of the
organisation and identification with its aims. The organisation’s activities need not be
unlawful before a Member State could rely on the public policy derogation. It would
suffice that the Member State considered the activities of the organisation to be socially
harmful and had taken administrative measures to counteract those activities but
without prohibiting them. Finally, the Court of Justice added that derogation could be
used to place restrictions on a national of another Member State who wishes to take up
a particular employment even though no similar restrictions are placed on its own
nationals.
This decision has been heavily criticised as leaving too much discretion to Member
States. Subsequent cases have seen the Court of Justice take a less deferential
approach.
 Deportation must not be arbitrary
The Court of Justice made it clear in Van Duyn that the public policy derogation can be
relied upon by a Member State to discriminate against nationals of other Member
States. It has since qualified this in Adoui and Cornuaille (Cases 115 & 116/81) [1982]
ECR 1665 by holding that the discrimination must not be arbitrary. This case
concerned orders issued by the Belgian Ministry of Justice to deport two French
nationals on the grounds that they were prostitutes. Prostitution itself was not unlawful
in Belgium, although certain associated activities were unlawful. The Court of Justice
held that it was arbitrary to rely on the derogation to expel or refuse admission to
nationals of another Member State by reason of their conduct where its own nationals
would not be subject to repressive measures intended to combat the same conduct.
 Deportation cannot be effected for the purpose of deterring others
In Bonsignore v Oberstadtdirektor der Stadt Köln (Case 67/74) [1975] ECR 297, an
Italian worker resident in West Germany was convicted and fined for unlawful
possession of a firearm and for negligently causing his brother’s death as a result of
careless handling of the firearm. The West German court had fined him for the former
offence but had not imposed any punishment for the latter offence because he had
been deeply affected by the death of his brother and had undertaken never to touch a
gun again. The chief administrator for the city in which he resided responded to the
conviction by ordering his deportation. The purpose of the deportation was to deter
other foreign nationals in West Germany from committing firearms offences. It followed
a substantial rise in offences involving the use of firearms and was in accordance with
ministerial directions to West German immigration authorities that they should be
especially strict with foreign nationals who had been found guilty of such offences. The
Court of Justice emphasised that measures adopted on the grounds of public policy
and public security could not be justified on the basis of factors extraneous to the
individual case. A deportation order may only be made for breaches of the peace and
public security which might be committed by the individual affected. It could not be
ordered for the purpose of deterring others.
7.8.1.2 The personal conduct of the individual concerned must represent a
genuine, present and sufficiently serious threat affecting one of the fundamental
interests of society
The requirement that the personal conduct of the individual concerned must represent
a genuine, present and sufficiently serious threat affecting one of the fundamental
interests of society was established by the Court of Justice in R v Bouchereau (Case
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30/77) [1977] ECR 1999. This case involved a person who had been convicted on two
occasions in less than a year for the possession of drugs. The Court of Justice left it to
the national court to determine whether or not that person did represent such a serious
threat.
7.8.1.3 Past criminal convictions are not, in themselves, a ground for deportation
The requirement that past criminal convictions are not, in themselves, grounds for
justifying a derogation was also originally provided for in Directive 64/221. In R v
Bouchereau (Case 30/77) [1977] ECR 1999, the Court of Justice interpreted this as
meaning that the existence of a previous a criminal conviction can only be taken into
account in so far as the circumstances which give rise to that conviction are evidence
of personal conduct constituting a genuine, present and sufficient threat to the
requirements of public policy affecting one of the fundamental interests of society. In
general, the Court thought, evidence that such a threat exists implies the existence in
the individual concerned of a propensity to act in the same way in the future. However,
it accepted that it is possible that past conduct alone may constitute such a threat. In
doing so, the Court ensured that a single conviction can provide a good ground for
deportation in exceptional circumstances where it reveals the person concerned to be a
present danger to society and so it is not necessary to show a tendency for him to
offend again.
7.8.1.4 Exclusion must be compatible with fundamental human rights
Fundamental human rights are general principles of EU law (see Section A1.2 of
Appendix 1). They were first invoked by the Court of Justice in respect of the
derogations from the free movement of persons in Rutili v Minister for the Interior (Case
36/75) [1975] ECR 1219. This concerned an Italian national who had lived in France
since his birth and was employed there. Following complaints about his trade union
activities, he had been prohibited from residing in the Lorraine region of France. In the
course of its judgment, the Court of Justice held that the substantive limitations to the
public policy derogation were specific manifestations of the more general principle,
enshrined in Articles 8 to 11 of the European Convention of Human Rights, that
restrictions on fundamental human rights must be ‘necessary in a democratic society’,
that is to say that it has to be proportionate. The Court concluded that a prohibition on
residence which is justified on the ground of public policy derogation may be imposed
only in respect of the whole of the national territory.
The Court of Justice has since made it clear that fundamental rights must be taken into
account in determining whether or not a measure which restricts the free movement of
a person can be justified on the ground of public policy or public security. For example,
in Orfanopoulos v Land Baden-Württemberg (Cases C-482/01) [2004] ECR I-5257, a
Greek national who was a drug addict was being expelled from Germany after having
been convicted several times for various offences. He had lived there since he was 13
and had married a German national with whom he had two children. The Court of
Justice held that the right to respect for family life guaranteed by Article 8 of the ECHR
had to be taken into account as he was being removed from a Member State where
close members of his family are living. It also emphasised that the principle of
proportionality must be observed.
7.8.1.5 Additional safeguards against expulsion
Article 27(1) of Directive 2004/38 provides that the derogations shall not be invoked to
serve economic ends. Further safeguards are provided by Article 28:
‘1. Before taking an expulsion decision on grounds of public policy or
public security, the host Member State shall take account of
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considerations such as how long the individual concerned has

resided on its territory, his/her age, state of health, family and
economic situation, social and cultural integration into the host
Member State and the extent of his/her links with the country of
origin.
2. The host Member State may not take an expulsion decision against
Union citizens or their family members, irrespective of nationality, who
have the right of permanent residence on its territory, except on
serious grounds of public policy or public security.
3. An expulsion decision may not be taken against Union citizens,
except if the decision is based on imperative grounds of public
security, as defined by Member States, if they:
(a) Have resided in the host Member State for the previous ten
years; or
(b) Are a minor, except if the expulsion is necessary for the best
interests of the child, as provided for in the United Nations
Convention on the Rights of the Child of 20 November 1989.’
7.8.2 Public Health

Rules governing the public health derogation are provided for in Article 29 of Directive
2004/38:
‘1. The only diseases justifying measures restricting freedom of
movement shall be the diseases with epidemic potential as defined by
the relevant instruments of the World Health Organisation and other
infectious diseases or contagious parasitic diseases if they are the
subject of protection provisions applying to nationals of the host
Member State.
2. Diseases occurring after a three-month period from the date of arrival
shall not constitute grounds for expulsion from the territory.
3. Where there are serious indications that it is necessary, Member
States may, within three months of the date of arrival, require persons
entitled to the right of residence to undergo, free of charge, a medical
examination to certify that they are not suffering from any of the
conditions referred to in paragraph 1 above. Such medical
examinations may not be required as a matter of routine.’
7.9 The public service exemption

Article 45(4) TFEU provides that the provisions of Article 45 shall not apply to
employment in the public service. This reflects the conviction amongst the Member
States that they should retain full sovereignty in appointments to the public service and
be able to discriminate in favour of their own nationals, not least because issues of
security and loyalty to the State could arise if non-nationals were employed. However,
once again, the Court of Justice has sought to ensure that this is not used merely as a
convenient tool for protectionism by giving it a relatively narrow interpretation.
The Court of Justice in Sotgiu v Deutsche Bundespost (Case 152/73) [1974] ECR 153
made it clear that it was not for Member States to define the scope of this exemption
and that Article 45(4) cannot be relied upon to justify measures which discriminate
124
against nationals of other Member States once they have been already admitted to the
public service. The scope of the exemption has since been defined by the Court in
Commission v Belgium (‘Public Employees’) (Case 149/79) [1980] ECR 3881. It held
that Article 45(4) removes from Article 45 TFEU:
‘a series of posts which involve direct or indirect participation in the
exercise of powers conferred by public law and duties designed to
safeguard the general interests of the state or of other public authorities.
Such posts in fact 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’.
The case concerned advertisements for several posts with two Belgian national railway
companies and two Belgian local authorities which were reserved for Belgian nationals
only. When it returned to the Court of Justice in Commission v Belgium (Case 149/79)
[1982] ECR 1845, it was held that the posts of head technical office supervisor,
principal supervisor, works supervisor, stock controller, night watchman and architect at
the local authorities did fall within the public service exemption. But all of advertised
posts within Belgian national railway companies did not. The Court of Justice has
subsequently held that trainee teachers in state schools (Lawrie-Blum v Land Baden-
Württemberg (Case 66/85) [1986] ECR 2121) and nurses in public hospitals
(Commission v France (‘French Nurses’) (Case 307/84) [1986] ECR 1725) also fall
outside of the scope of Article 45(4).
125
126
8
Freedom of
Establishment: Articles
49–55 TFEU
.
127
Introduction
The freedom of establishment is intrinsic to the internal market. At its most basic level,
it permits a company, firm or self-employed person to maintain a permanent presence
in a Member State for the purpose of engaging in economic activity. The main
principles governing this freedom are provided by Articles 49 to 55 TFEU. These have
been developed by the Court of Justice in its case law. They have also been
supplemented by secondary legislation, particularly in respect of the mutual recognition
of professional qualifications awarded by Member States.
Freedom of establishment is complimented by the freedom to provide services which is
governed by Articles 56 to 62 TFEU. This will be examined in the next chapter. The
central principles governing the two freedoms largely mirror one another.
8.1 The right of establishment: Article 49 TFEU and related

articles
‘Within the framework of the provisions set out below, restrictions on the
freedom of establishment of nationals of a Member State in the territory of
another Member State shall be prohibited. Such prohibition shall also apply
to restrictions on the setting-up of agencies, branches or subsidiaries by
nationals of any Member State established in the territory of any Member
State.
Freedom of establishment shall include the right to take up and pursue
activities as self-employed persons and to set up and manage
undertakings, in particular companies or firms within the meaning of the
second paragraph of Article 54, under the conditions laid down for its own
nationals by the law of the country where such establishment is effected,
subject to the provisions of the Chapter relating to capital.’
The first paragraph of Article 49 makes it clear that the requirement to abolish
restrictions on freedom of establishment extends to restrictions on secondary forms of
establishment, namely agencies, branches and subsidiaries. The second paragraph of
Article 49 provides for the right of persons to pursue self-employed activities on an
equal footing with the nationals of the host Member State. The concept of self-
employment is not defined in the Treaty but a definition was provided by the Court of
Justice in Jany v Staatssecretaris van Justitie (Case C-268/99) [2001] ECR I-8615 in
the context of the freedom to provide services. It held that a person acts in self-
employment where they act:
 Outside any relationship of subordination concerning the choice of that activity,
working conditions and conditions of remuneration.
 Under that person’s own responsibility.
 In return for remuneration paid to that person directly and in full.
Article 54 TFEU extends the application of the freedom of establishment to companies.
Articles 50 and 53 TFEU complement Article 49 by respectively providing for the
issuing of directives for the purpose of attaining the free movement of establishment
and for the mutual recognition of professional qualifications.
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Freedom of Establishment: Articles 49–55 TFEU
8.2 The distinction between establishment and services

The concept of establishment under Article 49 TFEU is defined in opposition to the
concept of a service under Article 56 TFEU. Establishment entails a permanent
presence by a person, a firm or a company in a Member State for economic purposes.
For example, it may entail a company or person relocating to another Member State on
a permanent basis to pursue business there or setting up a permanent branch in
another Member State. In contrast, the provision of a service is governed by Article 56
TFEU where it does not entail any physical presence by the provider in the Member
State of the recipient of the service or that presence is only entailed on a temporary
basis. This basic distinction derives from Article 57 TFEU which defines the concept of
a service. It provides that
‘Without prejudice to the provisions of the Chapter relating to the right of
establishment, the person providing a service may, in order to do so,
temporarily pursue his activity in the Member State where the service is
provided, under the same conditions as are imposed by that State on its
own nationals.’
In Steymann v Staatssecretaris van Justitie [1988] ECR 6159, the Court of Justice held
that it was clear from this article that activities carried out on a permanent basis or, in
any event, without a foreseeable limit to its duration did not fall within the Treaty
provisions governing the freedom to provide services. They fell within either the
provisions governing the free movement of workers or those governing the freedom of
establishment depending on the case. This view of establishment was subsequently
echoed by the Court of Justice in Commission v Germany (‘Insurance Services’) (Case
C-205/84) [1986] ECR 3755 in which it held that:
‘…an insurance undertaking of another Member State which maintains a
permanent residence in the Member State in question comes within the
scope of the provisions of the Treaty on the right of establishment, even if
that presence does not take the form of a branch or agency, but consists
merely of an office managed by the undertaking’s own staff or by a person
who is independent but authorised to act on a permanent basis for the
undertaking, as would be the case with an agency.’
Likewise, the Court of Justice observed in R v Secretary of State for Transport, ex
parte Factortame Ltd (‘Factortame II’) (Case 213/89) [1990] ECR I-2433 that the
concept of establishment ‘involves the actual pursuit of an economic activity through a
fixed establishment in another Member State for an indefinite period’.
This basis for distinguishing between establishment and services was repeated and
developed further in Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di
Milano (Case C-55/94) [1995] ECR I-4165 where the Court of Justice held that:
‘The concept of establishment within the meaning of the Treaty … is a very
broad one, allowing a EU national to participate, on a stable and continuous
basis, in the economic life of a Member States other than his State of origin
and to profit therefrom, so contributing to economic and social
interpenetration with the Union, in the sphere of activities of self-employed
persons.’
The Court contrasted this with the situation in which a person moved to another
Member State to provide services there on a temporary basis. The activities of such a
person would not fall within the chapter on freedom of establishment (Articles 49 to 55
TFEU) but would be governed by the chapter on the freedom to provide services
(Articles 56 to 62 TFEU). It added that the temporary nature of the activities in question
129
has to be determined in the light not only of the duration of the provision of the service,
but also of its:
 Regularity;
 Periodicity; or
 Continuity.
On this basis, the Court concluded that the activities of a German national who had
practiced as a lawyer from chambers in Italy for several years and had then set up his
own chambers in Italy fell within the chapter on freedom of establishment. He was
pursuing a professional activity on a stable and continuous basis in another Member
State where he held himself out to, amongst others, nationals of that State from an
established professional base.
Thus, the key feature of establishment is the ‘stable and continuous basis’ on which the
economic or professional activity is carried on and the fact that an established base
exists within the host Member State.
8.3 Article 49 and direct effect

Article 49 TFEU begins with the words ‘within the framework of the provisions set out
below’. These words have been included in the article since it first appeared in the
Treaty of Rome 1957 which originally provided for the establishment of the EEC. That
treaty placed an obligation on the Council, acting on proposals from Commission, to
draw up a general programme for the abolition of restrictions on the right to freedom of
establishment, which the Council duly did in 1961, and to issue directives to implement
that programme. All of this appeared to make the implementation of the freedom of
establishment conditional upon the enactment of positive legislative measures and,
thereby, to make it incapable of satisfying the Van Gend en Loos criterion of
unconditionality for a treaty article to have direct effect (see Section 4.4). However, the
implementation of the programme proved to be an extremely slow process. The original
EEC Treaty had provided for the restrictions on the freedom of establishment to be
abolished by the end of the transition period but this objective had not been achieved
when the transition period expired.
In Reyners v The Belgian State (Case 2/74) [1974] ECR 63, the Court of Justice
responded by ruling that Article 49 TFEU had been capable of having direct effect
since the end of the transition period. It reasoned that:
‘In laying down that freedom of establishment shall be attained at the end of
the transitional period, [Article 49 TFEU] imposes an obligation to attain a
precise result, the fulfilment of which had to be made easier by, but not
dependant on, the implementation of a programme of progressive
measures.
The fact that this progression had not been adhered to leaves the obligation
itself intact beyond the end of the period provided for its fulfilment.’
Article 49 had laid down a clear and precise obligation that should have been achieved
by the end of the transition period. As a result, Reyners, a Dutch national who had
obtained his legal education in Belgium, was able to bring a claim in the national courts
against the Belgian Bar for refusing him entry solely because he was not Belgian.
The Court of Justice in Reyners established that Article 49 could have direct effect
vertically against the state. The question still remained open, though, as to whether
Article 49 also had horizontal direct effect against private parties. In Wouters JW
130
Savelburgh and Price Waterhouse Belastingadviseurs BV v Algemene Raad Van de

Nederlandse Orde van Advocaten (Case C-309/99) [2002] ECR I-1577, the Court of
Justice had indicated that Article 49 also applied at least to regulatory organisations
and associations not governed by public law. But it was not until International Transport
Workers Federation v Viking Line ABP (Case C-438/05) [2007] ECR I-779 that the
question of horizontal direct effect was specifically confronted. This case arose from a
decision by Viking Line to transfer the registration of its ferry from Finland to Estonia to
reduce labour costs. The Union representing its Finnish employees (the ‘FSU’) and the
International Transport Workers Federation (ITWF), which the Union was affiliated to,
threatened strikes and boycotts. The Grand Chamber of the Court of Justice rejected
the ITWF’s argument that Article 49 could only apply horizontally against organisations
or associations exercising a regulatory task or having quasi-legislative powers. It held
that the Article could be relied upon against a trade union or group of trade unions.
However, in doing so, it took into account the function of trade unions in drawing up
collective agreements to regulate paid work collectively and the fact that the actions of
the ITWF and FSU were aimed at inducing Viking Line to enter into such an
agreement. This left some ambiguity as to whether or not a collective dimension is still
required before Article 49 can have direct effect against a private party. As to whether
or not there was a breach of Article 49, the Grand Chamber went on to hold that the
collective action to prevent a Ferry being registered in another State would be a
restriction on the freedom of establishment but that restriction could be justified by an
overriding reason of public interest in protecting workers, as long as the collective
action was proportionate.
8.4 Matters which fall outside Article 49

8.4.1 Article 51 TFEU – the exercise of official authority
Article 51 states:
‘The provisions of this Chapter shall not apply, so far as any given Member
State is concerned, to activities which in that State are connected, even
occasionally, with the exercise of official authority.
The European Parliament and the Council, acting in accordance with the
ordinary legislative procedure, may rule that the provisions of this Chapter
shall not apply to certain activities.’
The concept of official authority in Article 51 is not defined in the Treaty but it was
defined by the Advocate General in Reyners v The Belgian State (Case 2/74) [1974]
ECR 63:
‘Official authority is that which arises from the sovereignty and majesty of
the state; for him who exercises it, it implies the power of enjoying the
prerogatives outside the general law, privileges of official power and
powers of coercion over citizens.’
In the case of Reyners, the issue before the Court of Justice was whether the whole of
the legal profession of ‘avocat’ (lawyer) was exempt from the Treaty because it
comprised activities connected with the exercise of official authority in the
administration of justice. The Court of Justice ruled that the official authority exception
extended only to activities which in themselves involve a direct and specific connection
with the exercise of official authority. The typical professional activities of an ‘avocat’
did not fulfil this requirement. It was not enough that the profession involved contacts
with the courts and the representation of clients in those courts. This did not constitute
a sufficient connection with the exercise of official authority by the judiciary.
131
The Court of Justice has continued to interpret the exception under Article 51 narrowly.
For example, in Commission v Greece (Case C-306/89) [1991] ECR I-5863, it excluded
from the official authority exception the professional activity of road traffic experts who
appeared as witnesses in court rooms. In Commission v Italy (Data Processing) (Case
C-3/88) [1989] ECR 4035, the design, programming and operation of data-processing
systems for public authorities was held not to fall within the official authority exception
because it was of a technical nature and, therefore, unrelated to the exercise of official
authority. The same conclusion was reached in Commission v Italy (Lottery
Computerisation System) (Case C-272/91) [1994] ECR I-1409 in relation to the
provision and operation of a computerisation system for a national lottery. Finally, in
Thijssen v Controledienst voor de Verzekeringen (Case C-42/92) [1993] ECR I-4047,
the Court of Justice held that the post of commissioner of insurance companies did not
fall within the exception, since although the post involved monitoring companies and
reporting infringements of the penal code, it lacked final powers to stop insurance
companies from pursuing certain policies.
8.4.2 Internal situations: Can Article 49 TFEU be applied within the home
Member State?
While the first sentence of Article 49 makes reference to Member State nationals
seeking to establish themselves in another Member State, there was always a question
as to whether Article 49 could be applied domestically. A typical situation where Article
49 is used against the home state is seen when a national of a Member State seeks to
return to his home state to practise a vocation as a self-employed person after having
obtained less stringent qualifications in another Member State.
Initially, the Court of Justice made it clear in Ministre Public v Auer (Case 136/78)
[1979] ECR 437 that Article 49 itself cannot be relied upon in this situation. This case
concerned a French national who held an Italian qualification in veterinary medicine.
He was being prosecuted in France for practicing as a veterinary surgeon there without
authorisation from the French Ministry of Agriculture. His applications for authorisation
had previously been rejected on the ground that his Italian qualification was not the
equivalent to that required in France. The Court of Justice held that he could not rely on
Article 49 as, in each Member State, that Article only concerns the nationals of other
Member States.
This was reiterated by the same panel of judges in Knoors v Secretary of State for
Economic Affairs (Case 115/78) [1979] ECR 399 which was decided at the same time
as Auer. This case involved a Dutch national who had obtained his qualifications and
experience as a plumber in Belgium. He had returned to the Netherlands and had
applied for an authorisation to carry on this trade there. However, his application had
been rejected on the ground that he lacked the requisite Dutch qualifications. He
sought to challenge this by relying on Directive 64/427 which required the Member
State to accept as sufficient evidence of knowledge and ability the fact that the activity
in question had been pursued in another Member State for certain specified periods.
The Court of Justice accepted that Article 49 could not apply to purely internal
situations. However, the Court then went on to hold that this did not prevent Knoors
relying on the directive as the directive had defined the scope of its own applicability in
terms that drew no distinction between the nationals of the Member State concerned
and those of other Member States. It asserted that this interpretation of the Directive
was justified by the requirements flowing from the free movement provisions of the
Treaty:
‘In fact, these liberties, which are fundamental to the Community system,
could not be fully realised if the Member States were in a position to refuse
132
to grant the benefit of the provisions of Community law to those of their

nationals who have taken advantage of the facilities existing in the manner
of freedom of movement and establishment and who have acquired the …
trade qualifications referred to by the Directive in a Member State other
than that whose nationality they possess.’
The Court had likewise accepted in Auer that, in principle, it would have been possible
for the applicant to have relied upon two directives in that case. However, there was
one crucial difference between this case and Knoors. In Knoors, the deadline for the
implementation of the directive had passed and so the directive could have direct
effect. In Auer, the deadline had not expired. It followed that the Directive in that case
did not have direct effect and so could not be relied upon. This was to change a few
years later when Dr Auer was prosecuted yet again for continuing to practise as a
veterinary surgeon in France without authorisation from the French Ministry of
Agriculture. By this time, the deadline for implementing the directives had passed but
France had failed to implement them. In Auer v Ministere Public (No. 2) (Case 271/82)
[1983] ECR 2727, the Court of Justice held that the directives now had direct effect and
provided him with a right to practice as a veterinary surgeon in France so long as the
requirements of the directives were satisfied.
The Court of Justice has since accepted that Article 49 can itself be applicable in the
home state of a Member State national in the absence of a directive so long as there is
a sufficient cross border element involved. This shift took place in Asscher v
Staatsecretaris van Financien (Case C-107/94) [1996] ECR I-3089 which concerned a
Dutch national residing in Belgium. He was a director of companies in both Belgium
and Holland and was taxed at a higher rate in Holland as a non-resident receiving a
high level of income from outside Holland. He challenged this using Article 49. The
Court of Justice reiterated once again that Article 49 TFEU did not apply to purely
internal situations but then, drawing on a passage in Knoors, it continued:
‘[Article 49] nevertheless cannot be interpreted in such a way as to exclude
a given Member State's own nationals from the benefit of Community law
where by reason of their conduct they are, with regard to their Member
State of origin, in a situation which may be regarded as equivalent to that of
any other person enjoying the rights and liberties guaranteed by the
Treaty.’
It held that the situation here was not purely internal because he was being taxed
differently as a result of him exercising his Treaty rights. However, the Court of Justice
acknowledged that, whilst such differential rates between residential and non-
residential tax payers were prima facie discriminatory, they could be justified by the
Member State if the differences between the two groups were genuine objective
differences. On the facts of the case, they were not found to be.
Nevertheless, it remains the case that Article 49 TFEU will not be applicable to
situations in which there is no element going beyond a purely national setting.
Therefore, in Nino (Joined cases C-54/88, C-91/88 and C-14/89) [1990] ECR I-3537,
the Court of Justice held that Article 49 did not to apply to the prosecutions of four
Italian nationals who, having qualified as biotherapists and pranotherapists while
resident in Italy, had provided biotherapy and pranotherapy treatment in Italy without
being granted authorisation to practise as medical doctors there. The prosecutions
involved situations which were purely internal to Italy.
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8.5 What constitutes a restriction under Article 49?

Measures which directly discriminate on the basis of nationality will clearly breach
Article 49. Reyners, which was discussed above, is an example of this. However, the
Court of Justice expanded the scope of Article 49 beyond such direct discrimination in
Thieffry v Conseil de l’Ordre des Avocats a la Cour de Paris (Case 71/76) [1977] ECR
765. This case concerned a Belgian national with a Belgian doctorate in law who had
practised as an advocate in Belgium. He obtained French university recognition of his
qualifications as being equivalent to a French degree and passed the examinations for
a certificate to practise as an ‘avocat’ in France. Yet the Parisian Bar refused him
admission to the training stage of ‘avocat’, not because of his nationality but because
he lacked a degree in French law.
The Court of Justice noted that, in its General Programme for the abolition of
restrictions on freedom of establishment, the Council of Ministers had proposed to
eliminate not only direct discrimination, but also any form of disguised discrimination
including any legal provision or administrative practice which had the exclusive or
principal effect of hindering the taking up or pursuit of such activity by foreign nationals.
It held that it was incumbent on the competent public authorities to ensure that national
legislation and practice is applied in accordance with the objectives of the freedom of
establishment, subject to the observance of professional rules justified by the general
good. It concluded that it was an unjustified restriction to refuse to admit a person to a
profession where his qualification had been recognised as an equivalent qualification
by the competent authority of the country of establishment.
In Thieffry, the Court of Justice thereby expanded the scope of Article 49 beyond direct
discrimination based on nationality to include indirect forms of discrimination and
potentially even other indistinctly applicable restrictions. This approach was developed
in subsequent cases. For example, in Ordre des Avocats v Klopp (Case 107/83) [1984]
ECR 2971, a rule of the Parisian Bar which prevented members maintaining offices in
other Member States was held to restrict the freedom of establishment since it
prevented a German lawyer from successfully applying for membership. This was
notwithstanding that it applied irrespective of the nationality of the applicant. Further
development has seen the case law reach the point in which anything acting as an
impediment to the freedom of establishment in another Member State, irrespective of
whether or not it has any discriminatory quality, will constitute a restriction under Article
49. This was established by the Court of Justice in Gebhard Consiglio dell’Ordine degli
Avvocati e Procuratori di Milano (Case C-55/94) [1995] ECR I-4165. This involved a
German national who had for several years pursued the profession of lawyer in Italy on
a permanent basis. He was disciplined by the Milan Bar Council for using the title
‘avvocato’ without having first obtained a formal recognition of his qualifications. The
Court of Justice made it clear that national measures which are liable to hinder or make
less attractive the exercise of the freedom of establishment constitute a restriction on
that freedom. In Caixa Bank France v Ministère de L’Economie (Case C-442/02) [2004]
ECR I-8961, the Grand Chamber of the Court of Justice confirmed this by holding that
any national measures which ‘prohibit, impede or render less attractive’ the pursuit of
an occupation in more than one Member State is sufficient to amount to a restriction
under Article 49.
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8.6 Justifying restrictions on the right of establishment

8.6.1 Article 52 TFEU — the derogations
‘1. The provisions of this Chapter and measures taken in pursuance
thereof shall not prejudice the applicability of provisions laid down by
law, regulation or administrative action providing for special treatment
for foreign nationals on grounds of public policy, public security or
public health.
2. The European Parliament and the Council shall, acting in accordance
with the ordinary legislative procedure, issue directives for the
coordination of the abovementioned provisions.’
These are the same derogations as are provided in respect of the free movement of
persons. Their application to natural persons is likewise governed by Directive 2004/38.
Where companies are concerned, the derogations are regulated by the Treaty alone
and by the general principles of EU law including the principle of proportionality. An
example of this is provided by Commission v UK (Open Skies) (Case C-466/98) [2002]
ECR I-9427. The United Kingdom had entered into an air services agreement with the
United States of America which provided for operating authorisations to be granted to
British airlines by the United States and to American airlines by the United Kingdom. It
also provided for the revocation, suspension or limitation of operating authorisations for
non-British airlines by the United States at the request of the United Kingdom and of
non-American airlines by the United Kingdom at the request of the United States. The
Court of Justice held that the agreement directly discriminated against the airlines of
other Member States which were established in the United Kingdom as it excluded
them from benefits accorded to British airlines. It also rejected the United Kingdom’s
argument that the discrimination could be justified on the ground of public policy. The
Court held that the public policy derogation under Article 52 TFEU presupposes the
need to maintain the discriminatory measure in order to deal with a genuine and
sufficiently serious threat affecting one of the fundamental interests of society. There
also had to be a direct causal link between the threat, which must be current, and the
measure adopted to deal with it. The air services agreement could not be justified as
the refusal authorisations were not limited to circumstances where an airline poses a
threat to public policy and, in any event, there was no direct link between any threat to
the public policy of the United Kingdom and the generalised discrimination against EU
airlines in the agreement.
8.6.2 Imperative requirements

Restrictions on the freedom of establishment which are not directly discriminatory can
also be justified by imperative requirements in the general interest. These are
additional grounds for justification established by the Court of Justice. They are the
equivalent of mandatory requirements for the free movement of goods and pressing
reasons in the public interest for the free movement of persons. (On mandatory
requirements for the free movement of goods, see Rewe-Zentrale AG v
Bundesmonopolverwaltung für Branntwein (Case 120/78) [1979] ECR 649 (‘Cassis de
Dijon’.) This was discussed earlier in Section 6.4. On pressing reasons in the public
interest for the free movement of persons, see Kraus v Land Baden-Württemberg
(Case C-19/92) [1993] ECR I-1663 and Union Royale Belge des Sociétés de Football
Association ASBL v Bosman (Case C-415/93) [1995] ECR I-4921. These are
135
discussed in Section 7.7.1.3). They are increasingly being referred to by the Court of
Justice as ‘overriding reasons in the public interest’.
The principle that a restriction can be justified by an imperative requirement owes its
origin to the judgment of the Court of Justice in Thieffry in which, in relation to an
indistinctly applicable restriction, it accepted that freedom of establishment was subject
to the need for national professional rules justified by the general good. This opened up
the possibility of such restrictions to that freedom being justified on grounds that fall
outside of the derogations in Article 52 TFEU. The approach which the Court of Justice
took in determining whether or not a restriction could be justified on such a ground is
well illustrated by its judgment in Klopp. It will be recalled that the Court of Justice held
in this case that a rule which prevented members of the Paris Bar from maintaining
offices in other Member States was a restriction on the freedom of establishment. In
doing so, the Court considered the argument of the Paris Bar and the French
Government that the rule could be justified as being necessary in the public interest. It
accepted that Member States could require advocates who are members of a Bar to
conduct their practice in such a way as to maintain sufficient contact with the Bar, their
clients and the judicial authorities as this was in the interests of the proper
administration of justice. But it concluded that this did not justify a prohibition on a
second set of chambers in another Member State as contact could be maintained using
modern forms of transport and telecommunications. The restriction was unnecessary
and, therefore, disproportionate.
The modern formulation of the conditions for justifying a restriction was outlined by the
Court of Justice in Gebhard Consiglio dell’Ordine degli Avvocati e Procuratori di Milano
(Case C-55/94) [1995] ECR I-4165. The Court held that national measures which are
liable to hinder or make less attractive the exercise of the freedom of establishment
must satisfy four conditions in order to be justified:
 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 attaining the objective which they pursue.
 They must not go beyond what is necessary to attain that objective.
The Court’s approach in Gebhard is essentially the same approach as the one taken in
relation to indistinctly applicable restrictions for the free movement of goods and the
free movement of persons. Indeed, the Court cited Kraus, which concerned the latter
freedom, in support. The condition that the restriction has to be non-discriminatory
means that it must not be directly discriminatory. As has been noted, imperative
requirements in the general interest mirror the concepts of mandatory requirements
(Cassis de Dijon) and pressing reasons in the public interest (Kraus and Bosman) in
free movement of goods and free movement of persons, respectively. The final two
conditions embody the requirements of proportionality.
8.7 The establishment of companies

Unlike the similar free movement provisions in Article 45 TFEU on the free movement
of workers and Articles 20 and 21 TFEU on Union citizens, which only apply to
individuals, the provisions on right of establishment also apply to companies. Article 54
TFEU states that:
‘Companies or firms formed in accordance with the law of a Member State
and having their registered office, central administration or principal place
of business within the Union shall, for the purposes of this Chapter, be
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treated in the same way as natural persons who are nationals of Member
States.
"Companies or firms" means companies or firms constituted under civil or
commercial law, including cooperative societies, and other legal persons
governed by public or private law, save for those which are non-profit-
making.’
Article 54 not only extends the freedom of establishment to companies but also to
firms. In English law, a firm refers to two or more persons who carry on a business in
common with a view to profit (section 1(1) Partnership Act 1890). It is otherwise known
as a partnership. Unlike companies, a firm is not an incorporated entity but remains an
agglomeration of natural persons.
Companies enjoy similar rights to freedom of establishment as individuals. For
example, in R v Secretary of State for Transport, ex parte Factortame Ltd (Case
213/89) [1990] ECR I-2433 (‘Factortame II’), the Court of Justice held that
requirements in the Merchant Shipping Act 1988 breached Article 49 by requiring the
majority of shareholders in a company owning UK ships to be British. This requirement
applied irrespective of whether the shareholder was a person or another company. The
Court held that this discriminated against both persons and companies who were
nationals from other Member States.
However, there is one significant difference between companies and individuals. Article
54 requires a company to be profit making. This contrasts with natural persons who
can rely on Article 49 for non-profit making economic activities.
Under Article 54, a company must be formed in accordance with the law of a Member
State. Its registered office, central administration or principal place of business must
also be within the Union. The difficulty that the Court of Justice has encountered with
this is that there is no consensus amongst the Member States as to which of these –
the company’s registered office, its central administration or its principal place of
business – should be used as the ‘connecting factor’ to determine which Member
State’s legal jurisdiction governs the company itself. This is important not only because
it dictates the nationality of the company for the purpose of Article 54 but also because
that Member State’s legal system determines the conditions under which the very
existence of the company is to be recognised. There are broadly two differing
approaches to this within the European Union:
1. The Incorporation Doctrine. This identifies the connecting factor as the place
where the company was legally incorporated and has its registered office. This
doctrine is used in the United Kingdom, Ireland, the Netherlands and the
Scandinavian countries.
2. The Real Seat Doctrine. This identifies the connecting factor as the place where
the company’s central administration is located. This doctrine is used in Member
States such as Belgium, France, Hungary Germany, Greece, Luxembourg,
Portugal and Spain. The principal place of business may alternatively be treated
as the connecting factor.
Two examples will serve to illustrate the practice effect of the differences between the
two doctrines:
1. First, the choice of doctrine may affect whether or not a foreign company is
recognised as a valid legal entity. A Member State which adheres to the
incorporation doctrine will normally determine the validity of a foreign company on
the basis of the law of the Member State in which it is incorporated. A Member
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State which adheres to the real seat doctrine will normally determine the validity
of a foreign company on the basis of the law of the Member State in which it has
its central administration.
2. Secondly, the choice of doctrine may determine whether or not a company is able
to transfer its central administration to another Member State. A Member State
which adheres to the incorporation doctrine will normally permit a company
incorporated in that Member State to transfer its central administration to another
Member State without its legal capacity or its status as a validly incorporated
legal entity being affected. A Member State which adheres to the real seat
doctrine will either prohibit a company incorporated in that Member State from
transferring its central administration to another Member State or will only permit
it to do so under certain specific conditions. A company which does transfer its
central administration abroad may be dissolved.
As always, the precise way that these doctrines operate varies from Member State to
Member State. The Court of Justice has had the unenviable task of having to develop
principles to govern the freedom of establishment of companies against this backdrop.
The central principles which it has arrived at are as follows:
8.7.1 The rights of the Member State of incorporation

The Member State in which the company is incorporated retains the right to determine
the conditions of incorporation of that company and the conditions under which the
company may transfer its central administration to another Member State. This follows
from R v H.M. Treasury, ex parte Daily Mail and General Trust plc (Case 81/87) [1988]
ECR 5483. In this case, Daily Mail and General Trust Plc was a company which had
been incorporated in the United Kingdom. Its central management and control was also
located there. United Kingdom tax legislation provided that a company was resident in
the United Kingdom for tax purposes if its central management and control was located
in the United Kingdom. Only companies which were resident in the United Kingdom for
tax purposes were liable for corporation tax. Daily Mail and General Trust Plc wished to
move its central management and control from the United Kingdom to the Netherlands.
It was permitted to do so under United Kingdom company legislation whilst remaining
incorporated in the United Kingdom. However, United Kingdom tax legislation provided
that a company would continue to be considered resident in the United Kingdom for tax
purposes until the consent of the Treasury had been obtained. Consequently, Daily
Mail and General Trust Plc would remain liable for corporation tax in the United
Kingdom until that consent had been granted.
The Court of Justice noted that the legislation of Member States varied widely in fixing
either the registered office or the central administration as the factor connecting a
company to a national territory and in setting the conditions under which, if at all, the
registered office or central administration could be transferred to another Member
State. The Treaty had taken this into account by placing the registered office, central
administration and principal place of business of a company on equal footing as
connecting factors. In these circumstances, Article 49 did not confer a right for a
company incorporated in one Member State to transfer its central management and
control to another Member State while retaining its status as a company incorporated
under the legislation of the first Member State.
8.7.2 The rights of a company to set up agencies, branches and
subsidiaries
A company which satisfies the requirements of Article 54 may avail itself of the
freedom, specifically provided for by Article 49, to set up agencies, branches or
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subsidiaries in another Member State without restriction. In Segers v Bestuur van de

Bedrijfsvereniging voor Banken Verzekeringswezen, Groothandel en Vrije Beroepen
(Case 79/85) [1986] ECR 2375, which involved a subsidiary, the Court of Justice made
it clear that this is so even if the company conducts no business of any kind in the
Member State in which it was incorporated but conducts its business solely through an
agency, a branch or a subsidiary in another Member State. This decision had the effect
of ensuring traders a wide freedom of choice as to where they could incorporate a
company. They could simply incorporate the company in one Member State,
notwithstanding that they had no intention of ever trading there, and then conduct all of
the company’s business through a branch in another Member. This enabled traders to
take advantage of the more lenient regulatory regimes for incorporation that existed in
some Member States such as the United Kingdom and thereby to avoid the more
stringent requirements of the Member State in which they were actually going to trade.
The drawback for those Member States was that the more stringent requirements had
been put in place to protect shareholders, creditors and employees. An attempt by
Denmark to put a stop to this practice was considered by the Court of Justice in the
landmark case of Centros Ltd v Erhvervs-og Selskabsstyrelsen (Case C-212/97) [1999]
ECR I-1459.
Centros Ltd was a company which had been incorporated in the United Kingdom. It
had been acquired by two Danish nationals soon after it had been formed. Both of the
owners resided in Denmark. One of them was also its sole director. It had never traded
in the United Kingdom or anywhere else. The company sought to set up a branch in
Denmark but the Danish Trade and Companies Board refused to register the branch.
The Board accused the Danish owners of acquiring a British company for the sole
purpose of enabling them to carry on business in Denmark through a branch of that
company whilst circumventing the minimum share capital requirements under Danish
law for Danish companies which were much more stringent than those under British
law for companies incorporated in the United Kingdom. The Board maintained that this
constituted an abuse of the freedom of establishment.
The Court of Justice rejected this argument. It reiterated that the refusal of a Member
State to register a branch of a company formed in accordance with the law of another
Member State in which it has its registered office is a restriction on the freedom of
establishment. It accepted that this could be justified to prevent nationals from abusing
EU law or fraudulently taking advantage of it. But it held that it was not, in itself, an
abuse of the right of establishment to set up a company in the Member State whose
rules of company law appear to be the least restrictive and then to set up branches in
other Member States. The ability to do so was inherent in the exercise of the freedom
of establishment in a single market.
This conclusion was reiterated by the Court of Justice in Kamer van Koophandel en
Fabrieken voor Amsterdam v Inspire Art Ltd (Case C-167/01) [2003] ECR I-10155. This
case involved a company which had been incorporated in the United Kingdom but was
owned and run by a Dutch national and traded solely through a branch in the
Netherlands. Dutch law required any foreign company which established a branch in
the Netherlands to maintain share capital at least equal to the minimum share capital
required by Dutch companies. It did not prohibit such foreign companies from setting
up a branch in the Netherlands but it did make the Directors liable for the company’s
failure to comply with the share capital requirement. The Court of Justice held that this
impeded freedom of establishment and thereby infringed Article 49.
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8.7.3 The mutual recognition of companies by Member States

A company which has been incorporated in accordance with the law of one Member
State must be recognised as a valid company with legal capacity in other Member
States in which it seeks to establish itself. This principle of mutual recognition follows
from Überseering BV v Nordic Construction Company Baumanagement GmbH (Case
C-200/00) [2002] ECR I-9919. The case concerned a company which had been
incorporated in the Netherlands. It had subsequently been bought by two German
nationals who resided in Germany. The new owners transferred its central
administration to Germany. German law did not recognise the capacity of a company
which had been incorporated outside Germany. Consequently, it had no capacity to
bring proceedings in a German court against a contractor for defective work unless it
reincorporated in Germany. The Court of Justice held that it is a necessary
precondition of the freedom of establishment that companies are recognised by any
Member State in which they wish to establish themselves. Therefore, Germany could
not refuse to recognise the legal capacity of the Dutch company. The Court of Justice
distinguished the Daily Mail case on the basis that Daily Mail concerned relations
between a company and the Member State under whose laws it had been
incorporated. It did not concern the way in which one Member State treats a company
which is validly incorporated in another Member State.
8.8 Further rights under Article 49

8.8.1 Entry and residence
A right to enter and reside is implicit in the right of freedom of establishment. Detailed
rules for this are now provided by Directive 2004/38. This is the very same directive as
has already been discussed in Section 7.6 in the context of the free movement of
persons. It will be recalled that it governs rights of entry and expulsion for all Union
citizens and their families. This extends to Union citizens exercising their rights to
freedom of establishment. For example, Article 7(a) provides self-employed Union
citizens and their family members with a straightforward right of residence even if they
are no longer engaged in economic activity, as long as they do not become an
unreasonable burden for the host State.
8.8.2 Social and other rights

The Court of Justice has interpreted Article 49 as entitling nationals of a Member
States who are exercising their freedom of establishment to have access to certain
social rights on the same basis as nationals of the host Member State. They cannot be
discriminated against as a result. For example, in Commission v Italy (‘Italian Housing’)
(Case 63/86) [1988] ECR 29, the Court held that Italian legislation allowing only Italian
nationals to purchase or lease housing built with the help of public funds and to obtain
a reduced rate mortgage was in breach of Article 49 TFEU as a national of a Member
State who wishes to pursue an activity as a self-employed person in another Member
State would need to obtain housing on the same conditions as nationals of the Member
State. Any restriction not only to the right of access to housing but also on the various
facilities granted to those nationals is an obstacle to the freedom of establishment.
8.9 Professional Qualifications

The refusal by a host Member State to recognise qualifications obtained in another
Member State can represent a substantial obstacle to the freedom of establishment of
the holder of the qualification. One of the central challenges faced by the EU has been
140
to reconcile the objective of ensuring that restrictions on the free movement of

establishment are abolished while respecting the need for Member States to require
appropriate qualifications to ensure professional competence and standards. This has
been addressed through two avenues. One has been by means of directives providing
for the mutual recognition of qualifications. The other has been through the
development of a principle of mutual recognition of equivalent qualifications by the
Court of Justice.
8.9.1 Secondary legislation providing for the recognition of professional

qualifications
Article 53 TFEU provides for the issuing of directives for the mutual recognition of
qualifications by Member States and for the coordination of provisions in Member
States concerning the taking-up and pursuit of activities as self-employed persons. This
had been part of the original Treaty of Rome in 1957 which had also required the
Council, acting unanimously on a proposal from the Commission, to draw up a general
programme for the abolition of existing restrictions on freedom of establishment. The
resulting general programme was duly adopted in 1961. It committed the Council to
examine, whenever issuing a directive to implement the programme, whether to
provide for the mutual recognition of qualifications or to proceed instead by
coordinating the rules governing the taking up and pursuit of activities by self-employed
persons. But the legislation which was adopted followed a time consuming process of
sectoral harmonisation which began by agreeing minimum standards of training and
education in those economic sectors most vital to the EU economy. Whilst this was
reached in medical and health related fields and, curiously, architecture, the overall
progress was slow. Member States wished to protect the public from under-qualified
professionals and as such they were reluctant to leave their own regulatory schemes
for joint EU schemes.
This slow progress prompted a move away from harmonisation to the dominant
approach of mutual recognition. The first mutual recognition directive was Directive
89/48. It was passed in 1989:
‘…in order to provide a rapid response to the expectations of nationals of
Community countries who hold higher education degrees ... ’
This directive was intended to cover all regulated professions requiring university level
education lasting for at least three years, which in practice meant that it covered all of
those professions not yet covered by a specific directive. This approach differed by
acknowledging that once a regulated professional was recognised as such in one
Member State, that person could not be refused entry to that profession in another
Member State. This is similar to the dual burden rule in free movement of goods. This
principle of mutual trust saved time by not requiring prior coordination of educational
and training courses. Such recognition was given to the final educational product,
including any additional diplomas or training.
Directive 89/48 was followed by Directive 92/51, which covered all education and
training other than three-year higher education courses. These directives were then
amended along with most of the preceding sectoral directives by Directive 2001/19 (the
Simplification of Community Legislation Directive). Today, all of the mutual recognition
directives, as well as a number of the sectoral directives, have been replaced by
Directive 2005/36 which broadly retains the same approach. This Directive only applies
to nationals of a Member State wishing to pursue a regulated profession (Article 2). A
regulated profession is one which can only be taken up and pursed in a Member State
by persons in possession of a diploma (Article 1).
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Title III of the Directive deals with the freedom of establishment. It provides for the
recognition of qualifications leading to a regulated profession to be on the same basis
for a migrant Member State national applying for admission to the profession as it is for
a national of the host Member State. Five levels of qualification are identified in Article
11. Under Article 13, the applicant must hold a qualification at least equivalent to the
level immediately prior to that required in the host state. This is a minimum requirement
which reflects differences in the duration of courses between Member States. One
Member State may require a person to undertake a three year undergraduate degree
followed by a one year postgraduate qualification while another Member State may
simply require a student to undertake a four year degree. Under Article 14, the host
Member State may require the applicant to choose either to undertake an adaptation
period of up to three years under a qualified member of the profession or to take an
aptitude test set by the competent authorities of the host Member State if one of the
following three circumstances arises:
 The duration of his or her training is one year shorter than that required by the
host Member State; or
 The applicant’s training covered substantially different matters from those
covered by the qualification required by the host Member State; or
 The regulated profession in the host Member State comprises one or more
regulated professional activities which do not exist in the corresponding
profession in the applicant's home Member State.
Directive 2005/36 acts as a fall back to all of the professions that are not covered by
specific rules and ensures that they are covered by the mutual recognition approach.
As such, while the recognition of lawyers’ qualifications is covered by this directive, it
does not absorb the directives relating to the authorisation of a person as a legal
professional. The directive governing freedom of establishment for lawyers remains
Directive 98/5 (the Lawyers Establishment Directive).
8.9.2 The principle of mutual recognition of equivalent qualifications in the

Court of Justice
8.9.2.1 EU qualifications
The initial slow progress of the EU in issuing directives to govern the recognition of
qualifications eventually forced the Court of Justice to intervene. Its solution has been
to develop its own principle of the mutual recognition of qualifications. This was first
established in Thieffry v Conseil de l’Ordre des Avocats a la Cour de Paris (Case
71/76) [1977] ECR 765. This case was discussed earlier in 8.6 above. It will be recalled
that it concerned a Belgian national with a Belgian diploma in law who had practised as
an advocate in Belgium. He applied to a French University to study for the certificate to
practice as an ‘avocat’ in France. His application was accepted after the French
University had recognised his diploma as being equivalent to a French law degree. The
power for universities in France to recognise foreign qualifications as being the
equivalent to a French degree in various fields had been provided by a French law
dating back to 1921 for the purpose of determining whether the holders of foreign
qualifications could pursue studies in France. Thieffry sat and passed the exam for the
qualifying certificate. However, the Parisian Bar refused him admission to the training
stage of ‘avocat’ because he lacked a degree in French law. The Court of Justice held
that:
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‘…there is an unjustified restriction on that freedom where, in a Member-

State, admission to a particular profession is refused to a person covered
by the Treaty who holds a diploma which has been recognised as an
equivalent qualification by the competent authority of the country of
establishment and who furthermore has fulfilled the specific conditions
regarding professional training in force in that country, solely by reason of
the fact that the person concerned does not possess the national diploma
corresponding to the diploma which he holds and which has been
recognised as an equivalent qualification.’
In short, the Paris Bar could not deny Thieffry admission to the training stage on the
ground that he did not have the French law degree once his Belgian diploma had been
recognised by the French University as the equivalent to the French law and he had
passed the exam for the certificate to practice as an avocate.
The Court of Justice has developed the principle of mutual recognition over subsequent
cases and applied it in situations beyond freedom of establishment. For example, in
UNECTEF v Heylens (Case 222/86) [1987] ECR 4097, it made in clear that any
decision by the host Member State concerning the mutual recognition of the
equivalence of qualifications must have an objective basis, and the person concerned
must be fully informed of the reasons for the decision, which should itself be subject to
legal redress. Heylens was not a case involving freedom of establishment. It concerned
the free movement of workers under Article 45. A Belgian football trainer with a Belgian
qualification was subject to prosecution by the French football trainers union for
working in France. His qualification had been refused French equivalence by the
French Ministry of Sport. The Court of Justice held that, in the absence of a
harmonising Directive, Member States were entitled to regulate such qualifications but
that they had to ‘assure themselves, on an objective basis’ of the equivalence of the
foreign diploma ‘exclusively in the light of the level of knowledge and qualifications …
having regard to the nature and duration of the studies and practical training which the
diploma certifies that he has carried out’. Reasons also had to be provided for a
decision that the qualification was not equivalent.
In both Heylens and Theiffry, national law had provided for the recognition of equivalent
foreign qualifications by a competent national authority. In Vlassopoulou v Ministerium
fur Justiz, Bundes und Europaangelegenheiten Baden-Württemberg (Case 340/89)
[1991] ECR 2357, the Court of Justice subsequently extended its approach even
further to situations in which no such provision of national law existed. The case
concerned a Greek national with a Greek law degree who had practised German law in
Germany for several years before applying for admission to the German bar. This was
refused on the grounds that she had not passed German examinations. The Court of
Justice held that the authorities must take into consideration the knowledge and
qualifications of the applicant certified by her foreign diploma and compare these to
those required by the national qualification. If they are equivalent then the host State
must recognise the qualification. However, if they only partially correspond, national
authorities can require the person concerned to show that she has acquired the
knowledge and qualifications, either through a course of study or by practical
experience.
In Férnandeza de Bobadilla v Museo Nacional del Prado (Case C-234/97) [1999] ECR
I-4773, the Vlassopoulou principles were applied to a situation in which a national of a
Member State was seeking to rely in her own Member State on a qualification awarded
in another Member State. This was another case concerning the free movement of
workers under Article 45 TFEU. It concerned a Spanish national who undertook a
postgraduate course in fine arts restoration in the UK with a grant from the Spanish
143
national museum of Prado. Over the next three years, she worked on a temporary
contract for Prado museum as an art restorer and at various other museums and
studios. Her application for a permanent post was rejected on the ground that the
qualification obtained in the UK had not been recognised as equivalent to the relevant
Spanish degree. The Court of Justice held that she was entitled to rely upon the
Vlassopoulou principles in her own Member State because she had acquired her
professional qualification in another Member State. Prado museum had made the grant
to Bobadilla to enable her to undertake the postgraduate qualification at issue and it
had already employed her on a temporary basis in the post to be filled. It was ‘ideally
placed’ to assess her actual knowledge and abilities compared to the knowledge and
abilities of holders of the relevant Spanish qualification.
8.9.2.2 Non-EU qualifications
Where an initial qualification was obtained outside the EU but subsequent practical
experience was obtained in the EU, only the latter can be credited. As seen in the
following cases, an initial non-EU qualification carries no right of acceptance by
Member States. Both of these cases involved nationals of Member States.
In Tawil-Albertini v Ministre des Affaires Sociales (Case C-154/93) [1994] ECR I-451, a
French national obtained a dentistry qualification in Lebanon which was then
subsequently recognised in Belgium as equivalent to its national requirements. He later
applied to practice in France, which refused to recognise his Lebanese qualification on
the grounds that it was not included in Directive 78/686 which provided for mutual
recognition by Member States of qualifications in dentistry. The applicant claimed that
as it had been recognised by Belgium as equivalent to the Belgian requirement, which
was in the directive, then his qualification was equivalent to the French. The Court of
Justice held that the simple fact that one Member State accepted the equivalence of
qualifications did not bind other Member States where those qualifications were not
listed in the directive.
In Haim v Kassenzahnärztliche Vereinigung Nordrhein (Case C-319/92) [1994] ECR
I-425, the applicant’s diploma in dentistry had been obtained in Turkey but he had
practised in Belgium and he was authorised to practise in Germany. However, the
German authority refused to permit him to practise within the German social security
system as he had not completed the two-year training period required by German law.
Once again, the Court of Justice held that he could not rely on Directive 78/686 as it
only applied to qualifications obtained in a Member State. However, it did not stop
there. By referring to Vlassopoulou, the Court held that it was not permissible under
Article 49 for the national authority to refuse to register a person who had lawfully
practiced in another Member State without first examining whether his experience
corresponds to that required by the relevant harmonising Directive.
8.9.3 The relationship between secondary legislation and the principle of

mutual recognition
Much of the above case law has now been overtaken by the adoption of more detailed
rules in secondary legislation providing for the recognition of foreign qualifications. Yet
the jurisprudential mutual recognition principles mapped by the Court of Justice in
Vlassopoulou and the other cases still remain relevant. They evidently continue to
govern those professions which are not provided for by the mutual recognition
directives. But they are also applicable even where a mutual recognition directive
covers the profession in question. This has now been made clear by the Court of
Justice in Hocsman v Ministre de l’Emploi et de la Solidarité (Case C-238/98) [2000]
ECR I-6623. This case concerned a doctor of Argentinian origin who had qualified as a
144
medical doctor in Argentina. His Argentinian qualification had been recognised in Spain
as the equivalent to the Spanish degree in medicine and he had been allowed to
practice medicine there. He undertook further training in Spain as a specialist in
urology and obtained a diploma in that specialism. He subsequently became a Spanish
national. He later moved to France but the French Government refused to allow him to
practice medicine in France on the ground that his Argentinian qualification did not
entitle him to practise medicine there. The Court of Justice held that the applicant could
rely directly upon Article 49 TFEU even though there was a harmonising directive and
his Argentinian qualification did not satisfy that directive. The purpose of issuing
directives is to make it easier for people to take up and pursue activities as self-
employed persons. The legal ambit of the principle of mutual recognition established in
Vlassopoulou and other cases could not be reduced as a result of the adoption of these
directives. Therefore, a person who does not satisfy the requirements of a mutual
recognition directive could still rely on the principles derived from those cases. The
Court thereby ensured that the acquisition of skills must always be taken into account.
145
146
9
Freedom to Provide
Services:
Articles 56–62 TFEU
147
Introduction
The final fundamental freedom which will be examined is the freedom to provide
services. The main principles governing this freedom are provided by Articles 56 to 62
TFEU. There are many similarities between the freedom to provide services and the
freedom of establishment. This is not just because of the content of their respective
treaty provisions but also because the Court of Justice has interpreted them in similar
ways. As was noted in the previous chapter (see Section 8.2), the key difference
between these two freedoms is the temporal character of the presence involved in a
Member State. Freedom of establishment under Article 49 TFEU entails a permanent
presence by a person, a firm or a company in a Member State for economic purposes.
In contrast, Article 56 TFEU is engaged where no physical presence is required by the
provider of the service in the Member State of the recipient of the service or that
presence is only required on a temporal basis.
9.1 Free movement of services: Article 56 TFEU

Article 56 TFEU grants the right for nationals of the Member States of the EU to
provide services within the EU without restriction. It provides that:
‘Within the framework of the provisions set out below, restrictions on
freedom to provide services within the Union shall be prohibited in respect
of nationals of Member States who are established in a Member State other
than that of the person for whom the services are intended.’
Like Article 49, Article 56 covers self-employed persons. The definition of a self-
employed person outlined in Section 8.8.2 of the previous chapter on freedom of
establishment is equally applicable here. Indeed, Jany v Staatssecretaris van Justitie
(Case C-268/99) [2001] ECR I-8615, in which the Court of Justice provided the
definition, was a case concerning the freedom to provide services. Firms and
companies are also able to enjoy the freedom provided for in Article 56 TFEU. This is
achieved by Article 62 applying Article 54 to all matters covered by the freedom to
provide services. (Article 54 is discussed in Section 8.7 of the previous chapter.)
However, Article 56 TFEU makes it clear that the provider of services must already
have a place of establishment within the EU and must be a national of a Member State.
The general right in Article 56 is supplemented by Article 59 TFEU which provides for
directives to be issued for the purpose of liberalising a particular service. The power to
issue directives for the mutual recognition of professional qualifications is also made
applicable to the freedom to provide services by Article 62 TFEU.
9.2 Article 56 and direct effect

The question of whether or not Article 56 TFEU could have direct effect raised similar
issues to those which had confronted the Court of Justice in Reyners v The Belgian
State (Case 2/74) [1974] ECR 63 in respect of freedom of establishment under Article
49 TFEU (see Section 8.3 in the previous chapter). Like Article 49 TFEU, Article 56
TFEU begins with the words ‘within the framework of the provisions set out below’.
These words had also been included in this article since it first appeared in the original
Treaty of Rome 1957. The Treaty placed an obligation on the Council, acting on
proposals from Commission, to draw up a general programme for the abolition of
restrictions on the freedom to provide services and to issue directives to implement that
programme. Once again, this appeared to make the implementation of the freedom to
provide services conditional upon the enactment of positive legislative measures and,
thereby, to make it incapable of satisfying the Van Gend en Loos criterion of
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Freedom to Provide Services: Articles 56–62 TFEU
unconditionality for a treaty article to have direct effect. Neverthless, the Court of
Justice held in van Binsbergen v Bestuur van de Bedrijfsvereniging voor de
Metaalnijverheid (Case 33/74) [1974] ECR 1299, that Article 56 had direct effect.
Restrictions on the freedom to provide services should have been abolished by the end
of the transitional period and so the requirement had become unconditional since that
date.
9.3 What constitutes ‘services’?

Article 57 TFEU outlines four types of service which would come within the scope of
Article 56:
 Activities of an industrial character
 Activities of a commercial character
 Activities of craftsmen
 Activities of the professions
However, this list is not exhaustive and the Court of Justice has taken a broad
approach. For example, in Society for the Protection of Unborn Children v Grogan
(Case 159/90) [1991] ECR I-4685, it held that the medical termination of a pregnancy,
performed for remuneration in accordance with the law of the Member State in which it
is carried out, constitutes a service. This case arose from proceedings brought in
Ireland, where abortions are prohibited by the constitution, to prevent the officers of
certain student associations from distributing information to students concerning the
location of clinics in the UK where abortions were carried out. The Court of Justice
refused to engage in an assessment of the morality of abortions, reasoning that it was
not for it to substitute its own assessment for that of the legislature in those Member
States where abortions are practised legally. The Court of Justice subsequently
adopted a similar approach to prostitution in Jany v Staatssecretaris van Justitie (Case
C-268/99) [2001] ECR I-8615, declining to engage in a moral assessment as
prostitution was legally permitted and regulated in the Netherlands. The Court held that
prostitution was capable of being a service.
In order to be a service, the activity must satisfy the following conditions, detailed
below.
9.3.1 Remuneration
Article 57 TFEU defines services as those ‘normally provided for remuneration’. The
remuneration need not be paid by the person receiving the service but can be paid by
the third party. This flows from Deliège v Ligue Francophone de Judo et Disciplines
Associées ASBL (Cases C-51/96 and C-191/97) [2000] ECR I-2549. Ms Deliège was a
Belgian national who had been a judo champion in Belgian and international
competitions, including an Olympics. She complained that the Belgian Judo Federation
and her regional judo league had improperly frustrated her career, particularly by
preventing her from taking part in various international competitions including two
Olympics. In the course of her proceedings, she sought to challenge the rules of the
European Judo Union which required athletes to be authorised or selected by their
national federation in order to be able to compete in an international competition and
which laid down national quotas for such competitions. She argued that these restricted
her ability to provide services contrary to Article 56. The Court of Justice rejected the
argument that Article 56 could not apply because she was an amateur. The Court held
that sporting activities may fall within the scope of Article 56 even if some of those
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services are not paid for by those for whom they are performed. The remuneration
could be paid by a third party instead:
‘For example, an organiser of such a competition may offer athletes an
opportunity of engaging in their sporting activity in competition with others
and, at the same time, the athletes, by participating in the competition,
enable the organiser to put on a sports event which the public may attend,
which television broadcasters may retransmit and which may be of interest
to advertisers and sponsors. Moreover, the athletes provide their sponsors
with publicity the basis for which is the sporting activity itself.’
9.3.2 Genuine and effective economic activity

In the same way as workers, the service provided must be a genuine and effective
economic activity and not merely marginal or ancillary (Steymann v Staatssecretaris
van Justitie (Case 196/87) [1988] ECR 6159). An activity pursued for remuneration will
be regarded as an economic one (Steymann). Therefore, in Her Majesty’s Customs
and Excise v Schindler (Case C-275/92) [1994] ECR I-1039, the Court of Justice held
that lotteries are an economic activity as they are services provided for remuneration
constituted by the price of the ticket. Several Member States had argued that lotteries
are not a service as they are traditionally operated or controlled by public authorities
solely in the public interest and they have no economic purpose since they are based
on chance.
9.4 Matters which fall outside the scope of Article 56 TFEU

9.4.1 The official service exception
Article 62 TFEU provides that the official authority exception in Article 51 TFEU also
applies to the freedom to provide services under Article 56 TFEU. This removes
activities from the scope of Article 56 where they are connected in a Member State,
even occasionally, with the exercise of official authority. The principles which govern
the application of the exception to the freedom to provide services are the same as
those discussed earlier in respect of the freedom of establishment (see Section 8.4.1 in
the previous chapter). Indeed, Commission v Greece (Case C-306/89) [1991] ECR
I-5863, Commission v Italy (Data Processing) (Case C-3/88) [1989] ECR 4035 and
Commission v Italy (Lottery Computerisation System) (Case C-272/91) [1994] ECR
I-1409, which were addressed earlier in the context of freedom of establishment (see
Section 8.5.1 in the previous chapter), all concerned the application of the exception
not only to the freedom of establishment under Article 49 TFEU but also to the freedom
to provide services under Article 56 TFEU.
9.4.2 Where provisions for other areas such as Goods, Capital or Persons
govern
Article 57(1) TFEU provides that Article 56 will only apply in so far as the services are
not governed by the provisions relating to freedom of movement for goods, capital and
persons. Consequently, Article 56 is a residual category of freedom. However, the
Court of Justice made it clear in Omega Spielhallen- und Automatenaufstellungs-
GmbH v Oberbürgermeisterin der Bundesstadt Bonn (Case C-36/02) [2004] ECR
I-9609 that Article 56 TFEU will govern where the other applicable freedom is entirely
secondary to the freedom to provide services. In that case, a ban on providing ‘laser-
sport’ games in which players attempted to shoot each other with infra-red laser guns
was held to be governed by Article 56 TFEU, notwithstanding that the ban also had the
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effect of restricting imports of the equipment used in the game and therefore restricted
the free movement of goods.
The Court of Justice in Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di
Milano (Case C-55/94) [1995] ECR I-4165 has also made it clear that the chapters in
the Treaty on the free movement of workers, the freedom of establishment and
services are mutually exclusive and that the provisions of the chapter on services are
subordinate to those of the chapter on establishment.
Finally, Article 58(1) TFEU stipulates that the freedom to provide services in the field of
transport are governed by Title VI on Transport instead of Article 56.
9.4.3 Purely internal situations

Article 56 prohibits restrictions on the freedom to provide services only ‘in respect of
nationals of Member States who are established in a Member State other than that of
the person for whom the services are intended’. It follows that Article 56 TFEU does not
apply to purely internal situations. In Procureur du Roi v Debauve (Case 52/79) [1980]
ECR 833, the Court of Justice pointed out that Article 56 does not apply to ‘activities
whose relevant elements are confined within a single Member State’. However, the
Court of Justice can be flexible where there is some cross-border element. For
example, in Deliège, it was held to be sufficient that an athlete participates in a
competition in another Member State. The Court of Justice held in de Coster v Collège
des Bourgmestre et Echevins de Watermael-Boitsfort (Case C-17/00) [2001] ECR
I-9445 that a local tax on ownership of satellite dishes breached Article 56 because it
would dissuade people from buying dishes and thus receiving programmes broadcast
in other Member States. There was no similar charge on receiving TV programmes
transmitted by cable which was held to favour the national broadcasters.
In both Deliège and de Coster, the provider of the service and the recipient of the
service were in different Member States. However, the provider and the recipient can
be based in the same Member State as long as there is still some cross-border
element to the service. An example is Hubbard v Hamburger (Case C-20/92) [1993]
ECR I-3777. In his capacity as a solicitor and executor of a will in the UK, Hubbard
brought an action in the German courts which would transfer ownership of land in the
testator’s estate in Germany to him. Both the provider of the service (Hubbard) and the
recipient of the services (Hubbard’s client) were based in the UK. Non-German
nationals who brought claims in the German courts had to provide security for costs
which would cover the defendant’s legal costs in the event of an unsuccessful claim.
Hubbard claimed that this was in breach of Articles 18 and 56 TFEU Treaty. The Court
of Justice agreed. The German law was discriminatory on grounds of nationality.
9.5 What constitutes a restriction under Article 56?

As has already been noted, Article 56 prohibits restrictions on freedom to provide
services. Specifically, it prohibits such restrictions in respect of nationals of Member
States who are established in a Member State other than that of the person for whom
the services are intended. Article 57 adds that ‘the person providing a service may, in
order to do so, temporarily pursue his activity in the Member State where the service is
provided, under the same conditions as are imposed by the State on its own nationals’.
On the strength of this, it has long been established that, between them, Article 56 and
Article 57 prohibit measures which discriminate against service providers not only on
the basis of nationality but also on the basis of residence. This was made clear by the
Court of Justice in van Binsbergen v Bestuur van de Bedrijfsvereniging voor de
Metaalnijverheid (Case 33/74) [1974] ECR 1299:
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‘The restrictions to be abolished pursuant to Articles [56 and 57] include all
requirements imposed on the person providing the service by reason in
particular of his nationality or of the fact that he does not habitually reside in
the State where the service is provided, which do not apply to persons
established within the national territory or which may prevent or otherwise
obstruct the activities of the person providing the service.’
The claimant in this case had been involved in legal proceedings in the Netherlands.
He had been represented by a Dutch lawyer. His lawyer had initially been habitually
resident in the Netherlands but had later moved to Belgium. The lawyer’s capacity to
represent his client in court was challenged on the basis that only persons established
in the Netherlands could act as legal representative or advisors. The Court of Justice
held that such a requirement would deprive Article 56 of all useful effect and so was
prima facie incompatible with that Article.
However, the Court of Justice initially proved reluctant to extend the prohibition in
Article 56 to non-discriminatory measures which acted as obstacles to the provision of
services. In Société Générale Alsacienne de Banque SA v Koestler (Case 15/78)
[1978] ECR 1971, a French bank had undertaken certain speculative transactions on
the Paris stock exchange on behalf of a German national who was living in France at
first but subsequently moved back to Germany. The German national refused to pay
the losses which had been incurred as a result of the transactions. A West German
court held that these transactions were to be treated in the same way as a wagering
contract and so the debt was not recoverable under West German law. In response to
a preliminary reference from the West German court, the Court of Justice treated
Article 56 and 57 as prohibiting either direct or indirect discrimination against the
service provider and held that no such discrimination arose in this case as the West
German rule applied equally to any service provider established in Germany.
This reluctance was slowly eroded in subsequent cases. One such case was
Commission v Germany (Insurance Services) (Case 205/84) [1986] ECR 3755. This
concerned West German rules which provided that an insurance undertaking that
wished to provide insurance services in West Germany through an agent or other
intermediary could only do so through an agent or intermediary who was both
established in West Germany and authorised by West German authorities. The Court
of Justice held that Articles 56 and 57 TFEU prohibited not only discrimination against
a provider of a service on the grounds of his nationality but also ‘all restrictions on his
freedom to provide services imposed by reason of the fact that he is established in a
Member State other than that in which the service is to be provided’. It explained that,
whilst the principal aim of Article 57 TFEU was to enable the service provider to pursue
his activities without discrimination, it did not follow from that Article that all national
legislation applicable to nationals of a Member State had to be applied in its entirety to
the activities of undertakings established in other Member States. This indicated that
discrimination was not a necessary requirement for a measure to be a restriction. Even
non-discriminatory measures which applied without distinction to both domestic
nationals and those established in other Member States may still be prohibited if they
acted as restrictions on the freedom of the foreign national to provide services. On the
facts, the Court of Justice held that West German rules were restrictions within the
meaning of Article 56 TFEU. In particular, the requirement that the agent or
intermediary be established in West Germany was held to negate the very idea of the
freedom to provide services.
The Court of Justice finally put it beyond doubt that the prohibition in Article 56
extended to non-discriminatory obstacles to the provision of services in Säger v
Dennemeyer & Co Ltd (Case 76/90) [1991] ECR 421. Dennemeyer & Co Ltd was a
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company based in the UK which specialised in advising the holders of patents in

Germany when fees for the renewal of those patents was due and paying those fees
on their behalf. Its charges for this were lower that of German patent agents. Säger, a
German-based patent agent, mounted a legal challenge arguing that Dennemeyer was
providing legal services for clients without having a licence required by German law.
Dennemeyer argued that the law hindered freedom to provide services. The Court of
Justice held that the prohibition in Article 56 was not confined to discriminatory
measures but could also extend to indistinctly applicable measures:
‘It should first be pointed out that Article [56] of the Treaty requires not only
the elimination of all discrimination against a person providing services on
the ground of his nationality but also the abolition of any restriction, even if
it applies without distinction to national providers of services and to those of
other Member States, 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.’
The Court of Justice held that the requirement making the monitoring of patents subject
to a licence was a restriction within the meaning of Article 56 TFEU. Since Asociación
Profesional de Empresas Navieras de Líneas Regulares (Analir) v Administración
General del Estado (Case C-205/99) [2001] ECR I-1271, the Court of Justice has
employed a slightly wider formulation which not only encompasses restrictions which
prohibit or impede the activities of a provider of services established in another
Member State but also those which render less attractive those activities. This mirrors
the formulation used in freedom of establishment cases (see Section 8.5 in the
previous chapter).
Nevertheless, there can be limits to how far the Court of Justice is prepared to push
this on the facts of the case. For example, in Society for the Protection of Unborn
Children v Grogan (Case 159/90) [1991] ECR I-4685, the Court of Justice held that a
prohibition on the distribution of information by certain student associations in Ireland to
students which concerned the location of clinics in the UK where abortions are carried
out was not a restriction on the abortion services provided by the clinics. The student
associations were not acting on behalf of the clinics and any link between them was far
too tenuous.
9.6 Justifying a restriction on the Freedom to Provide

Services
The means by which a restriction on the freedom to provide services can be justified
echo those available for freedom of establishment.
9.6.1 Derogations
Article 62 TFEU applies the derogations in Articles 52 TFEU to services. Therefore,
Member States retain the ability to restrict services on the grounds of public policy,
public security and public health. These were discussed earlier in Section 8.6.1 in the
previous chapter on the respect of freedom of establishment. One interesting example
of the application of the public policy derogation in the context of the provision of
services is Omega Spielhallen- und Automatenaufstellungs-GmbH v
Oberbürgermeisterin der Bundesstadt Bonn (Case C-36/02) [2004] ECR I-9609. This
involved a ban by the Bonn police authority in Germany on Omega using its
‘laserdrome’ for the purpose of ‘laser sport’ games. These games involved players
attempting to shoot each other with infra-red laser guns. Hits were recorded by sensors
in jackets that they wore. The German authorities sought to justify this on the ground of
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public policy. The Court of Justice held that public policy may be relied on only if there
is a genuine and sufficiently serious threat to a fundamental interest of society. It
accepted that the ban was justifiable on this ground. The commercial exploitation of
such games was a threat to public policy as they involved the simulated killing of
human beings which infringed the fundamental right to human dignity. The protection of
that right was a fundamental interest of society. The ban was proportionate because
other variants of the game which did not involve firing on human beings were not
prohibited.
For examples of the application of the public health derogation, see Section 9.8.2
below on health care.
9.6.2 Imperative reasons

Further grounds for justifying restrictions on the freedom to provide services have also
been developed by the Court of Justice. These have evolved from the decision of the
Court of Justice in van Binsbergen v Bestuur van de Bedrijfsvereniging voor de
Metaalnijverheid (Case 33/74) [1974] ECR 1299. It will be recalled that this case
concerned a Dutch requirement that only persons established in the Netherlands could
act as legal representatives or advisors there. The Court of Justice held that such a
requirement would deprive Article 56 of all useful effect and so was incompatible with
that article. However, it went on to qualify this by holding that the restriction would not
be incompatible with Article 56 where its purpose was the application and enforcement
of rules of professional conduct which were justified by the general good and which
were binding on any person established in that State, that is to say which were
indistinctly applicable. On the facts, it concluded that the residence requirement could
not be justified on this basis.
The conditions under which a restriction can be justified were further developed over
subsequent cases. For example in Commission v Germany (Insurance Services) (Case
205/84) [1986] ECR 3755, the Court of Justice reiterated that the freedom to provide
services may be restricted only by provisions which are justified by the general good
and which are applied to all persons within the State. It held that the requirement that
undertakings providing insurance in West Germany must be established in West
Germany and authorised by the West German authorities was capable of being
justified where there are imperative reasons relating to the public interest so long as
that public interest is not already protected by the rules of the Member State in which
the insurance undertaking is established and that the same result cannot be obtained
by less restrictive rules. On the facts, the Court held that the requirement that the
agents and intermediaries had to be established in West Germany could not be
justified on the ground that it made it possible to supervise their activities as West
Germany had failed to demonstrate that supervision of the insurance services could not
be carried out without the requirement of establishment. However, the requirement that
agents and other intermediaries be authorised was potentially justifiable to protect
policyholders, provided that the legislative requirements did not go beyond what was
necessary to achieve that aim.
Finally, in Säger v Dennemeyer & Co Ltd (Case 76/90) [1991] ECR 421, the Court of
Justice went on to hold that national measures could only restrict the freedom to
provide services if they satisfy the following conditions:
 They apply to all persons or undertakings pursuing an activity in the State of
destination (i.e. they must be indistinctly applicable);
 They are justified by imperative reasons in the general interest;
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 They are objectively necessary so as to ensure compliance with professional

rules and to protect the recipients of services; and
 They do not exceed what is necessary to attain these objectives.
The last two conditions set out by the Court here embody the requirements of
proportionality. On the facts, the Court of Justice decided that German legislation
making the monitoring of patent renewals subject to a licence was unjustified. It went
beyond what was necessary to protect recipients of the service as the monitoring of
patent renewals by means of a computerisation system, alerting patent holders when
they were due and paying for the renewal were straightforward tasks which did not call
for specific professional aptitudes. The licence requirement was a breach of Article 56.
The approach of the Court of Justice in Säger is essentially the same approach as that
taken in relation to indistinctly applicable restrictions for the other fundamental
freedoms such as the freedom of establishment under Article 49 TFEU, the freedom of
access to the employment market for workers under Article 45 TFEU and the free
movement of goods under Article 34 TFEU (see respectively Gebhard Consiglio
dell’Ordine degli Avvocati e Procuratori di Milano (Case C-55/94) [1995] ECR I-4165
(discussed earlier in Section 8.6.2), Union Royal Belge des Sociétés de Football
Association ASBL v Jean Marc Bosman (Case C-415/93) [1995] ECR I-4921
(discussed in Section 7.7.1.3) and Rewe-Zentrale AG v Bundesmonopolverwaltung für
Branntwein (Case 120/78) [1979] ECR 649 (‘Cassis de Dijon’) (discussed in Section
6.4)). Indeed, the Court of Justice is increasingly describing imperative reasons as
‘overriding reasons relating to the public interest’, just as it has been doing in respect of
the grounds it has developed to justify indistinctly applicable restrictions to these other
freedoms.
There have been a number of subsequent cases where a Member State has
successfully justified a national rule which restricted the freedom to provide services.
One example is Her Majesty’s Customs and Excise v Schindler (Case C-275/92) [1994]
ECR I-1039. British authorities confiscated material promoting a lottery organised by
four German regional governments and prosecuted the Schindlers who were agents of
the lottery. Under British law, it was a crime for anyone to be involved in organising or
promoting lotteries which were not part of the national lottery. Schindlers argued that
this breached their freedom to provide services. However, British legislation was not
found to be in breach Article 56 as considerations such as the high risk of fraud and the
general tendency of all Member States to restrict gambling to protect the consumer
made the law justifiable. Another example is Deliège v Ligue Francophone de Judo et
Disciplines Associées ASBL (Cases C-51/96 and C-191/97) [2000] ECR I-2549. Here,
the Court of Justice upheld the rules of the European Judo Federation governing the
selection by national judo federations for international judo competitions and laying
down quotas for the number of competitors from each national federation. The Court
accepted that the selection rules inevitably had the effect of limiting the number of
participants in a tournament but it held that such a limitation was inherent in the
conduct of an international high-level sports event which necessarily involves certain
selection rules or criteria being adopted. The decision not to select Deliège was not
based on her nationality and nationals from other Member States were also able to
take part in the competitions.
Finally, it should be noted that, as Commission v Germany (Insurance Services) (Case
205/84) [1986] ECR 3755 indicated above, the Court of Justice will take into account
whether or not the relevant public interest is already protected by the rules of the
service provider’s own Member State in determining whether or not the restriction by
the host Member State in which it is providing the service is justified by an imperative
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reason. This prevents the service provider from being subject to the dual burden of
having to comply with measures in both Member States which are designed to achieve
the same public interest objective. An example of this is provided by Guiot (Case
C-272/94) [1996] ECR I-1905. Guiot was the managing director of a Luxembourg
company. He and the company were being prosecuted in Belgium for failing to pay
employer’s social security contributions towards bad weather and loyalty stamps
required by Belgian legislation in respect of four workers employed by the company in
Belgium. The Court of Justice held that this was an unjustified restriction as the
company was already liable to pay contributions for the same workers under legislation
in Luxembourg, notwithstanding that these workers had been temporarily sent to work
in Belgium. The requirement to pay a contribution in Belgium in addition to that it
already had to pay in Luxembourg imposed an additional financial burden on the
company and thereby placed it at a competitive disadvantage compared to Belgian
service providers. While there were technical differences between the schemes, the
Luxembourg scheme already covered the same risks and had similar, if not identical,
purposes to that in Belgium, namely to protect workers in the construction industry
against the risk of loss of remuneration because of the suspension of the work due to
bad weather and to reward their loyalty to the sector in question. As a result, the
Belgium legal requirement was not necessary to protect the workers as the scheme in
Luxembourg already did this.
9.7 What further rights are granted by Article 56 TFEU?

9.7.1 Right to move and reside to provide services
The right for a service provider to move to another Member State and to reside there in
order to provide services is embodied in Article 57 TFEU itself. As has been noted
earlier, this permits the person providing a service to pursue his activity on a temporary
basis in the Member State where the service is provided. Detailed rules are now
provided by Directive 2004/38 which has already been considered in Section 7.6 in
respect of the free movement of persons and Section 8.8.1 in respect of freedom of
establishment. It will be recalled that Article 6 of the Directive provides a general right
for a Union citizen and his family members to remain for three months whilst Article 7
permits them to reside for longer if they fall within certain categories. One of these
categories is if the Union citizen is self-employed.
The Court of Justice has also held in Rush Portuguesa Ldª v Office National
d'Immigration (Case C-113/89) [1990] ECR I-1417 that the freedom to provide services
includes the right for a service provider to bring its own workforce to the host Member
State for the period that the service is provided. This is now governed by Directive
96/71 (the ‘Posted Workers Directive’).
9.7.2 Right to move and reside to receive services

The freedom to provide services includes the freedom to receive those services. This
flows from the decision of the Court of Justice in van Binsbergen which, it will be
recalled, held that a rule which prevented a litigant from being represented by his
chosen lawyer was prohibited by Article 56 TFEU. The freedom also extends further to
include the freedom to travel to another Member State to receive those services. This
is the principle from Luisi and Carbone v Ministero del Tesoro (Joined Cases 286/82
and 26/83) [1984] ECR 377. Luisi and Carbone were prosecuted for exceeding the limit
on the amount of foreign currency which could be taken out of Italy. Luisi maintained
that she had exported the currency in order to visit France and West Germany as a
tourist and to receive medical treatment. Carbone maintained that his foreign currency
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had been used for a three month stay in West Germany as a tourist. Article 56 TFEU
makes no reference to recipients of services. Nevertheless, the Court of Justice held
that, in order to enable services to be provided, the recipients of services had the right
to go to another Member State without restriction in order to receive a service there.
This was a necessary corollary of the freedom to provide services. Such recipients
included tourists, people receiving medical treatment and people travelling for the
purpose of education or business. Evidently, Directive 2004/38 is now also applicable
where a Union citizen and his family members move to another Member State to
receive services.
9.7.3 Social rights

The Court of Justice has used a broad interpretation of Article 56 so as entitle a service
provider to access certain social rights on the same basis as nationals of the host
Member State. One example is Commission v Italy (Italian Housing) (Case 63/86)
[1988] ECR 29. This case has already been discussed earlier in relation to freedom of
establishment. It will be recalled that it involved Italian legislation which allowed only
Italian nationals to purchase or lease social housing and to obtain a reduced rate
mortgages. This was held to be a breach not only of Article 49 but also of Article 56.
The Court found that Articles 49 and 56 were an extension of the non-discrimination
principle in Article 18. Self-employed persons in Italy who were from other Member
States were entitled to social housing and the reduced rate mortgages on the same
basis as Italian nationals. The Court did acknowledge in its judgment that in most
cases a service provider would still not satisfy the other conditions under the Italian
legislation for social housing.
Much the same conclusion was reached by the Court in Cowan v Tresor Public (Case
186/87) [1989] ECR 195 in respect of a person who was receiving services. Cowan
was on holiday in Paris when he was mugged coming out of a metro station. As his
attackers could not be identified, he applied for compensation from public funds but this
was refused on the ground that compensation was only available for French nationals
or foreign nationals who were holders of a residence permit in France. The Court of
Justice observed that it had earlier decided in Luisi and Carbone that Article 56
guarantees the freedom to travel to another Member State to receive tourist services
there. It held that the protection of that person from harm in the Member State was a
corollary of that freedom. The refusal to award Cowan compensation was
discriminatory, contrary to Article 18, as French nationals did not have to be resident in
France in order to be eligible for the compensation.
9.8 Public Services

9.8.1 Education as a service
The question of whether or not state education could constitute a service under Article
56 TFEU was determined in Belgium v Humbel (Case 263/86) [1988] ECR 5365. Mr
and Mrs Humbel and their son were French nationals who lived in Luxembourg. They
were charged a fee, called the minerval, for the education provided to their son for an
academic year at a school in Belgium. That year was considered to be part of general
secondary education rather than a vocational course for which the minerval was not
charged. Belgian students were not charged the fee. The Humbels refused to pay the
fee and argued that it restricted their right to receive services under Article 56. The
Court of Justice held that courses provided within a national education system do not
constitute a service in return for remuneration. This was because the State provides a
national education system as part of its general duty towards its citizens, not as part of
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a commercial transaction. Moreover, the education system in question was State-

funded and not funded privately by parents or pupils. This reasoning was subsequently
applied by the Court of Justice in Wirth v Landeshaupstadt Hannover (Case C-109/92)
ECR I-6447 to higher education. The case involved the denial by German authorities of
an education grant by a German national to a study a course in jazz saxophone at an
Arts college in the Netherlands. The Court of Justice held that state-funded higher
education did not fall within Article 56. However, in the course of its judgment, the
Court did express the view that higher education establishments which are financed
essentially out of private funds, in particular by students or their parents, and which
seek to make an economic profit can constitute services within the meaning of Article
56 TFEU.
The approach of the Court of Justice to education under Article 56 TFEU in Humbel
and Wirth should be compared and contrasted with its decision in Gravier v City of
Liege (Case 293/83) [1985] ECR 593 which has been considered earlier in relation to
the free movement of persons. It will be recalled that this case also concerned the
charge of the minerval fee to non-Belgian nationals but the Court held that there was a
right of equal access to vocational training provided by the Member State even though
the Treaty made no reference to equal access to education.
9.8.2 Health care as a service
9.8.2.1 Initial recognition of health care as a service

The Court of Justice has held that Article 56 is engaged when the national of one
Member State goes to another Member State to receive medical treatment which that
person pays for (see Luisi and Carbone and Grogan which were both discussed
above). One side effect of this development is that the nationals who avail themselves
of the right to receive treatment in another Member State may seek to have the cost of
that treatment reimbursed by the relevant body responsible for funding health care in
their home Member State. If a sufficient volume of people does this, the phenomenon
can have serious consequences for health care budgets and long term planning within
the health care system of that State. Member States have long sought to control this
risk by imposing requirements of prior authorisation for treatment abroad before they
will reimburse a person for that treatment.
This issue arose in Kohll v Union des Caisses de Maladie (Case C-158/96) [1998] ECR
I-1931 which concerned the health care system in Luxembourg. This was based on a
scheme under which sickness insurance was paid to the Union des Caisses de
Maladie (‘UCM’) by employees and employers. Patients then had to pay to see a
doctor or dentist but would be reimbursed by the UCM upon production of a receipt.
Under Luxembourg law, an insured person who wanted to obtain medical treatment in
another Member State had to receive prior authorisation from the UCM for the cost to
be reimbursed. Mr Kohll had been refused authorisation for his daughter to have
orthodontic treatment in Germany on the grounds that it was not urgent and that
treatment could be received in Luxembourg.
The Court of Justice recognised that, in principle, EU law allows Member States to
organise their own social security systems. But it held that they must abide by EU law
when exercising those powers. Just because the issue concerned the social security
system of a Member State did not preclude the application of Article 56. Whilst
Luxembourg law did not deprive insured persons of the possibility of approaching a
provider of services in another Member State, it did deter them from doing so by
making the reimbursement of the costs incurred in that Member State subject to prior
authorisation. This was a barrier to the freedom to provide services. Two justifications
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for this restriction were advanced before the Court. First, the UCM and the
Governments of various Member States sought to justify the requirement of prior
authorisation by arguing that it constituted the only effective and least restrictive means
of controlling expenditure on health and balancing the budget of the social security
system. The Court of Justice responded to this by holding that, whilst aims of a purely
economic nature cannot justify a barrier to the freedom to provide services, the risk of
seriously undermining the financial balance of the social security system may constitute
an overriding imperative reason capable of justifying a barrier of that kind. However, it
found that, in this case, reimbursement would have had no significant effect on the
financing of the social security system as Mr Kohll had asked to be reimbursed at the
rate applied in Luxembourg.
The second justification advanced before the Court relied upon the public health
derogation under Article 52 TFEU. It argued that the rules at issue in the case were
necessary to guarantee the quality of medical services in a balanced medical and
hospital service open to all insured persons. The Court of Justice accepted, in principle
that this could fall within the public health derogation in so far as the maintenance of a
treatment facility or medical service on national territory is essential for the public
health and even the survival of the population. But it found that no one had made any
observations to prove that the specific rules at issue were indeed necessary to provide
a balanced medical and hospital service accessible.
9.8.2.2 Extension of the doctrine to include Member States providing free
medical treatment
What about healthcare systems which provide medical treatment for free rather than
reimbursing the cost of such services? The Court of Justice dealt with this issue first in
Geraets-Smits and Peerbooms v Stichting Ziekenfonds VGZ (Case C-157/99) [2001]
ECR I-5473. Dutch law provided for a healthcare scheme based on a system of
agreements between sickness insurance funds and the providers of health care. In
contrast to the system in Luxembourg in Kohll, patients in the Netherlands received
free treatment with the insurance fund paying the health care provider directly.
However, a patient would have to obtain prior authorisation from their sickness
insurance fund if he wished to receive treatment from a health care provider which the
fund did not have an agreement with in the Netherlands or from a health care provider
abroad. Authorisation could only be granted if the proposed treatment was regarded as
normal in the professional circles concerned and it was necessary for the health care of
the person. Both of the applicants in this case had paid for their medical treatment
abroad without obtaining prior authorisation from their sickness insurance fund. The
fund refused to reimburse the claimants for the cost of their treatment. Both challenged
the rules as a restriction on the free provision of services.
The Court of Justice rejected arguments that the provision of hospital care could not
constitute an economic activity covered by Article 56, particularly where it is provided
free of charge under a sickness insurance scheme or the cost of it is reimbursed. It
ruled that payment for medical treatment by a sickness insurance fund was
consideration for a service and that a service did not have to be paid for by the party for
whom it is performed. In any event, the medical treatment at issue in this case had not
been provided under a sickness insurance scheme. The claimants had themselves
directly paid the medical establishments where they had received their treatment. The
Court then went on to reiterate that a requirement of prior authorisation was a
restriction because it deterred or prevented persons from using health care providers
established in another Member State. Finally, it considered whether the rules governing
prior-authorisation could be justified.
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The Court distilled three grounds from Kohll on which restrictions to the exercise of
freedom to provide services in the sphere of hospital treatment could be justified:
1. The possible risk of seriously undermining a social security system's financial
balance. This was an imperative reason.
2. The need to maintain a balanced medical and hospital service open to all. This
fell under Article 52’s public health derogation.
3. That the maintenance of treatment capacity or medical competence on national
territory is essential for the public health, and even the survival of the population.
This also fell under Article 52’s public health derogation.
In the light of these, the Court considered whether the prior authorisation rules at issue
in the case could be justified. First, it concluded that the prior authorisation requirement
itself could be justified as it was necessary to ensure that the planning required in order
to maintain a rationalised, stable, balanced and accessible supply of hospital services
was not undermined by people using hospitals with which their sickness insurance fund
had no contractual arrangements. Secondly, the condition that the proposed treatment
be regarded as normal in the professional circles concerned could also be justified so
long as normalcy was interpreted according to international standards and not solely
according to national medical views. Finally, the requirement that the proposed
treatment had to be necessary for the health care of the person in order for
authorisation to be granted could be justified but only where the same or an equally
effective treatment can be obtained without undue delay from a contracted health care
provider.
Arguably the Court of Justice went one step further in R (Watts) v Bedford Primary
Care Trust (Case C-372/04) [2006] ECR I-4325. This concerned the British National
Health Service in which, in contrast to both Knoll and Garaets-Smits, patients who are
ordinarily resident in the United Kingdom are entitled to free medical treatment paid for
directly by the State from general taxation. Mrs Watts, who suffered from severe
arthritis and was in constant pain, was on a year-long waiting list for surgery in the UK.
She wanted to go abroad to undergo surgery at an earlier date. The Primary Care Trust
refused to authorise this on the ground that the waiting list did not involve undue delay
as it was within the British Government’s NHS Plan targets. Nevertheless, she chose to
undergo a hip operation in France for which she paid £3,900.
The Court of Justice specifically declined to rule on whether the NHS itself was
providing a service for the purposes of Article 56, as it was not a relevant issue on the
facts. But it did hold that Article 56 TFEU applies where a patient receives medical
services for consideration in another Member State, regardless of the way in which the
national health care system with which she is registered operates. This made it clear
that the Article is applicable not only where a person seeks reimbursement under a
healthcare insurance scheme, as in Kohll and Garaets-Smits and Peerbooms, but also
where a person wants reimbursement from a free national health service funded out of
general taxation. The Court went on to hold that the requirement of prior-authorisation
was a restriction on the freedom to provide services but that this was capable, in
principle, of being justified for the reasons set out in Garaets-Smits and Peerbooms
relating to the need for planning. However, this was contingent on the restriction being
based on objective and non-discriminatory criteria which are known in advance so as to
ensure that it is not used arbitrarily. The Court found that the regulations which
governed the NHS in England and Wales did not provide such criteria for granting or
refusing the prior authorisation for reimbursing of the cost of hospital treatment
provided in another Member State. Moreover, it held that the Primary Care Trust
should not have based its decision simply on the basis of the waiting lists without
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making an objective medical assessment of the individual circumstances of Mrs Watts’

case.
However, the Court of Justice further held that the requirements arising from Article 56
TFEU:
‘are not to be interpreted as imposing on the Member States an obligation
to reimburse the cost of hospital treatment in other Member States without
reference to any budgetary consideration but, on the contrary, are based on
the need to balance the objective of the free movement of patients against
overriding national objectives relating to management of the available
hospital capacity, control of health expenditure and financial balance of
social security systems.’
The phenomenon of nationals going to other Member States for surgery, which might
involve a long stay in hospital, and then seeking reimbursement for their medical costs
has potentially serious consequences for the health services of all Member States. The
UK has argued that if the NHS is obliged to pay for these costs, it would direct money
away from services providing emergency medical care. Well aware of these objections,
the Court of Justice has acknowledged the possibility for Member States to justify
refusal of funding for treatment abroad on budgetary grounds. In Watts, the Court of
Justice held that the rights under Article 56 had to be balanced against the
considerations ‘relating to management of the available hospital capacity, control of
health expenditure and financial balance of social security systems’.
Directive 2011/24 now lays down rules for facilitating access to cross-border
healthcare. Chapter III of the Directive deals with the reimbursement of costs for cross
border health care.
9.8.3 Other public services

Other public services may also be governed by Article 56. For example, Commission v
Spain (Museum Entrance Fees) (Case C-45/93) [1994] concerned charges for entry to
museums in Spain. Spanish nationals were able to enter for free but foreigners were
only entitled to free admission if they resided in Spain or were under 21 years of age.
The Court of Justice held that Spain was in breach of Articles 18 (the prohibition
against discrimination) and 56 TFEU. It accepted the Commission’s argument that,
following Cowan, Article 56 guaranteed the right for tourists, as recipients of services,
to access those services under the same conditions as nationals. The fact that
museums are generally public services financed by the State, which was a significant
factor in Humbel, was not addressed by the Court.
9.9 The Services Directive

Directive 2006/123 is better known simply as the Services Directive. Article 1(1) of the
Directive declares that:
‘This Directive establishes general provisions facilitating the exercise of the
freedom of establishment for service providers and the free movement of
services, while maintaining a high quality of services.’
Its origins can be traced back to the European Council at Lisbon in 2000 which asked
the Commission to set out a strategy for the removal of the remaining barriers to
services. Part of the strategy adopted by the Commission in response involved an
investigation into the continuing existence of persistent barriers to the free movement
of services. The resulting report, entitled The State of the Internal Market for Services
COM(2002) 441, found that the barriers affecting service provision were more wide-
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ranging than expected and concluded that sweeping changes were needed to remove
these barriers in the near future. In 2003, the Commission proposed a Directive on
services in the internal market. This has come to be known as the ‘Bolkstein’ draft after
the Commissioner who introduced it. The proposal contained a variety of reforms. At its
heart lay a ‘country of origin’ principle which required Member States to ensure that
service providers would be subject only to the national provisions of their Member State
of origin. The Member State of origin would be responsible for supervising the provider
and the services provided by him, including services provided by him in another
Member State. The service provider would not be subject to regulation by the host
Member State unless the service was in an area which was excluded from the Directive
or the measure adopted by the host Member State related to the safety of services
including public health, to the exercise of a health profession or to the protection of
public policy including the protection of minors. The proposal made no mention of
Member States being able to justify restrictions on the basis of imperative reasons
where the country of origin principle governed, despite it specifically providing for
Member States to be able to impose restrictions in the context of other reforms
contained elsewhere within it if there was an overriding reason in the public interest. It
was evident from this that the proposed Directive was designed to sweep away the
ability of Member States to rely on imperative reasons to justify the imposition of
restrictions on service providers where the country of origin principle was engaged.
The proposed Directive proved hugely controversial. Critics of it feared that the country
of origin principle would enable service providers from Member States with more liberal
regulatory regimes in any particular sector to undermine the public service provision,
social systems and more stringent regulatory regimes of other Member States in that
sector. The proposed Directive was watered down by the European Parliament which
removed the country of origin principle. A revised proposal, known as the ‘McCreevy’
draft, was subsequently introduced by the new Commissioner responsible for the
internal market. This became the basis for Directive 2006/123 which was finally
adopted on 28 December 2006.
The Directive applies to services supplied by providers established in a Member State
(Article 2(1)) but excludes a wide range of subject matter and activities from its scope
(see Article 1(2) to (7), Article 2(2) and Article 17). It also does not apply where it
conflicts with EU legislation dealing with a specific service activity or profession (Article
3(1)). The central principle governing services is contained in Article 16(1) which states
that:
‘Member States shall respect the right of providers to provide services in a
Member State other than that in which they are established.
The Member State in which the service is provided shall ensure free access
to and free exercise of a service activity within its territory.’
That in itself appears consistent with the existing approach of the Court of Justice to
Article 56 TFEU. Articles 16(1) and 16(3) retain the ability of Member States to set their
own national rules restricting provision of services, their exercise and access to them
where the those rules are non-discriminatory, are necessary and are proportionate. In
order to be necessary, the restriction must be justified on the ground of public policy,
public security, public health or the protection of the environment. Article 16(3) adds
that the Member State to which the service provider moves will not be prevented from
applying its rules on employment conditions. Article 18 also enables the host Member
State to take measures relating to the safety of services so long as this will provide a
higher level of protection for the recipient than the measures already taken in the
Member State in which the service provider is established. However, it remains that
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case that, like the original Bolkstein draft, there is still no reference anywhere in these
articles to the other imperative reasons adopted by the Court of Justice in its case law,
despite restrictions on the basis of overriding reasons in the public interest being
specifically provided for in relation to other reforms contained elsewhere in the
Directive. Quite how the Court of Justice will respond to this is still not entirely clear.
Other reforms provided by the Directive include requirements for Member States to
simplify administrative procedures for service providers (Chapter II) and to co-operate
and provide each other with mutual assistance in order to ensure the supervision of
service providers and the services they provide (Chapter VI). The freedom of
establishment for service providers is addressed by Chapter III whilst Chapter V
addresses the quality of services provided.
9.10 Professional qualifications

An overview of the principles developed by the Court of Justice to govern the mutual
recognition of professional qualifications has been provided in the previous chapter
(see Section 8.9.) These are equally applicable to where the freedom to provide
services under Article 56 TFEU is at issue. Title II of Directive 2005/36 (which was
discussed in Section 8.9.1 of the previous chapter) now governs the recognition of
professional qualifications in respect of the free provision of services. While the
recognition of lawyers’ qualifications is covered by this directive, authorisation to
provide legal services is still regulated by Directive 77/249 (Lawyers Services
Directive).
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10
Competition Law I:
Article 101 TFEU
165
10.1 EU competition law

10.1.1 The aims of EU Competition law
One of the fundamental tasks of the EU was to establish a single internal market
(Article 3 TEU). To facilitate the establishment of the market, the EU is required to
engage in certain activities. One of these is ‘the establishing of the competition rules
necessary for the functioning of the internal market’ (Article 3(1)(b) TFEU).
EU competition law has two basic and complementary aims. First, it aims to promote a
competitive market economy. Second, EU competition law aims to prevent barriers to
the integration of the single, internal market. Over many centuries, European countries
have developed successful national market-based economies. With the creation of the
internal market, the aim is to reproduce, on a Union scale, the conditions that exist in a
national market. If a market works efficiently and effectively, it becomes impossible to
maintain artificially high or low prices in different parts of the market because goods will
flow freely from the low-priced areas to the high-priced areas and prices will level out.
In relation to the EU and subject to transport costs, if the market is working effectively,
then the cost of a product should be broadly the same whether the product is, for
example, purchased in London, Madrid or Berlin. In this context, different areas of EU
law may operate to complement one another. For example, the free movement of
goods seeks to prevent barriers to trade being maintained by Member States and EU
competition law seeks to prevent such barriers being re-erected by private agreements
and other prohibited actions such as price-fixing or a carve-up of the market by a group
of major companies. Thus, EU law on the free movement of goods and EU competition
law are seen as two sides of the same coin preventing the distortion of the internal
market by either the Member States or private enterprises.
10.1.2 The Function of the Commission

The Commission plays a central role in EU competition law. It not only initiates policy
and legislative proposals on competition matters but it also administers and enforces
EU competition law. It is responsible for fact-finding and for taking action for
infringements of EU competition law. It can impose fines and penalties on individuals,
companies and other undertakings in breach of this law. These may be challenged by
way of judicial review in an action for annulment before the General Court and the
Court of Justice of the EU. (On actions for annulment, see Section A2.3 in Appendix 2).
Under Regulation 1/2003, the National Competition Authorities of Member States and
national courts are also now responsible for enforcing EU competition law. This is
discussed below (see Section 10.9 below).
10.1.3 The main sources of EU competition law

The primary legislation dealing with the prevention of distortion in the market is set out
in Articles 101 to 109 TFEU. The secondary legislation is set out in a number of
regulations, such as Regulation 1/2003.
In this course, we will concentrate on the following:
 Primary legislation
Article 101 TFEU prohibits anti-competitive collusion between individuals,
companies and other undertakings.
Article 102 TFEU prohibits the abuse of a dominant position within a market.
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Competition Law I: Article 101 TFEU
 Secondary legislation
Regulation 1/2003 (the ‘modernisation regulation’) is concerned with the
processes of enforcement of Articles 101 and 102.
Regulation 330/2010 grants block exemptions for ‘vertical’ agreements which
would otherwise breach Article 101 TFEU.
The General Court and the Court of Justice have also developed principles as they
have reviewed the decisions of the Commission and through their answers to
preliminary references from national courts.
This chapter will examine Article 101 TFEU in detail. Article 102 TFEU will be
examined in the next chapter.
10.2 Article 101 TFEU

10.2.1 The purpose and content of Article 101 TFEU
The purpose of Article 101 is to protect the normal competitive working of the single
market. It attempts to do so by prohibiting all agreements between undertakings,
decisions by associations of undertakings and concerted practices which may affect
trade between Member States and which have as their object or effect the prevention,
restriction or distortion of competition within the single market.
‘1. The following shall be prohibited as incompatible with the internal
market: all agreements between undertakings, decisions by
associations of undertakings and concerted practices which may
affect trade between Member States and which have as their object
or effect the prevention, restriction or distortion of competition within
the internal market, and in particular those which:
(a) Directly or indirectly fix purchase or selling prices or any other
trading conditions;
(b) Limit or control production, markets, technical development, or
investment;
(c) Share markets or sources of supply;
(d) Apply dissimilar conditions to equivalent transactions with other
trading parties, thereby placing them at a competitive
disadvantage;
(e) Make the conclusion of contracts subject to acceptance by the
other parties of supplementary obligations which, by their nature
or according to commercial usage, have no connection with the
subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall
be automatically void.
3. The provisions of paragraph 1 may, however, be declared
inapplicable in the case of:
 Any agreement or category of agreements between
undertakings,
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 Any decision or category of decisions by associations of

undertakings,
 Any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods
or to promoting technical or economic progress, while allowing
consumers a fair share of the resulting benefit, and which does not:
(a) Impose on the undertakings concerned restrictions which are
not indispensable to the attainment of these objectives;
(b) Afford such undertakings the possibility of eliminating
competition in respect of a substantial part of the products in
question.’
10.2.2 The general structure of Article 101 TFEU

As can be seen, Article 101 is divided into three paragraphs, each dealing with
separate matters:
 Article 101(1) prohibits anti-competitive agreements and concerted practices by
undertakings and decisions by associations of undertakings.
 Article 101(2) sets out the legal effect of the prohibition: any agreement or
decision in breach of Article 101(1) is automatically void. This Article has
retrospective effect so that an agreement or decision that is already in operation
and is found to breach Article 101(1) is void.
 Article 101(3) provides that Article 101(1) is not applicable if agreements,
decisions or concerted practices have certain pro-competitive effects. An
agreement, decision or concerted practice which would infringe Article 101(1) will
nevertheless be held to be lawful if it satisfies the conditions in Article 101(3).
Each of these paragraphs will be examined in turn. But first, the concept of an
undertaking will be discussed.
10.3 What are undertakings?

Article 101 only applies to ‘undertakings’. The courts of the EU often interpret terms
broadly and the term ‘undertaking’ is no exception. In Hofner & Else v Macroton GmbH
(Case C-41/90) [1991] ECR I-1979, the Court of Justice held that:
‘…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 and, secondly, that employment procurement is an
economic activity’.
Examples of undertakings for the purposes of EU competition law include individuals,
limited companies (even if based or incorporated outside the EU), partnerships, trade
associations, the professions, non-profit-making organisations and state organisations
which carry on economic or commercial activities. Thus, in Hofner & Else itself, the
Court of Justice held that a public employment agency engaged in the business of
employment procurement may be classified as an undertaking for the purpose of
applying EU competition rules, albeit those in Article 102 TFEU. Undertakings can even
include organisations that lack a profit motive. An example of this can be found in
Motosykletistiki Omospondia Ellados NPID (MOTOE) v Elliniko Dimosio (Case
C-49/07) [2008] ECR 4863, albeit that this was another case dealing with Article 102
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TFEU rather than Article 101. ELPA was a non-profit making body having sole public
power to grant the authorisation of motorcycle events in Greece. It also organised such
events for itself from which it gained money from sponsorship, advertising and
insurance contracts. ELPA refused to grant authorisation of a rival organisation’s event.
The Grand Chamber of the Court of Justice held that to use its public powers to do this
amounted to an abuse of dominance under Article 102. It stated that ELPA was an
undertaking because it was engaged in an economic activity and this was irrespective
of ELPA’s legal form and the way it was financed. The fact that it was non profit-making
was also irrelevant as it still competed with other operators who sought to make a
profit. In such a context, its public powers gave it such an obvious advantage over
them that the refusal of authorisation amounted to an abuse contrary to Article 102.
However, the Court of Justice has also made it clear that an entity will not be
considered to be an undertaking where it is exercising the official authority of the State.
An example of this is provided by Diego Calì & Figli Srl v Servizi Ecologici Porto di
Genova SpA (SEPG) (Case C-343/95) [1997] ECR I-1547, albeit that this is yet another
case which was dealing with Article 102 instead of Article 101. It concerned a company
which had been given an exclusive concession by a port authority to perform an anti-
pollution surveillance service at an oil port. This entailed monitoring the waters there for
spillages of oil or other pollutants and taking action to remove or neutralise such
spillages. The company was authorised to charge vessels using the port at tariffs
approved by the port authority. The levying of these charges was challenged on the
basis of Article 102 TFEU. The Court of Justice held that situations in which an entity
acts in the exercise of official authority had to be distinguished from those in which it
carries on economic activities of an industrial or commercial nature by offering goods or
services on the market. On the facts, the Court of Justice treated the company as, in
effect, performing a regulatory function on behalf of the State. It held that the company
had been granted the exclusive concession by a public body to perform a task in the
public interest which forms part of the essential functions of the State as regards
protection of the environment in maritime areas. This activity was connected, by reason
of its nature, its aim and the rules to which it was subject, with the exercise of powers
which are typically those of a public authority. The levying of charges was an integral
part of the activity. It was not an economic activity of an industrial or commercial nature
in which its services were being offered on the market and so Article 102 was not
applicable.
10.4 Article 101(1) TFEU – three essential elements

Article 101(1) contains three elements, each of which needs to be satisfied before the
prohibition takes effect.
(i) There must be some sort of collusion (i.e. a meeting of minds) between two or
more undertakings in the form of an agreement or a concerted practice or a
decision by an association of undertakings.
(ii) Any agreement, decision or practice must have an actual or potential effect on
trade between Member States.
(iii) Any agreement, decision or practice must have as its object or effect the
prevention, restriction or distortion of competition within the single market.
The way in which Article 101(1) has been drafted creates two basic problems for EU
competition authorities. First, it has been drafted and interpreted so widely that it has
the potential to catch a wide variety of contracts as contracts usually contain some type
of restraint on at least one of the parties. Secondly, contracts and agreements are often
complex and may contain some clauses that increase competition and others that
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restrict it. The interpretation of Article 101(1) and Article 101 (3) involves balancing
such factors and studying the relevant market closely before it can be determined
whether a contract or agreement actually infringes Article 101.
10.5 Agreements, decisions and concerted practices

As stated above, Article 101(1) identifies three forms of collusion that are described as
incompatible with the internal market when they prevent, restrict or distort competition.
They are:
 Agreements between undertakings;
 Decisions by associations of undertakings; and
 Concerted practices.
These three forms of collusion were included in order to catch as many different
collusive arrangements and practices as possible. In interpreting Article 101(1), it is not
necessary for the Commission to identify precisely which form of collusion exists before
deciding that a breach of Article 101(1) has taken place. The collusion might involve a
formal contract or an informal agreement or arrangement. The important distinction is
between non-collusive or independent behaviour, which is lawful, and collusive
behaviour which is unlawful under Article 101.
The Court of Justice confirmed this point in Commission v ANIC Partecipazioni SpA
(Case C-49/92P) [1999] ECR I-4125. In this case, the Court held that ANIC’s conduct
manifested both an unlawful agreement and a concerted practice. The Court stated
that it was unnecessary to establish into which category the behaviour fell. Article 101
distinguishes between these types of agreements and concerted practices only to
widen the net. Contact between undertakings (either direct or indirect) which has the
object or effect of influencing the conduct of a competitor is what is precluded by Article
101. A concerted practice implies conduct pursuant to a collusive agreement.
10.5.1 Agreements between undertakings

Legally binding agreements such as distribution, franchise and service agreements
may evidently fall within Article 101. The term ‘agreement’ is not limited to formal
written legal contracts but has been interpreted widely. It includes oral agreements
(Tepea v Commission [1978] ECR 1391). It also includes less formal agreements such
as so-called ‘gentlemen’s agreements’ or agreements considered to be morally binding
only. In Hercules Chemicals NV v Commission (Case T-7/89) [1991] ECR II-1711, the
General Court held that:
‘[I]t is sufficient if the undertakings … have expressed their joint intention to
conduct themselves on the market in a specific way’.
Any agreement must be between at least two undertakings as the concept of an
agreement centres on the existence of a concurrence of wills between at least two
parties. Unilateral behaviour or conduct by one undertaking only will generally not be
found to amount to an agreement under Article 101(1). This is illustrated by Bayer AG v
Commission (Case T-41/96) [2000] ECR II-3383. Bayer AG manufactured a range of
medicines under the trade name Adalat which were designed to treat cardio-vascular
disease. In most Member States, the price was fixed by national health authorities. At
the relevant time, the prices fixed by French and Spanish national health authorities
were on average 40% lower than those in the United Kingdom. Because of this, French
and Spanish wholesalers began to export Adalat to the United Kingdom. This resulted
in sales by Bayer’s British subsidiary falling by almost a half. Bayer AG responded by
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imposing an export ban through its French and Spanish subsidiaries on the French and
Spanish wholesalers. The Commission decided that the wholesalers had acquiesced in
this and that their acquiescence resulted in an agreement between the subsidiaries and
the wholesalers. The General Court disagreed. It held that the conduct of the
wholesalers did not constitute sufficient proof that they had acquiesced in the export
ban. Indeed, their conduct demonstrated precisely the opposite. Moreover, the
Commission could not legitimately regard an agreement between the wholesalers and
the manufacturer as being established on the basis of the mere finding that pre-existing
commercial relations between the wholesalers and the subsidiaries continued. The
General Court’s decision was upheld by the Court of Justice (Commission v Bayer AG
(Joined Cases C-2/01 P and C-3/01 P) [2004] ECR I-23).
Nevertheless, conduct which, at first glance, appears to be unilateral may still be found
by the EU courts to amount to an agreement where, for example, one party tacitly
acquiesces to practices and measures adopted by another. For example, in AC
Treuhand AG v Commission (Case T-99/04) [2008] II-01501, a consultancy firm which
contributed actively and intentionally to a cartel between organic peroxide producers by
storing secret documents, collecting and distributing commercial information amongst
the members, organising meetings and reimbursing expenses so as to conceal the
cartel. It was held to have participated in the cartel’s agreement even though it was not
an actual party to the written agreement between the members of the cartel and it was
not operating in the same market as the cartel. It was enough that the claimant actively
contributed to the cartel and that there was a sufficiently definite and decisive causal
link between the activity and the restriction of competition on the peroxide market.
10.5.2 Decisions by associations of undertakings

It is common in many industries for those in the industry to belong to a trade
association that acts on behalf of its members. The trade association may undertake
such activities as promotional campaigns, public education, market research and the
setting of standards. The term ‘associations of undertakings’ mainly concerns such
trade associations, but it can also include other types of organisations such as
co-operatives. Formal decisions that are approved by the members of a trade
association may fall within the ambit of Article 101(1). For example, if a trade
association adopts a price list or sets minimum prices at which products must be sold,
these decisions would be likely to be prohibited under Article 101(1). In addition,
non-binding recommendations made by a trade association to its members have also
been found to be ‘decisions’ and to fall within the ambit of Article 101(1). Thus, in
Vereniging van Cementhandelaren v Commission (Case 8/72) [1972] ECR 977, the
Court of Justice held that a system of guide or ‘target’ prices adopted by a trade
association for cement wholesalers in the Netherlands was prohibited by Article 101
TFEU, notwithstanding the association’s contention that its members remained free to
calculate their own prices for individual transactions. The Court of Justice’s approach to
recommendations was addressed more directly in NV IAZ International Belgium v
Commission (ANSEAU-NAVEWA Conformity Label) (Joined Cases 96-102, 104, 105,
108 and 110/82) [1983] ECR 3369 in which the Court held that:
‘Article [101](1) of the treaty applies also to associations of undertakings in
so far as their own activities or those of the undertakings affiliated to them
are calculated to produce the results which it aims to suppress … [A]
recommendation, even if it has no binding effect, cannot escape Article
[101](1) where compliance with the recommendation by the undertakings to
which it is addressed has an appreciable influence on competition in the
market in question.’
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In this case, a trade association for water suppliers was held to have breached Article
101 by entering into an agreement with certain other organisations to establish a
system of conformity checks and labels for washing machines and dishwashers which
was found to have the effect of making imports of washing machines and dishwashers
into Belgium impossible or very difficult. The Court of Justice rejected the association’s
argument that it was only empowered to advise its members to take account of the
terms and purpose of the agreement and to inform their consumers thereof. It held that
the recommendation of the trade association had produced a situation in which water
supply undertakings were carrying out checks to determine whether machines
connected to the water supply system were provided with a conformity label. This was
exerting an appreciable influence on competition.
10.5.3 Concerted practices

The term ‘concerted practice’ in Article 101(1) is intended to catch those forms of
co-operation that do not amount to a formal oral or written agreement or, in the case of
an association of undertakings, to a decision. A concerted practice may be any
co-ordinated behaviour where there is little evidence of an agreement, other than the
suspicious behaviour itself. The behaviour may be strong evidence of a concerted
practice where it leads to market conditions that do not appear to be normal and
competitive.
In the ICI v Commission (‘Dyestuffs’) (Case 48/69) [1972] ECR 619, the Court of
Justice defined a ‘concerted practice’ as:
‘[A] form of coordination between undertakings which, without having
reached the stage where an agreement properly so-called has been
concluded, knowingly substitutes practical cooperation between them for
the risks of competition.’
Concerted practices need to be distinguished from parallel behaviour. Parallel
behaviour arises where one undertaking takes steps, such as raising or lowering its
prices, and the other undertakings respond by following suit. This is not unlawful so
long as it was not the result of cooperation between the parties. Parallel behaviour is a
common phenomenon in oligopolistic markets. These are markets which comprise a
limited number of undertakings, none of which are dominant. Competition between
them can be intense and they tend to follow each other’s behaviour very closely. It can
be difficult in these circumstances to determine whether the parallel behaviour was due
to cooperation between the parties or whether it was just the result of each of them
responding to the conduct of the other.
In identifying whether a concerted practice exists or may be inferred, the Commission
will look for evidence of meetings between undertakings which should be in competition
and of identical or very similar actions undertaken by them, particularly in relation to
pricing. Evidence may also be obtained if a company decides to cooperate with the
Commission or if documents are uncovered during an investigation, such as notes of
meetings or telephone conversations, file notes or exchanges of information. What the
Commission will look for is evidence that contact between competitors has the object of
influencing markets and removing risk, so that normal competitive forces in the market
do not operate. An example of such a case is the Dyestuffs case itself.
The Dyestuffs case arose from uniform increases in the prices of dyestuffs which had
been made by several undertakings in the EU within a very short time of each other on
three separate occasions. The Commission did not have evidence of any agreement or
a decision but decided that the competitors had been guilty of price-fixing through
concerted practices and fined them. In doing so, the Commission relied on evidence
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including the similarity of the rate and timing of price increases, the similarity of
instructions sent out by parent companies to their subsidiaries and the fact that there
had been informal contact between the firms concerned. ICI sought to have this
decision annulled by the Court of Justice. It attempted to justify its actions on the basis
that it was operating in an oligopolistic market and, because the market had so few
competitors, parallel pricing was inevitable.
The Court of Justice upheld the Commission’s decision. It found that there was a high
degree of coordination between the various producers. The Court observed that the
producers had raised their prices by similar amounts on three different occasions. The
rates of individual price increases were the same in all the relevant countries and,
generally, related to the same products. The price increases were put into effect on
almost the same day. The orders put out by a number of the producers contained very
similar wording and were sent out on the same day. The Court also had evidence that
producers attended meetings in Basel and London.
However, the Court of Justice has warned in A. Ahlström Oy v Commission (‘Wood
Pulp Cartel’) (Joined Cases 89, 104, 114, 116-117 and 125-129/85) [1993] ECR I-1307
against assuming too easily that parallel behaviour is the result of a concerted practice:
‘In determining the probative value of those different factors, it must be
noted that parallel conduct cannot be regarded as furnishing proof of
concertation unless concertation constitutes the only plausible explanation
for such conduct. It is necessary to bear in mind that, although Article [101]
of the Treaty prohibits any form of collusion which distorts competition, it
does not deprive economic operators of the right to adapt themselves
intelligently to the existing and anticipated conduct of their competitors.’
In this case, parallel pricing was not found by the Court of Justice to breach Article
101(1) TFEU as it was not the only plausible explanation for the parallel conduct and
could be explained as a normal feature of that market. This decision can be compared
to the Dyestuffs case where the Commission proved that the prices of the products
bore no relationship to either supply or demand and where the pricing adopted could
not be explained satisfactorily by the producers.
10.6 Effect on trade between Member States

In order to breach Article 101(1), an agreement, decision or concerted practice must
affect trade between Member States. The test as to whether an agreement satisfies
this condition was set out in Société Technique Minière v Maschinenbau Ulm GmbH
(Case 56/65) [1966] ECR 337 (the S.T.M. case). The Court of Justice stated that:
‘It must be possible to foresee with a sufficient degree of probability on the
basis of a set of objective factors of law or of fact that the agreement in
question may have an influence, direct or indirect, actual or potential, on
the pattern of trade between Member States.’
Accordingly, the mere potential to affect trade is sufficient. This is so even if an
undertaking operates only in one Member State as the agreement, decision or practice
may reinforce divisions in the single market along national lines.
The types of agreements which have been found to have an effect on inter-State trade
include contracts which prohibit distributors from selling goods other than in their own
national market or agreements whereby producers agree to protect each other’s
national markets. Even the effect of a number of small agreements, if taken collectively,
has been found to affect the single market. In Brasserie de Haecht SA v Wilkin-
Janssen (Case 23/67) [1967] ECR 407, the agreements were between a Belgian
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brewery and a café in Belgium. The agreements provided that the brewery would lend
the café equipment and money. In return, the café was to obtain supplies from the
brewery exclusively. The café was sued by the brewery for obtaining supplies from
elsewhere. In their defence, the café’s proprietors argued that the agreements
breached Article 101 TFEU. There were similar agreements between the brewery and
a large number of other customers, as well as between other Belgian breweries and
their customers, which prevented the customers from purchasing beer from other
Member States. On a preliminary reference from the Belgian court, the Court of Justice
held that agreements may combine to have a cumulative effect on competition and so
the existence of similar contracts was a consideration that could be taken into account.
An example of an agreement that had a direct effect on inter-State trade is found in
Établissements Consten SÀRL & Grundig-Verkaufs GmbH v Commission (Cases 56
and 58/64) [1966] ECR 299. The case dealt with an exclusive distribution agreement.
Under the agreement, Grundig, a manufacturer of electronic appliances such as
televisions and radios, appointed Consten as its sole distributor in France and granted
exclusive rights to its trademark in France. In return, Consten agreed not to re-export
the products to other Member States. Grundig also obtained similar assurances from
its other distributors in other Member States. The agreement set up a total ban on
parallel imports and exports, thereby providing absolute territorial protection. The
Commission found that the agreement breached Article 101 TFEU. An application to
annul the Commission’s decision was rejected by the Court of Justice. One of the
arguments made before the Court was that the Commission had failed to show that
trade would have been greater without the agreement in dispute. The Court held that
the agreement clearly placed limitations on the freedom of trade between Member
States.
It is important to note that any actual or potential effect on trade must be ‘appreciable’
and must not be ‘de minimis’ or insignificant. This defence will be discussed more fully
in Section 10.7.5 below.
10.7 The ‘object’ or ‘effect’ of prevention, restriction or

distortion of competition within the internal market
Article 101(1) prohibits agreements which have as their ‘object’ or ‘effect’ the
prevention, restriction or distortion of competition in the internal market. It provides a
non-exhaustive list of restrictions that are prohibited. This list is known colloquially as
the ‘black list’. It is also said to refer to ‘hardcore restrictions’. Before discussing this,
however, it is important to deal with two preliminary matters: (1) to what agreements
Article 101(1) applies, and (2) the meaning of ‘object’ and ‘effect’.
10.7.1 Article 101(1) applies to both horizontal and vertical agreements

Article 101(1) applies to all agreements, whether they are horizontal agreements or
vertical agreements.
 Horizontal agreements
These are agreements between undertakings at the same level of trade or industry.
Examples include an agreement between two or more manufacturers or between two
or more wholesalers of goods who compete with each other. Often, as they are
between rivals, such agreements will contain anti-competitive elements.
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 Vertical agreements
Vertical agreements are agreements between undertakings at different levels of trade
or industry, for example, those between a producer and a distributor or wholesaler.
Vertical agreements may confer benefits on the single market by facilitating a wider
distribution of goods throughout the EC and, as a result, are less likely to be anti-
competitive.
An example of a vertical agreement is found in Établissements Consten SÀRL &
Grundig-Verkaufs GmbH (Cases 56 and 58/64) [1966] ECR 299. It will be recalled that
this involved an agreement between a manufacturer and a distributor. The Court of
Justice rejected an argument that Article 101(1) only applies to horizontal agreements.
10.7.2 Meaning of ‘object’ and ‘effect’

From the wording of Article 101(1) TFEU, it is clear that the terms ‘object’ and ‘effect’
are alternative and not cumulative requirements for finding an infringement of Article
101(1). In the S.T.M. case, the Court of Justice stated that the words ‘object or effect’
were to be read disjunctively, so that it is first necessary to consider what is the object
of an agreement. Only if it is not established that the object of an agreement is to harm
competition, is it necessary to consider whether it might have the effect of doing so.
 Object
The ‘object’ of an agreement is determined by looking at an agreement’s purpose in the
economic context in which the agreement is to operate (the S.T.M. case). The
intentions of the parties may be relevant for determining this but it is not necessary for
them to be taken into account (GlaxoSmithKline Services Unlimited v Commission
(Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P) [2009] ECR
I-9291). Instead, the purpose is determined objectively. This follows from Competition
Authority v Beef Industry Development Society Ltd (Case C-209/07) [2008] ECR
I-8637. The case concerned a plan to address over-capacity in the beef processing
market by reducing the number of beef and veal processors. This was to be achieved
by agreements in which certain undertakings agreed to decommission their processing
plants and to stay out of the market in return for which they were to be compensated by
those undertakings which were to remain as processors. The Court of Justice held that,
in determining whether the object of an agreement was to restrict competition contrary
to Article 101(1), it was irrelevant that the parties may have acted without the subjective
intention of restricting competition or that the agreement pursues other legitimate
objectives. This was only relevant for Article 101(3). The object of the agreements in
this case was to encourage the withdrawal of competitors from the market so as to
reduce significantly the number of undertakings supplying processing services. That
was patently an anti-competitive object.
The Court of Justice has made it clear that there is no need to take into account the
actual effect of an agreement when determining whether that agreement is prohibited
by reason of its object (Établissements Consten SÀRL & Grundig-Verkaufs GmbH
(Cases 56 and 58/64) [1966] ECR 299). This follows from the distinction between
object and effect identified by the court in the STM case. Instead, an agreement will be
capable of being prohibited on the basis of its object where it is regarded by its very
nature as damaging competition (Beef Industry Development Society). As the
Commission explained in its Guidelines on the Application of Article 81(3)* of the Treaty
[2004] OJ C101/97:
* Article 81(3) EC became Article 101(3) TFEU under the Treaty of Lisbon.
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‘Restrictions of competition by object are those that by their very nature

have the potential of restricting competition. These are restrictions which in
light of the objectives pursued by the Community competition rules have
such a high potential of negative effects on competition that it is
unnecessary for the purposes of applying Article [101(1)] to demonstrate
any actual effects on the market.’
This has the virtue for the Commission of relieving it of the need to devote time and
resources to proving that an agreement prevents, restricts or distorts competition when
that agreement pursues a purpose that is evidently anti-competitive. However, if
pushed too far, there is the danger that the Commission will merely presume what it
needs to prove. For that reason, the Court of Justice has emphasised in Groupement
des Cartes Bancaires v Commission (Case C-67/13 P) [2014] ECR I-0000 that the
requirements for an infringement by object must be given a strict interpretation. An
infringement by object should only be found where it is of a type that is so likely to have
negative effects that there is no need to examine the actual effect of the agreement.
Examples of horizontal agreements which may be regarded as having as their object
the restriction of competition include agreements to fix prices, share markets, limit
production output, limit sales, exchange price information or for collective, exclusive
dealing. Examples of vertical agreements which may have as their object the restriction
of competition include agreements to fix minimum resale prices or to impose bans on
parallel imports or passive selling. A ban on parallel imports, for instance, operates to
prevent a distributor in one Member State buying a product from anyone other than
from the authorised dealer. Passive selling, instead, occurs where there is no active
marketing campaign or other promotional measures undertaken by a seller, that is to
say where the buyer seeks out the seller rather than the other way round.
 Effect
If the object of an agreement is not to restrict competition, it is necessary to prove that
the agreement would, in fact, have the effect of restricting competition. It can be an
onerous task to find evidence of this. It requires not only the full analysis of an
agreement but also the full analysis of the market in which the agreement is to operate.
Guidance as to how the effect should be assessed has been provided by the General
Court in European Night Services v Commission (Cases T-374, 375, 384 and 388/94)
[1998] ECR II-3141. The General Court held that:
‘[I]t must be borne in mind that in assessing an agreement under Article
[101(1)] of the Treaty, account should be taken of the actual conditions in
which it functions, in particular the economic context in which the
undertakings operate, the products or services covered by the agreement
and the actual structure of the market concerned … unless it is an
agreement containing obvious restrictions of competition such as price-
fixing, market-sharing or the control of outlets … In the latter case, such
restrictions may be weighed against their claimed pro-competitive effects
only in the context of Article [Article 101(3)] of the Treaty, with a view to
granting an exemption from the prohibition in Article [101(1) TFEU]’.
The identification of the relevant market within which the agreement operates can be
important here. This is examined in the next chapter. For present purposes, it will
suffice to say that the relevant market will consist of those products which are seen as
being interchangeable or substitutable from the perspective of consumers. These
would be the products which a consumer would consider buying if the product that he
or she wanted to buy were not available. This is known as demand substitution.
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10.7.3 Preventing, restricting or distorting competition

Article 101(1) sets out in paragraphs (a) to (e) a non-exhaustive list of restrictions that
are prohibited. They include agreements, decisions or practices which:
 Directly or indirectly fix purchase or selling prices (i.e. price-fixing).
Recommended prices are permitted so long as they are only recommended and
not enforced in any way. It also includes the fixing of any trading conditions.
Effectively, this prohibits export bans and bans on parallel imports.
 Subject to Article 101(3), limit or control production, markets, technical
development or investment.
 Share markets or sources of supply (i.e. agreements to share markets or sources
of supply between undertakings which should be rivals).
 Apply dissimilar conditions to equivalent transactions with other trading parties,
thereby placing them at a competitive disadvantage.
 Make the conclusion of a contract subject to acceptance by the other party of
supplementary obligations, which, by their nature or according to commercial
usage, have no connection with the subject of the contract (i.e. tie-in
arrangements).
Generally, if the pattern of competition at the relevant level of the market differs from
what it would have been had there been no agreement, decision or practice, the
Commission is likely to find that there is prevention, restriction or distortion of
competition. In determining whether there has been an infringement of Article 101(1),
the Commission does not have to prove or show that all three elements of Article
101(1) exist, that is to say prevention, restriction and distortion. It is sufficient that only
one of them is found.
10.7.4 The ‘rule of reason’ and ancillary restrictions

An agreement which contains significant anti-competitive elements may turn out on
balance to have an overall effect which is pro-competitive. For example, the
introduction of a new product into a market may involve considerable expense and
carry with it the risk that the product will not sell. An undertaking which is trying to break
into a new market may find that the only commercially effective way to do so is to enter
into an agreement with an undertaking already trading in that market who already has
the necessary facilities, contacts and knowledge of the market to be able to launch the
product successfully. In turn, the latter undertaking will also be taking a risk in
launching the product and so, to make it worthwhile, will want exclusive rights to sell
the product in the market in that territory. This type of agreement, called an exclusive
distribution agreement, will have clear anti-competitive elements because it prevents
other traders from selling the product in the same territory. Yet it may result in the new
product being available to more consumers in more Member States and to an overall
increase in trade. Therefore, its overall effect may be seen as pro-competitive.
This raises the question of whether or not agreements which contain anti-competitive
elements should be treated as preventing, restricting or distorting competition contrary
to Article 101(1) even where they are nevertheless capable of having an overall
positive effect on competition. That issue was addressed by the Court of Justice in
Société Technique Minière v Maschinenbau Ulm GmbH (Case 56/65) [1966] ECR 337
(the S.T.M. case). The case concerned a contract under which a German manufacturer
granted a French company exclusive rights to sell certain heavy machinery in France.
The manufacturer maintained that the objective of the agreement was to open up a
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new market and that, far from being a restriction on competition, this was pro-
competitive. The Court of Justice responded by opining that:
‘…it may be doubted whether there is an interference with competition if the
said agreement seems really necessary for the penetration of a new area
by an undertaking.’
A similar approach was later employed by the Court of Justice in other cases such as
Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis (Case 161/84)
[1986] ECR 353. This case involved a dispute in relation to a franchise agreement.
Schillgalis had a franchise from Pronuptia de Paris to sell that company’s wedding
clothing in three cities in West Germany. The franchise agreement obliged Pronuptia
de Paris, as the franchisor, to supply the clothing, to assist with the commercial aspects
of the Schilligallis’ business and not to open any other Pronuptia shops in the cities in
which the franchise operated. In return, Schilligallis, as the franchisee, undertook
obtain her supplies only from Pronuptia de Paris and from suppliers approved by
Pronuptia, to sell them only in the shops specified in the contract, not to move the shop
to a new location without the agreement of Pronuptia, to advertise only in the West
Germany and to refrain during the contract and for one year afterwards from competing
against any Pronuptia shop. The Court of Justice held that the compatibility of franchise
agreements depended on the provisions contained in them. Nevertheless, such
agreements generally enabled independent businessmen to have the chance of
establishing themselves in the market by using the trade mark of the franchisor and to
have access to commercial methods which they would not have otherwise acquired.
However, in order for this to function, the franchisor had to be able to communicate
their know-how and provide assistance without running the risk that this would aid its
competitors. It must also be able to protect its identity and reputation. The anti-
competitive restrictions in such agreements enabled the franchiser to be able to do this.
Without them, franchisor would not be willing to enter into such an agreement.
Consequently, such restrictions would fall within the prohibition in article 101(1) so long
as they were strictly necessary to achieve these objectives.
Such cases generated a debate about whether or not the Court of Justice had adopted
a ‘rule of reason’ approach. This entails the court weighing the anti-competitive effects
of an agreement against its pro-competitive effects. Where the pro-competitive effects
outweigh its anti-competitive effects, the court may decide that there has been no
infringement of Article 101 because the overall effect is not to prevent, restrict or distort
competition. The rule of reason approach to competition law had originally developed in
the USA. The US courts determined whether an arrangement breached American anti-
trust law by looking at the underlying reason or purpose behind anti-trust law. The
purpose of anti-trust law was to prohibit anti-competitive arrangements, not those which
actually promoted competition. Arrangements which promoted competition would be
allowed to operate.
The difficulty with employing a rule of reason approach in relation to Article 101 TFEU
is that it involves the Court of Justice weighing the pro-competitive and anti-competitive
effects of the agreement in the context of Article 101(1) whereas Article 101 itself
already specifically provided for this very exercise to be undertaken in Article 101(3).
Moreover, Article 101(3) lays down conditions to structure the exercise. Yet there was
a reason why the Court had been invited in S.T.M. to resolve this issue in the context of
Article 101(1) rather than Article 101(3). The problem which the German manufacturer
had faced was that the agreement had not been notified to the Commission. At that
time, an agreement could only benefit from an exemption under Article 101(3) TFEU if
it had been notified to the Commission and the Commission had decided that it
satisfied the conditions of Article 101(3) TFEU (see Section 10.8 below). The
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manufacturer was seeking to circumvent this problem by inviting the Court to undertake
the balancing exercise in the context of Article 101(1) TFEU. The Court appeared to
have taken up the invitation. Yet, by enabling this exercise to be undertaken in Article
101(1), the Court was potentially enabling the parties to circumvent the conditions
provided in Article 101(3) to structure the exercise.
This issue was addressed by the Court of First Instance, as the General Court was
called at the time, in Métropole Télévision v Commission (Case T-112/99) [2001] ECR
2459. The court in that case denied that there was a rule of reason defence under
Article 101(1). It insisted that there was no obligation to weigh the pro-competitive
effects against the anti-competitive effects of an agreement in the context of Article
101(1). This exercise ought to be more correctly done under Article 101(3). Indeed, it
pointed out that:
‘Article 101(3) would lose much of its effectiveness if such an examination
had to be carried out under Article 101(1) of the Treaty.’
Instead, the Court of First Instance accepted an alternative approach. It held that an
anti-competitive restriction would not be prohibited by Article 101(1) where that
restriction was ancillary to the agreement and that agreement was not itself anti-
competitive. The concept of an ‘ancillary restriction’ originated in US anti-trust law but
had been adopted by EU legislation dealing with mergers. The court defined the
concept in the following terms:
‘…the concept of an ‘ancillary restriction’ covers any restriction which is
directly related and necessary to the implementation of a main operation.’
It was the court’s formulation of the necessity requirement in this definition which
provides the principal difference between its ancillary restriction approach and that of
the rule of reason. The court emphasised that the necessity requirement for ancillary
restrictions does not entail any need to weigh the pro- and anti-competitive effects of
the agreement. Rather, it implies a twofold test. First, the restriction has to be
objectively necessary for the implementation of the main operation under the
agreement. The court emphasised that this does not mean that the restriction has to be
necessary for the commercial success of the operation. Rather, it means that the
restriction has to be indispensable to the operation’s implementation in the sense that
the main operation would be difficult or even impossible to implement without it.
Second, the restriction has to be proportionate in the sense that its duration and scope
must not exceed what is necessary to implement the operation.
The stringent terms in which the Court of First Instance framed its approach to ancillary
restrictions was subsequently confirmed and reinforced by the Court of Justice in
MasterCard v Commission (Case C-382/12 P) [2014] ECR I-0000. It emphasised that
an ancillary restriction would be objectively necessary only where the main operation
would not be possible to carry out in the absence of the restriction in question. It would
not suffice that the operation is simply more difficult to implement or even less
profitable without the restriction.
Activity point
Is the test for ancillary restrictions in Métropole Télévision and MasterCard compatible
with the decisions of the Court of Justice in S.T.M. and Pronuptia?
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10.7.5 The ‘de minimis’ defence

An agreement will not be prohibited by Article 101(1) if it does not have an ‘appreciable’
effect on either competition or inter-State trade. The effect will be considered to be too
de minimis. This was first established by the Court of Justice in Völk v Vervaecke
(Case 5/69) [1969] ECR 295. In this case, a German producer of washing machines
had granted an exclusive distributorship to Vervaecke in Belgium and Luxembourg and
guaranteed it absolute territorial protection against parallel imports. Völk’s share in the
washing machine market was negligible. It was only 0.2% of German production and
0.08% of EU production. The Court held that:
‘[A]n agreement falls outside the prohibition in Article [101 TFEU] when it
has only an insignificant effect on the markets, taking into account the weak
position which the persons concerned have on the market of the product in
question’.
The ‘de minimis’ defence only applies where the effect of the agreement is to prevent,
restrict or distort competition. The Court of Justice has made it clear in Expedia Inc v
Autorité de la Concurrence (Case C-226/11) [2012] ECR I-0000 that the defence does
not apply where the prevention, restriction or distortion of competition is the object of
the agreement.
To establish whether an agreement has an insignificant effect, the Commission must
determine what the relevant market is and what market share the parties have within
that market. How the relevant market is identified is touched upon at the end of in
Section 10.7.3 above and addressed in more detail in Sections 11.2 to 11.5 of the next
chapter. The cumulative effect of a series of agreements may also be relevant (see
Brasserie de Haecht SA which was discussed above in Section 10.6 above)
In its Notice on Agreements of Minor Importance [2014] OJ C291/01, which is
commonly known simply as the De Minimis Notice, the Commission has set out the
level of activity below which it will consider that agreements do not have an appreciable
effect on the market. The Notice states that, in the Commission’s view, horizontal
agreements between undertakings having an aggregate market share not exceeding
10% do not appreciably affect competition within the meaning of Article 101(1). Vertical
agreements will not appreciably affect competition where the market share of each
undertaking does not exceed 15%. Notices issued by the Commission are not legally
binding and are known as ‘soft law’. They are meant as guidelines only. Therefore, an
agreement may still be held to be prohibited by Article 101(1) even though the relevant
market share is below the figures set out in the Notice. Similarly, an agreement may be
found not to have an appreciable effect on competition even though the relevant
market share is above the figures set out in the Notice.
10.8 The application of Article 101(3) TFEU

An agreement, decision or concerted practice which is prohibited by Article 101(1) will
be automatically void under Article 101(2) unless it comes within the ambit of Article
101(3). Article 101(3) states that the provisions of Article 101(1) are inapplicable in
respect of agreements, decisions and concerted practices, or of categories of
agreements, decisions and concerted practices that satisfy the four conditions set out
in Article 101(3). Two of the conditions are positive and two are negative.
To satisfy Article 101(3), an agreement, decision or concerted practice must:
1. Improve the production or distribution of goods, or promote technical or economic
progress; and
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2. Allow consumers a fair share of the resulting benefit. The term ‘resulting benefit’
means such things as a wider choice of goods or better living conditions. The
term ‘consumer’ is interpreted in the broad sense (i.e. not just the ultimate user
but all parties down the manufacture/distribution chain).
Further, the agreement, decision or concerted practice must not:
3. Contain dispensable restrictions (this means that the agreement must restrict
competition only to the extent and in ways that are necessary to achieve the
relevant pro-competitive ends); and
4. Substantially eliminate competition in the relevant market.
Both sets of conditions must be fulfilled in order for Article 101(3) to apply. Between
them, these conditions engender the same type of exercise in weighing pro-competitive
effects of the agreement against the anti-competitive effects that was seen above in the
context of the rule of reason. An agreement, decision or concerted practice which
satisfies these conditions is said to have an individual exemption.
A good example of the application of Article 101(3) TFEU can be found in the
Commission’s decision in Transocean Marine Paint Association (Decision 67/454)
[1967] OJ L 163/10. The decision concerned an association of medium-sized marine
paint producers from around the world. The object of the association was to enable its
members to compete in the world marine paint market. This required paint of a
standard description to be available in as many ports as possible. The members of the
association agreed to produce identical paints and to market them in identical
packaging with the same trade mark. Each member was given the exclusive right to
promote the sale of the paints in the territory which they were allocated. They could not
export the paint to another member’s territory without its consent and could not
co-operate with other paint manufacturers without authorisation. The Commission
decided that this agreement enabled its members to compete with larger producers of
marine paint and so it was entitled to an individual exemption under Article 101(3)
TFEU.
10.8.1 Regulation 330/2010 – an example of a block exemption
The Commission from time to time issues a regulation which exempts a whole category
of agreements from the operation of Article 101(1) TFEU as long as the agreements
satisfy the rules in the regulation. Block exemptions are provided for in Article 101(3)
TFEU by referring to ‘categories of agreements’.
Regulation 330/2010 is an example of a block exemption. It replaces Regulation
2790/99 which had reached its ten-year expiry date. It exempts certain vertical
agreements. As was noted earlier, these are agreements between undertakings which
operate at different levels of the supply chain such as an agreement between
manufacturers and wholesalers or one between wholesalers and retailers. They can
include supply and distribution agreements between companies which operate at
different levels of the supply chain. The Commission has published guidelines to assist
companies in their interpretation of the Regulation (Guidelines on Vertical Restraints
[2010] OJ C130/1).
The basic scheme of Regulation 330/2010 is to exempt all vertical agreements but then
to set out the circumstances under which that exemption will not apply to an individual
vertical agreement or to terms within that agreement. In that way, the Commission has
tried to balance the advantages of vertical agreements, such as efficiency and
consistency of market supply, against the obvious anti-competitive disadvantages in
the relation to the individual vertical agreement.
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The principal provisions are as follows:

 Article 2(1) — The exemption
Article 2(1) provides that Article 101(1) does not apply to vertical agreements. This
includes vertical agreements between associations of undertakings and their members
and associations of undertakings and their suppliers (Article 2(2)).
 Article 3(1) — Market share threshold
Under Article 3(1), the exemption provided by Article 2 applies only on condition that
the market share held by the supplier does not exceed 30% of the relevant market on
which it sells the contract goods or services and the market share held by the buyer
does not exceed 30% of the relevant market on which it purchases the contract goods
or services. Therefore, both the supplier’s and the buyer’s market shares must fall
below 30%. Detailed rules governing the market share threshold are provided by Article
7.
Article 6 further provides that ‘the Commission may by regulation declare that, where
parallel networks of similar vertical restraints cover more than 50% of a relevant
market, this Regulation shall not apply to vertical agreements containing specific
restraints relating to that market’.
 Article 4 — ‘Hardcore’ restrictions
Article 4 contains the ‘hardcore’ restrictions. The exemption provided by Article 2 does
not apply at all to an agreement which has as its object one of these restrictions.
Examples of these restrictions include:
– Restricting the buyer’s ability to determine the sale price. The supplier may still
impose a maximum sale price or recommend a sale price (Article 4(a)).
– Restricting the territory into which the buyer may sell the goods or services or
restricting the customer to whom the buyer may sell the goods or services.
However, the agreement is permitted to restrict active sales either:
 Into the exclusive territory; or
 To an exclusive customer group
reserved by the agreement to the supplier or allocated by the supplier to another
buyer (Article 4(b)).
So, for example, restrictions on a distributor actively approaching customers (active
selling) in an area reserved exclusively to the manufacturer under the agreement are
acceptable. But the agreement must not stop the distributor from responding to
unsolicited requests from customers from that area (passive selling). This would be a
hardcore restriction.
The Commission’s Guidelines on Vertical Restraints [2010] OJ C130/1 provides
guidance as to how this may work in the context of internet sales. In general, a website
will be passive selling as long as it is not targeted at a territory from which the
distributor is excluded by the vertical agreement. The inclusion of language options on
such a site will not prevent it from being passive selling. But sending unsolicited emails
to customers or to particular territorial areas is active selling. Online adverts specifically
addressed to customers outside the distributor’s territory also constitute active selling.
The latter could include banner adverts on a third party website. These are adverts
which pop up or appear scrolled (‘bannered’) across the top of such a website.
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Examples of ‘hardcore restrictions’ provided in the guidance include:

– Stopping customers in another territory from viewing the website or rerouting
them to other distributor’s websites;
– Terminating transactions where the address revealed on a credit card is outside
the distributor’s allocated territory;
– Limiting overall sales made over the net; and
– Paying a higher price for goods sold online. This is known as dual pricing. Even
so the Guidelines make clear that objective efficiencies provable in individual
cases will allow Article 101(3) exemption.
 Article 5 — ‘Excluded’ restrictions
Article 5 contains other ‘excluded’ restrictions. The exemption provided by Article 2
does not apply to any terms in the agreement which contains one of these restrictions.
The rest of the agreement may still benefit from the block exemption. The parties to the
agreement will either have to rely on the offending term benefiting from an individual
exemption by satisfying the conditions in Article 101(3) or they will have remove it from
the agreement. Of course, it may already be too late to remove the term from the
agreement if the Commission has already decided to fine the parties over the inclusion
of the term!
Examples of excluded restrictions include:
– A non-compete obligation causing the buyer to not to manufacture, purchase, sell
or resell goods or services which compete with the contract goods or services
indefinitely or for a period which exceeds five years (Article 5(1)(a)). The five-year
time limit does not apply where the contract goods or services are sold by the
buyer from premises and land owned by the supplier or leased by the supplier
from third parties not connected with the buyer (Article 5(2)).
– A term which causes the buyer, after termination of the agreement, not to
manufacture, purchase, sell or resell goods or services (Article 5(1)(b)).
10.9 Regulation 1/2003 — the ‘Modernisation Regulation’

Regulation 1/2003 replaced Regulation 17/62 which had been in force for more than 40
years and which was the main piece of legislation on the enforcement of EU
competition law.
 Regulation 17/62
Regulation 17/62 set out the rules of procedure for the application of Articles 101 and
102 TFEU. Article 9 of the Regulation granted the Commission the sole power to grant
an exemption under Article 101(3) TFEU. This rested on a system of prior notification
provided for by Article 4 of the Regulation. With certain exceptions, parties who wished
to have an individual exemption had to notify the agreement, decision or concerted
practice to the Commission. The agreement, decision or concerted practice could not
benefit from an individual exemption until the Commission had decided that it satisfied
the conditions in Article 101(3) TFEU. This centralised notification system functioned
well in a Community of six Member States. It enabled the Commission to build up a
coherent body of precedents and to ensure that competition rules were uniformly
applied throughout Member States. However, the enlargement of the EU changed the
context radically and caused increasing difficulties. Over the years, the Commission
was faced with the problem that it lacked sufficient resources to deal with all the
agreements notified to it.
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 Regulation 1/2003
Article 1 of Regulation 1/2003 has abolished the system of prior notification. There is
no longer any requirement to apply for confirmation from the Commission that an
agreement which satisfies the conditions under Article 101(3) TFEU. An agreement
which fulfils those conditions will be exempt from Article 101.
The second reform introduced by Regulation 1/2003 is to empower National
Competition Authorities (Articles 3 and 5) and national courts (Articles 3 and 6) to
enforce Articles 101 and 102 TFEU. Chapter IV (Articles 11 to 16) provides forms of
co-operation between them and the Commission. The National Competition Authority
for the United Kingdom is the Competition and Markets Authority.
10.10 Fines
Regulation 1/2003 empowers the Commission to impose the following fines:
 For infringing Article 101 TFEU or Article 102 TFEU
Under Article 23(2), the Commission can impose fines on undertakings and
associations of undertakings which have intentionally or negligently infringed Article
101 TFEU or Article 102 TFEU. The maximum fine which can be imposed on each
undertaking and association of undertakings participating in the infringement is 10% of
its total turnover in the preceding business year. Where the infringement of an
association relates to the activities of its members, the maximum fine is 10% of the
sum of the total turnover of each member active on the market affected by the
infringement of the association. Article 24 of Regulation 1/2003 further empowers the
Commission to impose on undertakings and associations of undertakings periodic
penalty payments not exceeding 5% of the average daily turnover in the preceding
business year per day in order to compel them to put an end to an infringement.
 For failing to co-operate with an investigation
Article 23(1) also empowers the Commission to impose fines of no more than 1% of the
total turnover where an undertaking or association of undertakings has intentionally or
negligently supplied misleading or incorrect information, provided incomplete records or
refused to submit to an investigation. The power in Article 24 to impose periodic
penalty payments based on daily turnover may also be used to compel the supply of
complete and correct information or to compel submission to an investigation.
10.11 Damages
In Courage Ltd v Crehan (Case C-453/99) [2001] ECR I-6297, the Court of Justice held
that damages can be awarded by a national court for losses caused by a contract or by
conduct which infringed Article 101 TFEU. It justified this on the basis of the need to
ensure the effectiveness of competition law in order to protect the rights which it
confers on individuals:
‘The full effectiveness of Article [101] of the Treaty and, in particular, the
practical effect of the prohibition laid down in Article [101(1)] would be put
at risk if it were not open to any individual to claim damages for loss caused
to him by a contract or by conduct liable to restrict or distort competition.
Indeed, the existence of such a right strengthens the working of the
Community competition rules and discourages agreements or practices,
which are frequently covert, which are liable to restrict or distort
competition. From that point of view, actions for damages before the
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national courts can make a significant contribution to the maintenance of

effective competition in the Community.’
This was subsequently reinforced in Manfredi v Lloyd Adriatico Assicurazioni SpA
(Joined Cases C-295 to 298/04) [2006] ECR I-6619 where the Court of Justice held
that
‘any individual can claim compensation for the harm suffered where there is
a causal relationship between that harm and an agreement or practice
prohibited under Article [101 TFEU].’
A right to full compensation is now provided for by Article 3 of Directive 2014/104. This
specifies that:
‘1. Member States shall ensure that any natural or legal person who has
suffered harm caused by an infringement of competition law is able to
claim and to obtain full compensation for that harm.
2. Full compensation shall place a person who has suffered harm in the
position in which that person would have been had the infringement
of competition law not been committed. It shall therefore cover the
right to compensation for actual loss and for loss of profit, plus the
payment of interest.
3. Full compensation under this Directive shall not lead to
overcompensation, whether by means of punitive, multiple or other
types of damages.’
Article 11(1) of the Directive also provides for undertakings to be joint and severally
liable:
‘Member States shall ensure that undertakings which have infringed
competition law through joint behaviour are jointly and severally liable for
the harm caused by the infringement of competition law; with the effect that
each of those undertakings is bound to compensate for the harm in full, and
the injured party has the right to require full compensation from any of them
until he has been fully compensated.’
However, an exemption from joint and several liability is provided by Article 11(2) for
small and medium enterprises with a market share of less than 5% in the relevant
market where joint and several liability would jeopardise their economic viability,
although Member States must still ensure that they remain liable to their direct and
indirect purchasers. Under Article 11(4), Member States are to ensure that
undertakings and natural persons who have been granted immunity from fines by a
competition authority in return for cooperating with the investigation of a Competition
authority will still be jointly and severally liable to their direct and indirect purchasers but
will only be jointly and severally liable to other injured parties where full compensation
cannot be obtained from the other undertakings that were involved in the same
infringement.
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11
Competition Law II:
Article 102 TFEU
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Introduction
This Chapter examines Article 102 TFEU. Article 102 seeks to deal with the threat to
competition within the market posed by an undertaking which enjoys a dominant
position in which it has the economic power to act independently of market forces.
Article 102 does not prohibit market dominance in itself. Indeed, dominance in a market
can indicate that an undertaking is operating more efficiently than its rivals and
efficiency is one of the aims of competition law. Rather, Article 102 prohibits any abuse
of dominant position that is capable of affecting trade between Member States. Abuse
may include any anti-competitive behaviour which eliminates or seriously weakens
competition in a market, such as by using a dominant position to weaken or drive
smaller competitors out of the market, or which prevents potential competitors from
entering the market or enables a dominant undertaking to exploit its customers.
(Dominant position is discussed in Section 11.6 below.) All these types of conduct lead
to a distortion of competition. Where an undertaking is not only abusing its dominance
but is also member of a cartel the anti-competitive behaviour of the undertaking in
question may infringe both Articles 101 and 102.
As was noted in the previous chapter, the Commission is charged with overseeing and
enforcing EU competition law subject to judicial review of its decisions by the General
Court and the Court of Justice. Regulation 1/2003 has also empowered National
Competition Authorities and the national courts to enforce EU competition law.
11.1 Article 102 TFEU

‘Any abuse by one or more undertakings of a dominant position within the
internal market or in a substantial part of it shall be prohibited as
incompatible with the internal market in so far as it may affect trade
between Member States.’
Such abuse may, in particular, consist in:
(a) Directly or indirectly imposing unfair purchase or selling prices or
other unfair trading conditions;
(b) Limiting production, markets or technical development to the
prejudice of consumers;
(c) Applying dissimilar conditions to equivalent transactions with other
trading parties, thereby placing them at a competitive disadvantage;
(d) Making the conclusion of contracts subject to acceptance by the other
parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject
of such contracts.’
The following must be established for there to have been an infringement of this Article:
 One or more undertakings are in a dominant position within the internal market or
a substantial part of it. This requires a determination of the relevant market within
which the undertaking is operating and of whether or not the undertaking is
dominant in that market;
 The conduct being investigated amounts to an abuse of the dominant position of
that undertaking; and
 This abuse may affect trade between Member States.
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Competition Law II: Article 102 TFEU
Each of these matters will be examined in turn.
11.2 What is the relevant market?

In order to establish that the behaviour of an undertaking has offended against Article
102, it is necessary for the Commission to determine the ‘relevant market’ in which the
undertaking is operating. The concept of ‘relevant market’ is an economic one and
defining it for particular goods or services can be a highly complex exercise requiring
sophisticated economic analysis by experts.
The identification of the relevant market provides a framework within which to
determine whether or not the undertaking under investigation has a dominant position
which it has abused. It does this by enabling the Commission to determine which
products are in competition in which geographical area within the relevant time frame.
This then enables it to determine economic constraints on the undertaking and from
that to determine whether or not it has a dominant position. As the Commission
explained in its Notice on the Definition of Relevant Market for the Purposes of
Community Competition Law (97/C 372/03) [1997] OJ C372/5:
‘Market definition is a tool to identify and define the boundaries of
competition between firms. It serves to establish the framework within
which competition policy is applied by the Commission. The main purpose
of market definition is to identify in a systematic way the competitive
constraints that the undertakings involved face. The objective of defining a
market in both its product and geographic dimension is to identify those
actual competitors of the undertakings involved that are capable of
constraining those undertakings’ behaviour and of preventing them from
behaving independently of effective competitive pressure.’
Thus, in defining the ‘relevant market’, it is necessary to analyse both the product and
geographic dimensions of that market. These are known as the ‘relevant product
market’ (‘RPM’) and the ‘relevant geographic market’ (‘RGM’) respectively. It may also
be necessary to examine the temporal dimension of the market. This is known as the
‘relevant temporal market’ (‘RTM’).
11.3 The relevant product market (‘RPM’)

The RPM consists of the products or services which are in competition. Establishing
the RPM will often involve detailed, expensive and sometimes controversial market
analysis by experts including both economists and lawyers. Because of the complexity
of market analysis, investigations by the Commission can take a long time. Even after a
long and detailed investigation, the definition by the Commission of a particular market
can be highly contentious. There are numerous cases which have involved hard-fought
disputes over the definition of a RPM. This is unsurprising since the definition of a RPM
adopted may be crucial in deciding whether an undertaking is in a dominant position
and has offended Article 102.
An example of this is Hilti AG v Commission (Case T-30/89A) [1990] ECR II-163 and
(Case C-53/92P) [1994] ECR I-667. Hilti produced nail guns. The company went to a
great deal of expense commissioning its own report in an attempt to show that the
RPM for nail guns was not simply ‘nail guns’ in themselves but rather the general
market of industrial fasteners, of which nail guns were merely a small part. Hilti argued
that the RPM included other means of fastening such as masonry drills. If this broader
RPM had been accepted, Hilti’s place in the overall market would have been relatively
small and it could not have offended Article 102, as it would not have been dominant.
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However, the Commission, the General Court and the Court of Justice all rejected this
argument. They found that nail guns were sufficiently unique as a product to occupy a
separate part of the industrial fasteners market. Hilti-compatible cartridges and Hilti-
compatible nails also had their own separate markets. Hilti held a dominant position in
each of these markets.
11.3.1 Interchangeability or product substitution

An essential element in determining the RPM is the extent to which products are
interchangeable with one another or substitutable for one another. Those products
which are interchangeable or substitutable are in competition with one another and
comprise relevant product market. This can be determined by looking at demand and
supply. Demand analyses this from the perspective of consumers. Supply analyses it
from the perspective of manufacturers.
11.3.2 Demand substitutability

The definition of the relevant market provided by the Commission in its Notice on the
Definition of Relevant Market reflects demand side substitutability by focussing on the
consumer:
‘A relevant product market comprises all those products and/or services
which are regarded as interchangeable or substitutable by the consumer,
by reason of the products' characteristics, their prices and their intended
use.’
At a basic level, demand substitutability is determined by assessing the extent to which
consumers are willing to buy another product should the original product they seek not
be available. If consumers will readily switch from one product to another, they will both
form part of the same product market.
This can be illustrated by United Brands Co v Commission (Case 27/76) [1978] ECR
207. In this case, the issue arose as to whether bananas were part of the overall fruit
market or whether bananas formed a separate market of their own. The identification of
the RPM was important because of the resulting market share. United Brands only had
a small share of the fruit market as a whole. This would have made it impossible for the
company to have been in a dominant position. However, it had a 40% to 45% share of
the banana market. The Commission had taken this into account in concluding that it
was in a dominant position. The Court of Justice looked at whether the banana had any
peculiar or distinct features which prevented it from being interchangeable with other
fruit from the perspective of consumers. It found that bananas were available in
sufficient quantities over the whole year. They were soft, seedless and easy to handle.
This enabled them to satisfy the constant needs of the very young and the very old or
the sick. Such consumers were unlikely to be enticed away by other fruits. As a
consequence, the banana was in constant demand and sales were unaffected by
seasonal fluctuations. The Court of Justice considered, on this basis, that bananas
were in a sub-market of their own separate from the overall fruit market.
 Cross-elasticity of demand and the ‘SSNIP’ test
Another sophisticated approach investigates the cross-elasticity of demand. This looks
at the degree to which demand for one product changes in response to a change in the
price of another product. If demand for the first product increases in response to a rise
in the price of the second product, there is said to be high cross-elasticity of demand
and the two are considered to be in competition with each other.
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To assist with determining cross-elasticity, the Commission Notice on the Definition of

Relevant Market sets out a test for demand substitution. The test originated in the
United States of America and is known as the SSNIP test. It looks at the effect of a
Small but Significant (between 5-10%) Non-Transitory (i.e. permanent) Increase in the
Price. If a sufficient enough number of consumers would switch to another product to
make the price rise unprofitable, the identified relevant product market to which the test
was applied will have been too narrowly defined. The relevant product market will have
to be widened to include more products and the test should be applied again. The
process is repeated until the price rise is found to remain profitable.
11.3.3 Supply substitutability

In order to establish market dominance, it may also be necessary to examine supply
substitutability. In its Notice on the Definition of the Relevant Market for the Purposes of
Community Competition Law, the Commission defines supply substitution in the
following terms:
‘This means that suppliers are able to switch production to the relevant
products and market them in the short term without incurring significant
additional costs or risks in response to small and permanent changes in
relative prices.’
Therefore, it is necessary to assess how easy it is for rival manufacturers to switch
production so as to produce competing goods, either now or in the future. If it is easy,
then it is assumed to be unlikely that the original manufacturer is dominant in the
market. If a manufacturer is dominant in a market of high supply substitution, it is
assumed that it will not retain dominance for long because rivals can easily
manufacture competing goods if the original manufacturer commits an abuse against
its customers.
A good example of this is provided by Euroemballage Corn and Continental Can Co
Ltd (Case 6/72) [1973] ECR 215. Continental Can Inc had acquired a German
company and transferred its shares in that company to a new subsidiary. It had then
used the subsidiary to acquire a second company. The Commission decided that the
first acquisition and the establishment of the subsidiary gave Continental Can a
dominant position in three distinct markets: the market in light containers for preserved
meat, the market in light containers for preserved fish and the market for metal
closures for glass containers. It found that the second acquisition abused that position
because it almost eliminated competition. However, the Court of Justice annulled the
Commission’s decision. It held that the Commission had failed to prove that these
markets differed from the more general market for light metal containers. In particular, it
had failed to prove that manufacturers of other forms of light metal containers, such as
containers for fruit or condensed milk, were not in a position, by a simple adaptation of
production, to enter these sectors in sufficient strength to act as a counterweight.
This can be contrasted with Nederlandsche Banden-Industrie Michelin NV v
Commission (Case 322/81) [1983] ECR 3461 (‘Michelin I’) in which the Court of Justice
rejected Michelin’s argument that there was a single market for replacement tyres. It
held that there were two markets: one for heavy vehicles and a separate one for light
vehicles. There was no demand substitution as the two types of tyre were used for
different vehicles and so were not interchangeable. There was also no elasticity of
supply. This was because the production plant would have to be modified in order to
switch production between the two types of tyre which takes time and requires
considerable investment.
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The Microsoft case (Commission Decision 2007/53/EC) provides another good

example of low supply substitutability. The Commission found that PC Operating
Systems, the Work Server Operating Systems and the Streaming Media Players each
constituted their own separate markets. This was because there was low supply
substitutability between them. PC Operating Systems had their own market because
the development and testing of them involved a substantial amount of time and
expense and entailed substantial commercial risk. Work Server Operating Systems
formed a separate market for similar reasons. Streaming Media Players formed a third
separate market because entry into the market required significant research and
development investments, had to take account of the protection of existing media
technologies by intellectual property rights and needed a significant amount of digital
content to play back. This was confirmed by the Grand Chamber of the General Court
in Microsoft v Commission (Case T-201/04) [2007] ECR II-3601.
An analysis of a market on the basis of supply substitutability will often produce the
same result as an analysis based on demand substitutability. However, the
Commission need only establish that one of these forms of substitutability exists in
order to find that the products fall within the same product market.
11.3.4 Aftermarkets
There are many sectors where consumers of one product will need, at a later time, to
purchase complementary products such as spare parts or ‘consumables’. These are
parts which need to be replaced frequently, such as ink cartridges in a computer
printer. They may also need to receive maintenance services. In trying to determine the
RPM, it is necessary to consider whether the complementary products form part of the
main market (primary market) or are part of an aftermarket (secondary market). If there
is an aftermarket, then an undertaking which is not dominant in the primary market may
be dominant in the aftermarket. Thus, the Commission may look at the aftermarket to
establish whether dominance exists in that market specifically. What might, at first
sight, appear to be an inconsequential market, can in fact amount to a separate market
in its own right. For example, as was noted in Section 11.3 above, three separate
markets were identified in Hilti. One was the primary market in nail guns. But two more
were aftermarkets. One was in Hilti-compatible nails which were fired by the nail guns
and the other was in the cartridges which were needed to fire the nails.
In Hugin Kassaregister AB v Commission (Case 22/78) [1979] ECR 1869 concerned a
Swedish firm, Hugin, which manufactured cash registers. Liptons, a British company
which serviced Hugin’s registers in London, could not use any spare parts other than
those produced by Hugin. Hugin was able to prevent them using other spare parts
through asserting its design rights. The Commission held that there was a separate
market for spare parts for Hugin cash registers, that Hugin was dominant in this market
and that a refusal by Hugin to supply spare parts to firms who hired out and maintained
cash registers could amount to an abuse of a dominant position. The Court of Justice
agreed.
11.4 The relevant geographic market (‘RGM’)

The second dimension of the ‘relevant market’ concerns its geographical area. Under
Article 102 TFEU, the relevant market must be ‘… within the common market or in a
substantial part of it’. In United Brands, the Court of Justice referred to the RGM as ‘a
clearly defined geographic area in which [the product] is marketed and where the
conditions of competition are sufficiently homogeneous for the effect of the economic
power of the undertaking concerned to be able to be evaluated’. Here the RGM was
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found to cover six Member States because in those States the conditions of
competition were effectively the same for all traders and so the area was sufficiently
homogeneous to be considered in its entirety. Three other Member States, namely
France, Italy and the UK, were excluded because they had special arrangements in
relation to the banana trade with overseas territories.
In its Notice on the Definition of Relevant Market for the Purposes of Community
Competition Law, the Commission defines the RGM along the same lines:
‘The relevant geographic market comprises the area in which the
undertakings concerned are involved in the supply and demand of products
or services, in which the conditions of competition are sufficiently
homogeneous and which can be distinguished from neighbouring areas
because the conditions of competition are appreciably different in those
areas.’
This approach can result in a single Member State forming the RGM. For example, the
Court of Justice in Michelin I upheld the Commission’s decision that the RGM was the
Netherlands, despite the objection of Michelin that, in determining dominance, the
Commission had taken into account factors which concerned the Michelin Group as a
whole in the wider market. The Court held that it was the Michelin Group’s subsidiary in
the Netherlands which was the subject of the Commission’s decision and that, in
practice, dealers established in the Netherlands obtained their supplies only from
suppliers operating in the Netherlands.
However, it can be more difficult to establish that a region is the RGM. For example, in
Alsatel v Novasam SA (Case 247/86) [1988] ECR 5987, the Court of Justice held that
the relevant market in which Alsatel operated was the market for the rental and
maintenance of telephone installations in France as a whole and not, as Novasam had
argued, the market for the region of Alsace-Lorraine. Private installers had to be
authorised by the French authorities and those authorisations applied throughout
France. As a result, the conditions of competition were sufficiently homogenous
throughout the whole of France, notwithstanding that Alsatel only operated in Alsace-
Lorraine.
Perhaps surprisingly, the Court of Justice has determined that ‘a substantial part’ of the
EU should be judged not simply by geographical area but also by other factors such as
volume of trade. As a result, ports and airports through which a large volume of inter-
state trade passes have been found to be substantial parts of the market. In B&I Line
plc v Sealink Harbours Ltd and Sealink Stena Ltd [1992] 5 CMLR 255, the port of
Holyhead in North Wales was found by the Commission to form a substantial part of
the market in port facilities for passenger and vehicle ferry services on the central
corridor routes between the UK and Eire. This was because of the volume of trade
through this route between Eire and the UK. Sealink used its control of the port to
introduce a new sailing schedule which suited the commercial interests of its ferries but
adversely affected the docking of B&I’s ferries. The Commission decided that this
behaviour amounted to an abuse of Sealink’s dominant position.
These cases illustrate some of the factors which will be taken into account in
determining the conditions that shape the relevant geographic market. For example,
consumer behaviour can be important. It has been noted that one of the reasons why
the RGM in Michelin I was held to be the Netherlands was because dealers established
in the Netherlands obtained their supplies only from suppliers operating in the
Netherlands. Other factors may also come into play. For example, the impact of
transport costs and restrictions on supply and demand can also be important. Such
costs may limit the geographical scope of the relevant market for bulky products of low
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value by making them uncompetitive when transported over longer distances. In

contrast, a product which is small and light may be considered capable of being
supplied without any significant difficulty over a wide area of the EU. Therefore, in
United Brands, the Court of Justice noted that transport costs did not stand in the way
of the six Member States being considered a single market. In Hilti, the Commission
concluded that the RGM for nail guns and consumables was the Community as a
whole as they could be transported throughout the Community without any excessive
transport costs. This was accepted by the General Court which rejected the argument
from Hilti that the existence of large differences between the Member States in the
price of Hilti products reflected differences in the commercial structures and conditions
of competition between those Member States. It concluded that, as transport costs
were low, such price differences were purely the result of the actions of Hilti and not of
other factors.
11.5 The relevant temporal market (RTM)

The temporal market embodies the relevant market’s time dimensions. These are often
treated as part of the RPM and RGM. For example, the Commission did not treat time
as a distinct dimension of the relevant market in its Notice on the Definition of Relevant
Market for the Purposes of Community Competition Law. Nevertheless, time can be
significant. One striking example of this is Benzine en Petroleum Handelsmaatschappij
BV v Commission (‘ABG Oil’) (Case 77/77) [1978] ECR 1513. This concerned the
OPEC oil crisis in which the members of the Organization of Petroleum Exporting
Countries (‘OPEC’) increased the price of crude oil whilst reducing production.
Meanwhile, the Arab members of OPEC had imposed an embargo on shipments to
states which had supported Israel during the Yom Kippur War in the previous month.
One of the states targeted by the embargo was the Netherlands. By December,
shipments of crude oil had dropped to 50% of their October level. The Commission
found that this sudden severe shortage transformed the market in petrol for the
duration of the crisis as independent firms found that they could not buy petrol on the
world market and so became completely dependent on a few large suppliers with oil
refineries in the Netherlands. The Commission decided that one of these large
suppliers, BP, had abused its dominant position by cutting back supplies to ABG far
more sharply than it had to other customers. The Court of Justice was prepared to
accept the Commission’s analysis of the market conditions, although it held that BP
had not abused its position.
11.6 Establishing dominance in the relevant market

Once the relevant market (RPM and RGM, and, where necessary, the RTM) has been
established, the Commission must then determine if an undertaking is dominant in that
market. In United Brands, the Court of Justice defined the meaning of dominance as
follows:
‘[A] position of economic strength enjoyed by an undertaking which enables
it to prevent effective competition being maintained on the relevant market
by giving it the power to behave to an appreciable extent independently of
its competitors, customers, and ultimately, of its customers.’
11.6.1 Collective dominance

Whilst the vast majority of cases under Article 102 deal with single undertakings, there
can also be joint dominance in a market by different undertakings acting together. Such
undertakings can be part of the same business entity or corporate group or,
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exceptionally, can be independent of each other. The first case in which the EU Courts
expressly dealt with collective dominance under Article 102 was Società Italiana Vetro
v Commission (‘Italian Flat Glass’) (Cases T-68 and 77-78/89) [1992] ECR II-1403. The
Commission maintained that three Italian undertakings operating in the flat glass
industry had aggregate market shares of 79% and 95% in the non-automotive and
automotive markets respectively and presented themselves on the market as a single
economic entity. It considered this to be sufficient evidence of collective dominance.
The General Court accepted that, in principle, it was possible for two or more
undertakings to have collective dominance in the relevant market:
’There is nothing, in principle, to prevent two or more independent
economic entities from being, on a specific market, united by such
economic links that, by virtue of that fact, together they hold a dominant
position vis-à-vis the other operators on the same market. This could be the
case, for example, where two or more independent undertakings jointly
have, through agreements or licences, a technological lead affording them
the power to behave to an appreciable extent independently of their
competitors, their customers and ultimately of their consumers’
But it rejected the Commission’s approach and annulled the decision. The Court held
that collective dominance could not be established solely by the existence of economic
links. Additional evidence was necessary in order to prove that the undertakings in
question were ‘presented on the market as a single entity’.
11.6.2 Factors for establishing dominance

In assessing dominance, a number of factors may be taken into account. The
Commission, the General Court and the Court of Justice take a wide view as to what
such factors might be. They may conclude that an undertaking is dominant from its
market share, from advantages that it has over its competitors and from the existence
of barriers to entry into the market or further penetration of that market by potential
competitors. In assessing such factors, it is important to remember that EU competition
law does not consider that market dominance, in itself, is wrong. Article 102 only
prohibits conduct by the undertaking where that dominant position is abused.
Some examples of the factors that will be taken into account in assessing dominance
are set out below:
 Market share
The first factor to consider when determining whether or not an undertaking has a
dominant position is the relative share of the market that it has. An undertaking which
has 100% of the market share is obviously dominant. Below that, the Commission has
had little difficulty finding that an undertaking with a 91.8% share of the relevant market
held a dominant position in Tetra Pak I [1988] OJ 272/27 as did an undertaking with at
least a 70% share in Intel Corporation (Decision C(2009) 3726). In Akzo Chemie BV v
Commission (Case C-62/86) [1991] ECR I-3359, the Court of Justice opined that:
‘very large shares are in themselves, and save in exceptional
circumstances, evidence of the existence of a dominant position … That is
the situation where there is a market share of 50% such as that found to
exist in this case.’
In United Brands, the undertaking had only a 40% to 45% share of the relevant market
in bananas. But this market was a fragmented market with the next nearest competitor
having only a 17% share and the next nearest after that having only 9% of the market.
Therefore, the market share of United Brands was several times larger than its nearest
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competitors. This contributed to the decisions of the Commission and the Court of
Justice that United Brands had a dominant position.
 Intellectual property rights
Legal factors such as the protective effect of intellectual property rights may give rise to
a dominant position. In Hugin, the company was the only company in the United
Kingdom that manufactured spare parts for Hugin cash registers because the design
for the cash registers was patented. In Tetra Pak, the company had an exclusive patent
licence over the design of the relevant cartons. In both these cases, the respective
intellectual property rights made it difficult for other undertakings to enter into the
markets. In Microsoft, one of the penalties imposed upon the company was to break its
intellectual protection over certain key codes which had to be supplied to a rival
software manufacturer.
 Superior technology
The superiority of the undertaking’s technology can also contribute towards dominance
in the relevant market. As the Court of Justice explained in Hoffmann-La Roche & Co v
Commission (Case 85/76) [1979] ECR 461:
‘[T]he relationship between the market shares of the undertaking concerned
and of its competitors, especially those of the next largest, the technological
lead of an undertaking over its competitors, the existence of a highly
developed sales network and the absence of potential competition are
relevant factors, the first because it enables the competitive strength of the
undertaking in question to be assessed, the second and third because they
represent in themselves technical and commercial advantages and the
fourth because it is the consequences of the existence of obstacles
preventing new competitors from having access to the market.’
In this case, Hoffmann-La Roche was found to have a technological lead over its
competitors not only in relation to the vitamins it produced but also in the highly
developed technical service it provided to advise and assist its customers on the use of
these products. This was taken into account in finding that it had a dominant position.
A lead in the ability to innovate may also be relevant in determining dominance. In
Michelin I, the lead which Michelin had over its competitors in its investment and
research had resulted in the development of a wider range of tyres than its competitors
produced including some types of which Michelin was the only supplier. This was taken
into account in assessing the economic strength of Michelin compared to its
competitors.
 Wealth of capital and financial barriers
The fact that an undertaking has access to large amounts of capital can contribute
towards dominance where its competitors are in a weaker financial position. This can
enable the undertaking to invest, expand and take risks in ways that its competitors
cannot and to overcome financial hurdles which its competitors find insurmountable.
The undertaking can take advantage of this by using its resources in ways that prevent
any effective competition so as to entrench its position. For example, a wealthy
undertaking can take advantage of its financial strength to prevent competition by
adopting predatory pricing policies. These involve deliberately lowering prices simply to
drive out weaker rivals. They can enable a wealthy undertaking to control the market as
they can afford to reduce prices significantly. Smaller or less wealthy competitors are
unlikely to be able to match the lower prices for very long before being forced out of the
market. An example of this is provided by AKZO Chemie BV v Commission (Case
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C-62/86) [1991] ECR I-3359 in which a manufacturer of organic peroxide chemicals

had reduced its prices to an artificially low level for a prolonged period of time with the
aim of driving a competitor out of the market. This was held to be an abuse of a
dominant position (on which, see Section 11.7 below). What is important in this case
for present purposes is that before establishing that there had been an abuse, the
Commission had to establish that AKZO was in a dominant position in the first place.
One of the factors which the Commission took into account in deciding that AKZO had
a dominant position was that it had superior financial resources to its competitors and
that it was part of a multinational group which had a structure that enabled the losses in
one division to be offset by the profits in another division in a way that the competitors
could not. This enabled it to absorb the losses from its predatory pricing. The
Commission’s decision on this was upheld by the Court of Justice.
The existence of prohibitive financial barriers to entry to a market by potential
competitors may also be a relevant factor in determining that an undertaking is in a
dominant position as they can serve to entrench the position held by the undertaking
against competition. For example, in the United Brands case, the Court of Justice held
that the exceptionally large capital investments required to create and run banana
plantations, the financial costs of attempting to penetrate the banana market and the
financial risks of doing so all acted as barriers to competitors entering the market and
thereby contributed towards United Brands maintaining a dominant position. While its
competitors were able to use the same methods of production and distribution as
United Brands, they came up against almost insuperable financial obstacles.
 Vertical integration
The degree of ‘vertical integration’ which an undertaking has established in the market
may be relevant. Vertical integration means the control over the process of bringing a
product into the market from production to distribution to the ultimate sale to
consumers. The ability to control this process can give an undertaking advantages over
its competitors which make it more difficult for them to compete. A clear example of this
is the United Brands case which involved the banana trade. Given that bananas are
highly perishable products with a short shelf life, the strong vertical integration of United
Brands’ business gave it an advantage in being able to get its bananas across the
world and in the hands of its customers in Europe more quickly and more efficiently
that its competitors. This contributed towards its dominance.
 Sophisticated distribution and sales networks
Even in the absence of vertical integration, the existence of a sophisticated distribution
or sales network can still contribute towards dominance. In Hoffmann-La Roche, the
company had a highly developed sales and distribution network which enabled the
regular and rapid supply of products. This was held to be a relevant factor in
establishing dominance. In a similar vein, in Michelin I, the fact that Michelin had a
developed network of commercial representatives which was considerably larger than
those of its competitors and gave it direct access to dealers and tyre users at all times
was taken into account in finding dominance as this enabled Michelin to maintain and
strengthen its position on the market and to protect itself more effectively against
competition.
 Brand identification
Brand identification may contribute to an undertaking having a dominant position. Over
time, consumers may come to associate a brand name with a product and often
become unwilling to try alternative products. In United Brands, the Commission
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established that consumers had come to associate bananas with the United Brands’
Chiquita trademark as a result of heavy marketing by United Brands.
11.7 Abusive behaviour

As stated above, having a dominant position in a market does not, in itself, amount to a
breach of Article 102. There must be an abuse of that dominant position. Many types of
business practice can amount to abusive behaviour.
Article 102 sets out a list of some specific types of behaviour that may amount to
abuse. These include unfair pricing, limiting production, contractual discrimination and
imposing supplementary obligations. This list is non-exhaustive.
Abusive behaviour can be exploitative or exclusionary. Exploitative abuses involve the
dominant undertaking exploiting its customers. Exclusionary abuses take advantage of
a dominant position to drive competitors out of the market or to prevent new
competitors from entering it. Before looking at some examples of abuse, it is important
to note that the application of Article 102 is controversial because economists
themselves will often disagree as to whether many types of business practice are
actually harmful to the market and, if so, how that harm can be measured.
The Commission’s decision on Intel Corporation (Decision C(2009) 3726) in May 2009
serves to show both its approach to the identification of abuse and the sort of activities
undertaken by manufacturers that amount to abuse under Article 102. Intel was fined
€1.06 billion for providing a system of generous rebates to Acer, Dell HP, Lenovo and
NEC in return for buying all or nearly all of their x86 CPU chips from Intel rather than
the rival AMD (Advanced Micro Devices) Corporation. It also made direct payments to
a chain of stores (MediaMarkt) on condition that the chain only stocked computers
containing Intel chips. As a result, it was so difficult for AMD to enter this particular
market that even its most competitive offers would not be taken up. When it offered to
supply one million of its chips free to a computer manufacturer, the manufacturer
turned it down as losing the Intel rebate would have involved a greater loss of money
than it stood to gain by accepting the free chips. The Commission decided that, as a
result, the ability of rivals to compete and innovate was impaired leading to a reduction
of choice on the market to the disadvantage of consumers. Given Intel’s 70%
dominance, the Commission had little difficulty concluding that rebates that are
conditional on buying less of a rival’s products or none at all must be abusive unless
Intel could produce justifiable reasons. In its decision, the Commission did not object to
rebates in themselves, which can often advantage the consumer but to the conditions
attached to those rebates. The Commission’s decision has been upheld by the General
Court in Intel Corporation v Commission (Case T‑286/09) [2014] ECR II-0000.
Set out below are some examples of conduct by undertakings that have been found to
amount to abuse.
 Refusal to supply
The refusal of a dominant undertaking to supply competitors with a product may
constitute an abuse in certain circumstances. One such circumstance is where it will
eliminate competition either in the relevant market itself or in another related market in
which it participates. An example of this is provided by Commercial Solvents
Corporation v Commission (Cases 6 & 7/73) [1974] ECR 223. This concerned a
company (CSC) which had a monopoly in the EEC over the supply of a chemical called
Aminobutanol. This chemical was used in the manufacture of an antibiotic called
Ethambutol. An Italian subsidiary of CSC had begun to manufacture Ethambutol itself.
To facilitate this, CSC decided to cease the supply of Aminobutanol to other
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manufacturers of Ethambutol so that it could exclusively supply its own subsidiary with
the chemical. The Court of Justice held that this was an abuse of a dominant position
because it had the effect of eliminating competition between its own subsidiary and the
other manufacturers of Ethambutol.
In the Microsoft case, the Grand Chamber of the General Court has subsequently held
that it is not necessary to demonstrate that all competition on the market would be
eliminated. It was only necessary to establish that the refusal to supply is liable to or is
likely to eliminate all effective competition on that market. That requirement can be
satisfied even if there are still likely to be competitors who retain a marginal presence in
certain niches on the market. In that case, it will be recalled, the PC operating system
market had been identified as a separate market from the work group server operating
systems market (see Section 11.3.3 above). Microsoft had a dominant position in the
PC operating systems market which it was found to have abused by refusing to provide
other software producers, including the complainant, with information that would enable
them to design work group server operating systems which could seamlessly integrate
with Microsoft’s PC operating system. This had enabled Microsoft rapidly to gain
dominance in the worker sever operating systems market in just a few years while its
main competitor in that market had gone from a leading position to being a relatively
minor player in the same period and new entrants in the market had been
unsuccessful. The abuse thereby risked eliminating all effective competition.
Microsoft’s interest in protecting its intellectual property rights did not constitute
justification for this.
Another example of an abuse is the refusal of a dominant undertaking, without
objective justification, to supply a long standing existing customer who abides by
regular commercial practice, so long as the orders are in no way out of the ordinary.
This was established in United Brands. In that case, United Brands had ceased to
supply a Danish distributor with bananas after the distributor had become the exclusive
representative in Denmark of a competitor of United Brands and had participated in an
advertising campaign by that competitor. The distributor suffered not only a loss of
sales as a result but also the loss of several important customers. The Court of Justice
accepted that a dominant undertaking is entitled to take reasonable steps to protect its
own commercial interests where they are attacked. However, those steps have to be
proportionate to the threat taking into account the comparative economic strength of
the undertakings. The distributor had not acted inconsistently with fair trade practices
and the outright refusal to supply it was excessive.
It is important to note that, as this case indicates, a refusal by a dominant undertaking
to supply will not be an abuse if there is a legitimate objective reason for it which
justifies the refusal. For example, the undertaking will be justified in refusing to supply
another company that is not creditworthy.
 The essential facility doctrine
The essential facility doctrine is related to refusal to supply. The doctrine was outlined
by the Commission in B&I Line plc v Sealink Harbours Ltd and Sealink Stena Ltd
[1992] 5 CMLR 255:
‘A dominant undertaking which both owns or controls and itself uses an
essential facility, i.e. a facility or infrastructure without access to which
competitors cannot provide services to their customers, and which refuses
its competitors access to that facility or grants access to competitors only
on terms less favourable than those which is gives its own services,
thereby placing the competitors at a competitive disadvantage, infringes
Article [102], if the other conditions of that article are met.’
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It will be recalled that this case concerned the port of Holyhead in North Wales. Sealink
owned the port. It also ran two ferries between the port and Dublin in Ireland. B&I ran
the other ferry along the same route. Its berth was located near to the entrance to the
harbour. It had to stop loading its ferry every time one of Sealink’s ferries sailed past.
Sealink used its control of the port to introduce a new sailing schedule which suited the
commercial interests of its ferries but caused considerable disruption to the loading and
unloading of B&I’s ferry, particularly at peak times. The Commission found that Sealink
had a dominant position as a provider of port facilities at Holyhead and that it had
abused that dominant position.
 Predatory pricing
Predatory pricing involves charging excessively low prices in order to drive rivals out of
the market. An example is provided by AKZO Chemie BV v Commission (Case
C-62/86) [1991] ECR I-3359. AKZO produced a type of chemical that could be used in
both the manufacture of flour and in the plastics industry. Sales to the plastics industry
were much more profitable than those to the flour industry. A rival undertaking called
ECS had previously made the chemical exclusively for use in the flour industry but now
started to sell its product to the plastics industry. In response, AKZO reduced the price
it charged for the chemical to the flour industry to below the cost of producing the
chemical for a prolonged period. AKZO made a loss on each of these sales as a result
but its intention was to drive ECS out of the market. The Commission held that this
amounted to predatory pricing and the Court of Justice agreed.
In the course of its judgment, the Court of Justice in AKZO Chemie BV identified two
situations which would amount to predatory pricing. One was where the price has been
reduced below the average variable costs, that is to say those costs which vary
depending on the quantities produced. This was held to be an abuse in principle as it
serves no economic purpose other than to eliminate competitors. The other situation is
where the price has been reduced below average total costs, that is to say, fixed costs
plus variable costs, but is still above average variable costs. Fixed costs are those
which remain constant regardless of the quantities produced. This situation was held to
be an abuse where an intention to eliminate competition is shown.
That analysis was confirmed by the Court of Justice in Tetra Pak International SA v
Commission (Case C-333/94 P) [1996] ECR I-5951. In that case, the Tetra Pak was
found to have sought to eliminate competitors by a variety of methods including
predatory pricing of its cartons and of the machines used to fill the cartons. The Court
of Justice held that between 1976 and 1981, the cartons were sold at prices
considerably lower than the average variable costs. This sufficed in itself to constitute
an abuse. In 1982, the cartons were sold at prices below average total costs but above
average variable costs. The Court held that this was also an abuse because there was
sufficient evidence that it was intended to eliminate a competitor. Similar conclusions
were reached in relation to the prices for selling and leasing the machines, albeit in
respect of different years.
It should be emphasised that undertakings in a dominant position still remain free to
reduce prices so long as they do not do so in a way that amounts to predatory pricing.
Indeed, an efficiency-driven reduction in prices is viewed by the Commission, the
General Court and the Court of Justice as a good thing.
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 Excessive prices
Another form of abuse is charging excessive prices to customers. In the United Brands
case, the Commission found that United Brands had charged its customers in certain
Member States prices which were excessive in relation to the economic value of the
product supplied. This part of the Commission’s decision was annulled by the Court of
Justice because the Commission failed to consider the production costs of bananas
and the actual reason behind different prices. Nevertheless, the Court accepted the
principle that ‘charging a price which is excessive because it has no reasonable
relation to the economic value of the product supplied would be such an abuse’.
Excessive pricing was found to have taken place in British Leyland Plc v Commission
(Case 226/84) [1986] ECR 3263. Under the system of vehicle registration in the United
Kingdom, a manufacturer had to obtain national type approval for each model of
vehicle which it manufactured. Once this had been obtained, anyone seeking to
register the vehicle for use on the road had to produce a certificate of conformity with
the approved type which was issued by the manufacturer. British Leyland produced
various models of car including the Metro. The prices of left hand drive models of the
Metro marketed in continental Europe were cheaper than the prices charged by its
network of dealers in the United Kingdom for right hand drive models of the Metro. This
resulted in a market developing in left hand drive Metros being reimported into the
United Kingdom. In July 1981, following a meeting with its British dealers, British
Leyland raised the charge to distributors for issuing a certificate of conformity for left
hand drive Metros from £25 to £150. The charge for the certificate for right hand drive
Metros remained at £25. The Court of Justice accepted the Commission’s decision that
this was an abuse of a dominant position as the charge for left hand vehicles was
excessive. The issuing of the certificate for both left hand drive models and right drive
models merely required a simple administrative check. The only difference for left hand
drive vehicles lay in the need to verify that they had undergone four essential
alterations. The Commission was entitled to conclude that the fee was disproportionate
to the economic value of the service being provided. It had been fixed solely to make
the importation of left hand drive vehicles less attractive.
 Discounts, rebates and bonuses
The granting of discounts, rebates bonuses can be a form of abuse where they have
the effect of stopping competitors from entering the market because the competitors
cannot match the reductions or bonuses embodied in them. In Hoffmann-La Roche,
Hoffmann-La Roche allowed fidelity rebates on its prices in return for consumers
buying the relevant products only from them. The Court of Justice held that such
rebates were an abuse because they are intended to give the purchaser an incentive to
obtain its supplies exclusively from the dominant undertaking and thereby to deny other
suppliers access to the market.
In Michelin I, the Court of Justice held that Michelin was dominant in the market for
heavy vehicle tyres and that it had abused that dominance by offering financial rebates
and bonuses calculated on the basis of criteria which were not transparent and
changed several times during each reference period. The uncertainty created by this
system put dealers under considerable pressure to hit sales targets and thereby had
the effect of preventing them from being able to choose more favourable options from
other suppliers.
Another example of a case in which rebates were held to be an abuse is provided by
the Intel case which has already been discussed above.
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 ‘Tie-in’ agreements and bundling

‘Tie-in’ agreements are agreements where the dominant undertaking agrees to supply
a product only if the buyer agrees to accept further products or other supplementary
obligations. This is specifically prohibited by article 102(d) TFEU. Such agreements can
amount to an abuse where they can be used to exploit customers by requiring them to
purchase a product that they do not want in order to acquire the product that they want
or need. However, more often the abuse arises because the agreements have the
effect of excluding competitors from the market. For example, in the Hilti case, Hilti was
found to have abused its dominant position by making the purchase of the cartridge
strips used in its nail guns conditional on the buyer also purchasing the corresponding
complement of nails. This had the effect of preventing other suppliers who only
manufactured nails from being able to penetrate the market in Hilti-compatible nails as
they could not supply the cartridge strips at the same time.
Closely related to this is ‘bundling’. This is where two or more products are sold
together as a single package. An example of bundling is provided by the Microsoft
case. Microsoft was found to have abused its dominant position in the PC operating
system market by including its Windows Media Player with its Windows PC operating
system. This induced users and software developers to rely solely on the Windows
Media Player instead of other streaming media players produced by competitors and
thereby foreclosed competition.
The decision in Microsoft has established the criteria that have to be fulfilled in order for
tying and bundling to amount to an abuse under article 102(d) by excluding
competitors:
(i) The tying and tied goods must not be within the same product market;
(ii) The undertaking must be dominant in the tying product market;
(iii) Customers get no choice whether to accept the tied product with the tying
product; and
(iv) The tying closes out any competition.
 Unfair terms
The imposition of unfair terms by an undertaking in a dominant position can constitute
an abuse of that dominant position. This happened in Belgische Radio en Televisie
(BRT) v Société Belge des Auteurs, Compositeurs et Éditeurs (SABAM) (Case 127/73)
[1974] ECR 313. SABAM was a cooperative association of authors, composers and
publishers which administered, managed and commercially exploited all of the
copyrights and other kindred rights of its members. It had a de facto monopoly over
this. Its standard contracts required members to assign all such rights over their current
and future works to the association without drawing any distinction between different
categories of these rights. It also provided that the association would retain those rights
for five years after withdrawal from the association. The Court of Justice held that
SABAM had abused its dominant position by imposing unfair conditions. It accepted
that the objective of the association was to protect its members against major
undertakings such as broadcasters and record companies. But it held that the
compulsory assignment of all copyrights, both present and future, without a distinction
being drawn between different categories, went beyond what was absolutely necessary
to attain this objective, especially as the assignment continued for an extended period
after the member's withdrawal.
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11.8 May affect inter-state trade

The final requirement under Article 102 is that the abuse of the dominant position ‘may
affect trade between Member States’. The Court of Justice made it clear in British
Leyland that there is no need to establish that the abuse has had an effect on trade
between Member States at the relevant time. It is sufficient that it may affect such
trade. It will be recalled that British Leyland had responded to imports of cheaper left
hand drive models of its Metro car by significantly increasing the charge to distributors
for issuing a certificate of conformity for these models. In addition, it refused to issue
the certificates to importers and it allowed the national type approval for left hand drive
Metros to lapse. British Leyland argued that none of these measures had any
detrimental effect on the volume of imports of left hand drive Metros into the United
Kingdom. The Court of Justice held that this was irrelevant as it was sufficient under
Article 102 that British Leyland was acting in a way that was liable to affect trade
between Member States.
Nevertheless, the trade affected must still be between Member States. In Hugin, the
servicing of Hugin cash registers in the United Kingdom was undertaken by small local
undertakings within the local area around their commercial base. The Court of Justice
accepted that if these undertakings could not obtain a spare part from Hugin’s
subsidiary in the United Kingdom, they would be likely to try to obtain it from Hugin
itself which was based in Sweden. At that time, Sweden was not a member of the EEC.
The Court further accepted that the undertaking would not normally contact a
subsidiary in another Member State. Consequently, there would be no affect on trade
between Member States.
11.9 Fines and damages

The powers to impose fines under Regulation 1/2003 which were discussed in Section
10.10 of the previous chapter apply equally to infringements of Article 102 TFEU. The
record fine for abuse of a dominant position was imposed by the Commission on
Google Inc. in June 2017 (Google Search (Shopping) Case 39740). Google was fined
€2.42 billion for abusing its dominant position in the market for general internet
searches within each Member State. The Commission found that Google had
developed algorithms which systematically gave prominence to its own comparison
shopping service at the top of the results produced by its search engine while demoting
rival comparison shopping services on average to no higher than the fourth page of
results. The record fine before this had been the €1.06 billion imposed in Intel
Corporation (Decision C(2009) 3726) which was discussed in Section 11.7 above.
The provisions of Directive 2014/104 concerning actions for damages which were
discussed in Section 10.11 of the previous chapter are also applicable to infringements
of Article 102 TFEU.
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204
Appendix 1
Fundamental Rights
and Other General
Principles of EU Law
205
206
Appendix 1: Fundamental Rights and Other General Principles of EU Law
A1.1 General Principles of EU law

The general principles are principles used, inter alia, by the Court of Justice to interpret
EU law. They are generally derived by the Court from the legal traditions and values
common to all of the Member States, although some have been specifically provided
for in the treaties. The general principles may be used in the following ways:
 As an aid to interpretation.
 By Member States and individuals to challenge Union action.
 More rarely, to challenge an action of a Member State.
 To support a claim for damages against the Union under Article 340 TFEU.
This appendix will begin by examining fundamental rights before briefly considering
other general principles of law which have been recognised by the Court of Justice.
A1.2 Fundamental rights

The original treaties made no reference to fundamental rights. It is the Court of Justice
which has been primarily responsible for establishing fundamental rights as general
principles of EU law and for using this method to develop a fundamental rights
jurisprudence inspired by the common constitutional traditions of the Member States
and by international treaties for the protection of human rights. This has since been
augmented by the adoption of a Charter of Fundamental Rights. It is only recently that
fundamental rights have been expressly provided for in the treaties. The concept of
fundamental rights which has emerged as a result goes beyond the traditional civil and
political rights which are most commonly associated with conceptions of human rights.
It includes socio-economic rights, environmental rights and rights to good
administration.
A1.2.1 The historical development of fundamental rights protection: A

brief history
In practical terms, the development of human rights protection in the EU has gone
through four main stages. These are as follows:
A1.2.1.1 Stage 1 ― The Court of Justice refuses to accept arguments invoking
fundamental rights
In the absence of fundamental rights provisions in the original foundation treaties, the
Court of Justice initially proved unwilling to accept arguments that invoked fundamental
rights. This was first became apparent in Stork v High Authority (Case 1/58) [1959]
ECR 17. The case concerned decisions by the High Authority of the European Coal
and Steel Community authorising the collieries in the Ruhr region of West Germany to
sell their coal through three joint selling agencies and authorising restrictive threshold
conditions which coal wholesalers had to satisfy before they were allowed to place
direct orders with the agencies. A coal wholesaler who was unable to satisfy an annual
turnover threshold sought to challenge the conditions. One of the wholesaler’s
arguments was that the High Authority had failed to respect certain fundamental rights
which were protected by almost all the constitutions of the Member States including, in
particular, the West German constitution. The Court rejected this, holding that the High
Authority was only required to apply the law of the European Coal and Steel
Community and so was not empowered to consider whether its decisions infringed
fundamental rights provisions of the West German constitution. This conclusion was
subsequently echoed in Geitling v High Authority (Joined Cases 36-38/59 and 40/50)
[1960] ECR 423 in respect of the Court of Justice’s own jurisdiction. One of the
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applicants in this case, Nold KG, was a coal wholesaler which was challenging a
subsequent decision by the High Authority in respect of the joint selling agencies in the
Ruhr which had not retained an exception to the threshold conditions from which the
wholesaler had previously benefitted. In support of its arguments, Nold KG had referred
to a provision of the West German constitution which guaranteed private property. The
Court of Justice held that its function was not to ensure that the internal rules of a
Member State were respected and so it could ‘neither interpret nor apply’ the relevant
provision of the West German Constitution. Moreover, it denied that there was any
general principle of EU law which guaranteed the maintenance of vested rights. In
Sgarlata v Commission (Case 40/64) [1965] ECR 215, the Court of Justice rejected an
argument that a restrictive interpretation of the conditions under which a person could
bring proceedings before it to challenge a decision of the Council or Commission would
be contrary to the fundamental principles governing all the Member States as it would
deprive individuals of all protection. The Court held that such considerations cannot be
allowed to override the clear wording of the Treaty.
A1.2.1.2 Stage 2 ― The Court of Justice recognises fundamental rights as
general principles of law
The attitude of the Court of Justice to fundamental rights subsequently began to shift
under the influence of national courts, particularly those in West Germany. The
adoption of the principle of the supremacy of EU law by the Court of Justice in Costa v
E.N.E.L. (Case 6/64) [1964] ECR 585 undermined any expectation that may have
existed within the legal systems of the Member States that threats posed to
fundamental rights by the drive to achieve the commercial and economic goals of the
treaties could simply be addressed by national courts resorting to the fundamental
rights guarantees found within their own national laws. This was a particular problem in
West Germany due to the West German constitution specifically providing that the
fundamental rights provisions contained within it could not be amended. The West
German courts duly started to show signs of resistance. It is also important not to
overlook the increasing significance that was being attached in political thought across
Western Europe in the years following the Second World War to respect for human
rights as a central condition for legitimate action. This did not sit comfortably with the
early approach of the Court of Justice to fundamental rights.
The Court of Justice first signalled its change in attitude in Stauder v City of Ulm (Case
29/69) [1969] ECR 329. The Court had to interpret a Commission decision which, in
order to stimulate the sale of surplus quantities of butter, authorised Member States to
make butter available to persons on social assistance at a lower price than normal. The
decision required beneficiaries to show a coupon. The German language version of the
decision stated that the coupon had to bear the beneficiary’s name. The other
language versions did not. The West German Court which made the preliminary
reference had taken the view that a requirement that the coupon bear the beneficiary’s
name was contrary to the West German system protecting fundamental rights. The
Court of Justice held that the decision should be interpreted as not requiring the
coupons to bear the beneficiary’s name. This reflected the intention of the Commission.
What was significant was the way in which the Court concluded its judgment. It did so
by observing that:
‘…interpreted in this way the provision at issue contains nothing capable of
prejudicing the fundamental human rights enshrined in the general
principles of community law and protected by the Court’.
The reference by the Court to fundamental rights in Stauder could be seen almost as
an afterthought designed to support an interpretation of EU law which had been
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reached by more conventional methods. But it had been provoked by a position taken
by the West German court on the compatibility of an EU legal measure with the
fundamental rights regime in West Germany. It was another preliminary reference from
West Germany which subsequently led the Court of Justice to confront the issue of
fundamental rights more directly in Internationale Handelsgesellschaft v Einfuhr und
Vorratstelle für Getreide und Futtermittel (Case 11/70) [1970] ECR 1125. This case
involved a challenge to a scheme provided for by two EU Regulations under which
applicants for export licences for cereals had to lodge deposits which they lost if they
failed to effect exportation during the period of validity of the licence. The applicant’s
deposit had been forfeited because it had only effected a partial export. In making its
preliminary reference, the West German Court had emphasised that the deposit
scheme was contrary to fundamental rights guaranteed by the West German
Constitution and that the EU Regulations had to respect these. The Court of Justice
responded to this by reasserting that EU acts could not be interpreted by recourse to
national law and that their validity could not be put into doubt because they ran up
against fundamental constitutional rights. But it counterbalanced that conclusion by
asserting that respect for fundamental rights was part of the general principles of EU
law, ‘inspired by the constitutional traditions common to the Member States’ and
‘respect for which must be ensured within the framework of the structure and objectives
of the Community’.
The Court of Justice’s recognition of fundamental rights as general principles of EU law
was a hugely significant development in its jurisprudence. But, at the time, it failed to
satisfy the West German Federal Constitutional Court when the case returned to West
Germany. In its so-called Solange I judgment (BVerfGE 37, 271) [1974] 2 CMLR 540,
the Constitutional Court complained about the legal uncertainty left by the lack of a
codified catalogue of fundamental rights and held that the fundamental rights
guarantees under the West German constitution would prevail over EEC law for so
long as this situation continued. By that time, the Italian Constitutional Court had also
made it clear in Frontini v Ministero delle Finanze [1974] 2 CMLR 372 that the Italian
constitution did not give the EEC the power to violate fundamental rights.
However, by the time that Solange I had been decided, the Court of Justice had
already begun to build upon the foundation laid in its judgment in Internationale
Handelsgesellschaft. In Nold v Commission (Case 4/73) [1974] ECR 491, decided just
two weeks before Solange I, the Court of Justice not only reasserted its commitment to
fundamental rights but also identified international treaties on human rights as a further
source of guidance on them. The case concerned a challenge to another decision of
the Commission authorising new threshold conditions for coal wholesalers to be able to
buy directly from joint selling agencies in the Ruhr region of West Germany. One of the
arguments made by the coal wholesaler was that the decision violated fundamental
rights protected by the West German constitution, the constitutions of other Member
States and by international treaties, including in particular the European Convention on
Human Rights (ECHR). The Court of Justice held that:
‘As the Court has already stated, fundamental rights form an integral part of
the general principles of law, the observance of which it ensures.
In safeguarding these rights, the Court is bound to draw inspiration from
constitutional traditions common to the Member States, and it cannot
therefore uphold measures which are incompatible with fundamental rights
recognized and protected by the Constitutions of those States.
Similarly, international treaties for the protection of human rights on which
the Member States have collaborated or of which they are signatories, can
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supply guidelines which should be followed within the framework of

Community law.’
There is little doubt that the Court had the ECHR in mind as one such international
treaty. The ECHR was duly invoked by the Court of Justice soon afterwards in Rutili v
Minister for the Interior (Case 36/75) [1975] ECR 1219. Rutili, an Italian national
working in France, had been ordered to move to another part of France because of
trade union activities in the Lorraine region where he was habitually resident. The Court
of Justice had to determine whether this was justified on the basis of the public policy
derogation to the free movement of workers provided by Article 45(3) TFEU. The Court
observed that the limitations placed on the exercise of this derogation by secondary
legislation were a specific manifestation of the general principle found in the ECHR that
no restrictions in the interests of national security or public safety are to be placed on
the rights contained within it other than such as are necessary for the protection of
interests in a democratic society. The Court’s decision to recognise fundamental rights
as general principles of Community law was subsequently given political endorsement
by a Joint Declaration of the European Parliament, the Council and the Commission
issued on the 5th April 1977. This stressed the prime importance that these institutions
attached to the protection of fundamental rights as derived in particular from the
constitutions of the Member States and from the ECHR. Then, in Johnston v RUC
(Case 222/84) [1986] ECR 1651, the Court of Justice went one step further by making
it clear that ‘the principles on which that Convention is based must be taken into
consideration in Community law’. The ECHR and the judgments of the European Court
of Human Rights have since become important influences on the Court of Justice’s
understanding of fundamental rights as general principles of EU law.
Such developments met with the approval of the West German Constitutional Court in
Re Wünsche Handelsgesellschaft (2 BvR 197/83) [1987] 3 CMLR 225, better known as
Solange II. The Constitutional Court held that there was no longer a need for the
introduction of a catalogue of fundamental rights. So long as the European
Communities and the Court of Justice ensured effective protection of fundamental
rights which was substantially similar to the protection required by the West German
constitution, it would not exercise its jurisdiction to review Community law.
A1.2.1.3 Stage 3 ― A Charter of Fundamental Rights is adopted
 The adoption of the Charter on Fundamental Rights
The Charter of Fundamental Rights owes its origins to the intergovernmental
conference of the European Council held in Cologne in June 1999 which concluded
that ‘at the present stage of development of the European Union, the fundamental
rights applicable at Union level should be consolidated in a Charter and thereby made
more explicit’. In accordance with Annex IV of the European Council’s conclusions, the
Charter was drafted by a Convention comprising representatives from the
Governments and Parliaments of the Member States, the European Parliament and the
Commission. Other bodies were also able to contribute. This was a novel method but
one that proved successful. The Charter was completed by October 2000 and
unanimously approved by the European Council at its conference in Biarritz in the
same month. It was subsequently ‘solemnly proclaimed’ by the Presidents of the
Parliament, the Council and the Commission on behalf of their institutions at the
conference of the European Council in Nice in December 2000.
 The content and application of the Charter
The Charter contains a far wider range of rights than is normally found in constitutions
and human rights charters. It includes civil and political rights including rights to good
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administration, socio-economic rights and even a right to a high level of environmental

protection. They are organised in the following categories, originally called chapters but
now referred to as titles:
– Title I: Dignity
– Title II: Freedoms
– Title III: Equality
– Title IV: Solidarity
– Title V: Citizen’s rights
– Title VI: Justice
The field of application of the Charter is defined by Article 51. Following amendment by
the Lisbon treaty, it currently provides that:
‘1. The provisions of this Charter are addressed to the institutions,
bodies, offices and agencies of the Union with due regard for the
principle of subsidiarity and to the Member States only when they are
implementing Union law. They shall therefore respect the rights,
observe the principles and promote the application thereof in
accordance with their respective powers and respecting the limits of
the powers of the Union as conferred on it in the Treaties.
2. The Charter does not extend the field of application of Union law
beyond the powers of the Union or establish any new power or task
for the Union, or modify powers and tasks as defined in the Treaties.’
The scope and interpretation of the rights is addressed in Article 52. Rights have to be
exercised under the conditions and within the limits of the treaties (Article 52(2)). They
have to be interpreted in accordance with any corresponding rights under the ECHR
(Article 52(3)). Any limitations to the rights in the Charter must be provided for by law,
must respect the essence of those rights and must be proportionate (Article 52(1)). The
Lisbon Treaty has introduced a further requirement. Article 52(4) now provides that the
rights have to be interpreted in harmony with the constitutional traditions common to
the Member States (Article 52(4)).
 The legal status of the Charter
The solemn proclamation of the Charter by the Parliament, the Council and the
Commission had been proposed in Annex IV of the European Council’s conclusions to
its Cologne conference. The whole process had been designed to ensure that the
Charter provided an authoritative statement of fundamental rights within the EU without
taking on the attributes of a legally binding instrument. Indeed, Annex IV had expressly
stated that the question of whether and, if so, how the Charter should be integrated into
the treaties would be considered at a later date. But it was arguable that the Charter
could still inform the jurisprudence on fundamental rights as general principles of law in
the same way as the constitutional traditions of the Member States and international
treaties on human rights. This lead to the Charter being taken into account by Advocate
Generals (see for example, Advocate General Tizzano in R v Secretary of State for
Trade and Industry, ex parte BECTU (Case T-173/9) [2001] ECR I-4881), the General
Court (see, for example, Jégo-Quéré & Cie SA v Commission (Case T-177/01) [2002]
ECR II-2365)) and eventually by the Court of Justice itself (Parliament v Council
(Family Reunification) (Case C-540/03) [2006] ECR I-5769).
A1.2.1.4 Stage 4 ― Fundamental rights are provided for in the TEU
The protection of fundamental rights has been given formal legal recognition by the
Lisbon treaty which inserted a new Article 6 into the TEU. Article 6(3) formally
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recognises that fundamental rights, as guaranteed by the ECHR and as they result
from the constitutional traditions common to the Member States, are general principles
of law. Article 6(1) TEU also formally recognises the Charter of Fundamental Rights
and, significantly, gives it the same legal status as the treaties, thereby ensuring that it
is legally binding. The article makes it clear that the provisions of the Charter are not to
extend in any way the competences of the Union as defined in the Treaties. This
change to the legal status of the Charter of Fundamental Rights following the insertion
of Article 6 TEU has raised the possibility that it may come to be treated as the
definitive statement on the fundamental rights in the EU, supplanting other fundamental
rights which have been recognised as general principles of law. However, the most
recent case law has not taken this approach. Rather, the Charter and other
fundamental rights recognised as general principles of law continue to be used in
combination or to be interpreted in the light of each other. For example, in Interseroh
Scrap and Metals Trading GmbH v Sonderabfall-Management-Gesellschaft Rheinland-
Pfalz mbH (SAM) (Case 1/11) [2012] ECR I-0000, the Court of Justice noted that
Articles 15(1), 16 and 17 of the Charter provide for the right to engage in work and to
pursue a freely chosen or accepted occupation, the freedom to conduct a business and
the right to property. It then went on to observe that the right to property and the
freedom to pursue a trade or business are also general principles of law along with the
protection of business secrets. There was no suggestion at all that the rights
recognised as general principles of law were in any way subservient to the Charter.
Nevertheless, the precise relationship between these sources of rights following the
introduction of Article 6 remains to be teased out by the Court of Justice.
Article 6 makes provision for one further development. The Court of Justice had earlier
held in Re Accession by the Community to the European Convention for the Protection
of Human Rights and Fundamental Freedoms (Opinion 2/94) [1996] ECR I-1759 that
there was no power under the Treaties, as they were then constituted, for the EU to
accede to the ECHR. This has now been addressed by Article 6(2) TEU which
expressly authorises the EU to accede to the ECHR. However, Article 6(2) also
conditions this by directing that the accession must not affect the EU’s competences as
defined in the Treaties. Protocol No 8 of the Lisbon Treaty adds that the accession
agreement must preserve the special characteristics of the EU and of EU law (Article 1
of Protocol No 8), that the agreement must ensure that the accession of the EU will not
affect the competences of the EU or the powers of its institutions (Article 2) and that
nothing in the agreement shall affect Article 344 TFEU (Article 3). Article 344 TFEU
provides that Member States are not to submit a dispute concerning the interpretation
or application of the Treaties to any method of settlement other than those provided for
within the Treaties.
Following negotiations involving representatives of each of the forty seven Contracting
States of the ECHR, including all the Member States of the European Union, and a
representative of the European Commission, a draft agreement was reached on a
package of legal instruments for the accession of the EU to the ECHR. However, this
agreement has been held by the Court of Justice in Re Accession of the European
Union to the European Convention for the Protection of Human Rights and
Fundamental Freedoms (Opinion 2/13) [2014] ECR I-0000 to be incompatible with the
conditions in Article 6(2) TFEU and Protocol No 8. The Court held that the draft
agreement, as it stood, was liable adversely to affect specific characteristics of EU law
including the autonomy of EU law and the division of powers between the EU and its
Member States. In addition, the draft agreement was liable to affect Article 344 TFEU
by undermining the exclusive jurisdiction of the Court of Justice to settle disputes
concerning EU law where those disputes involved the application of the ECHR within
the scope ratione materiae of EU law.
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A1.2.2 The application of EU fundamental rights to Member States

Fundamental rights under EU law have been developed to act as a yardstick to
interpret and evaluate EU law and its application so as to ensure that the EU legal
order complies with them. It follows that they apply to the activities of the institutions of
the EU. But it is important to note they do not apply to the actions of Member States in
domestic situations which fall outside of EU law (Demirel v Stadt Schwäbisch Gmünd
(Case 12/86) [1987] ECR 3719 and Annibaldi v v Sindaco del Comune di Guidonia
(Case C-309/96) [1997] ECR I-7493). However, an important feature of the European
Union is that it largely rests upon its Member States to deliver its policies and
objectives. It follows that the EU legal order will extend to the actions of Member States
where they act as agents of the European Union. This has lead the Court of Justice to
hold in Wachauf v Federal Republic of Germany (Case 5/88) [1989] ECR 2609 that
Member States must comply with those fundamental rights obligations recognised as
general principles of EU law when they implement EU rules. That case had involved a
tenant farmer who, upon the expiry of his tenancy, had applied for compensation under
a scheme for discontinuing milk production established by a German law The German
law had been based on a power contained in an EU Regulation. The farmer’s
application was rejected after his landlord had refused to provide written consent for
the farm to discontinue milk production. The Court held that the German authorities had
to comply with EU fundamental rights obligations but that the requirement of consent
did not violate those rights.
This approach to the scope of application of the fundamental rights as general
principles of EU law has been reproduced in the Charter of Fundamental Rights. Article
51(1) of the Charter provides that it applies ‘to the Member States only when they are
implementing Union law’. The difficulty with this has been that the concept of
implementing EU law is ambiguous and depends on the interpretation given to it by the
Court of Justice in order to determine the outer limits of the Court’s fundamental rights
jurisdiction. In Elliniki Radiophonia Tiléorassi AE (ERT) v Dimotiki Etairia Pliroforissis
(DEP) (Case C-260/89) [1991] ECR I-2925, the Court of Justice went beyond Wachauf
by holding that a derogation from the freedom to provide services could only be
justified if it was compatible with fundamental rights. The Grand Chamber of the Court
of Justice has extended it further in the recent and controversial case of Åklagaren v
Fransson (Case C-617/10) [2013] ECR I-0000. Fransson was a Swedish self-employed
fisherman who had provided false information on his tax return. He had been already
been ordered to pay a penalty for tax evasion as a result of this. He was now being
prosecuted in separate criminal proceedings for tax evasion in respect of the same tax
return. The tax evasion in question included a failure to declare VAT which is partially
governed by Directive 2006/112/EC on the common system of VAT. Fransson argued
that for Sweden to bring criminal proceedings against him when he had already paid a
tax penalty contravened the right under Article 50 of the Charter not to be tried or
punished again in criminal proceedings for an offence for which that person has
already been finally acquitted or convicted within the Union in accordance with the law.
The Grand Chamber of the Court of Justice held that the Charter only applies to
national legislation where that legislation falls within the scope of EU law. The tax
penalties and criminal proceedings in this case were connected in part to Fransson’s
breach of his obligations to declare VAT. Under the Directive, when read with Article
4(3) TFEU, Member States are under an obligation to take all measures to collect VAT
and prevent evasion. Moreover, Article 325 TFEU obliges the Member States to
counter fraud and other illegal activities affecting the financial interests of the European
Union. It followed that the tax penalties and criminal proceedings in this case
constituted an implementation of the Directive and Article 325 TFEU for the purpose of
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Article 51 of the Charter, even though the national legislation had not been adopted to
transpose the Directive. Indeed, the Swedish measures on tax penalties and criminal
proceedings had been adopted before Sweden’s accession to the EU.
What the Grand Chamber’s decision in Fransson suggests is that the actions of a
Member State will be taken as implementing EU law where they can be shown to have
some kind of effect on EU policies or interests such as the financial interests of the
Union. This represents a wide interpretation of the notion of ‘implementation of EU law’,
which has caused controversy for two reasons. First, the Swedish legislation was not
intended to implement EU law. Secondly and perhaps more convincingly, the link
between the Swedish system of double penalties and EU law seems rather tenuous.
Yet because this link can be made, the validity of Swedish legislation must be
evaluated by reference to EU standards of fundamental rights rather than domestically
defined standards. Given the extent to which the activities of Member States may
potentially have side-effects that touch on the interests and objectives of the EU, this
may have shifted the boundaries between the jurisdiction of national law and that of the
European law in matters of fundamental rights to the advantage of European law. That
said, the boundaries between EU and domestically defined fundamental rights remain
fluid and Fransson may not have fixed once and for all the scope of application of EU
fundamental rights.
A1.2.3 Does the United Kingdom benefit from an opt-out from the Charter
of Fundamental Rights?
Protocol No. 30 was secured by the United Kingdom and Polish governments in the
negotiations leading up to the Lisbon Treaty. Article 1 of the protocol provides that:
‘1. The Charter does not extend the ability of the Court of Justice of the
European Union, or any court or tribunal of Poland or of the United
Kingdom, to find that the laws, regulations or administrative
provisions, practices or action of Poland or of the United Kingdom are
inconsistent with the fundamental rights, freedoms and principles that
it reaffirms.
2. In particular, and for the avoidance of doubt, nothing in Title IV of the
Charter creates justiciable rights applicable to Poland or the United
Kingdom except in so far as Poland or the United Kingdom has
provided for such rights in its national law.’
At the time, members of the British Government stated on several occasions that the
protocol did not provide the United Kingdom with an opt-out from the Charter but
merely clarified the effect of the Charter in the United Kingdom. However, this did not
prevent the impression from gaining hold in some quarters that the protocol excluded
the United Kingdom from the application of the Charter. Yet, as a number of legal
commentators pointed out, Article 1(1) did not state, certainly not in unequivocal terms,
that the Charter was not to apply to the United Kingdom and Poland. All that Article
1(1) stated was that the Charter does not extend the ability of the Court of Justice to
find that the laws and actions of the United Kingdom and Poland are incompatible with
fundamental rights.
In NS v Secretary of State for the Home Department (Case C-411/10) [2011] ECR
I-13905, the Grand Chamber of the Court of Justice confirmed that the protocol was not
an opt-out. It held that Article 1(1) of the protocol ‘does not call into question the
applicability of the Charter in the United Kingdom’. It merely ‘explains Article 51 of the
Charter with regard to the scope of thereof and does not intend to exempt the Republic
of Poland or the United Kingdom from the obligation to comply with the provisions of
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the Charter or to prevent a court of one of those Member States from ensuring
compliance with those provisions’. The decision has proven controversial in the United
Kingdom with the European Scrutiny Committee of the House of Commons going as
far as to recommend that the British Parliament pass legislation to exclude the
applicability of the Charter in the United Kingdom.
A1.2.4 Some concluding observations

It is important to appreciate that EU Fundamental Rights do not provide a source of
competence for the EU or a legal basis for its activities. Fundamental rights are
primarily aimed at constraining the actions of the EU institutions and of Member States
acting in EU law matters so as to ensure that they respect them. To this end,
fundamental rights can inform and shape the interpretation of the Treaties, EU
secondary legislation and national rules implementing EU law. As an interpretative
device, they can be used to inform a more restrictive interpretation of them. But, of
course, they can also be used to inform a more expansive one as well in appropriate
contexts. EU fundamental rights can also provide grounds for invalidating EU
secondary law and disapplying national laws implementing EU objectives. In this
respect, there are some advantages in pursuing a human rights claim through EU law
rather than directly through the ECHR. The supremacy of EU law means that a national
law which is incompatible with the EU’s general principles of fundamental rights or the
Charter on Fundamental Rights may be disapplied. This is still not the case in the
United Kingdom where primary legislation is at issue, even under the Human Rights
Act 1998 which incorporated the ECHR into British law. However, it remains the case
that EU Fundamental Rights only apply to Member States when they are implementing
EU law so does not apply to purely domestic situations falling outside of EU law. This
can be contrasted with the ECHR law has a wider scope of application.
That said, it remains to be seen precisely what impact the Charter will have in the field
of fundamental rights now that it has been provided for in the TEU. In many respects, it
appears to add little to the existing jurisprudence which had already been developed by
the Court of Justice in this field. As the Grand Chamber of the Court of Justice noted in
NS v Secretary of State for the Home Department (Joined Cases C-411/10 and
C-493/10) [2011] ECR I-0000, ‘the Charter reaffirms the rights, freedoms and principles
recognised in the Union and makes those rights more visible, but does not create new
rights or principles’. Indeed, many, although not all, of the Charter’s rights have long
been part of EU law. One argument that has been advanced is that by enhancing the
visibility of rights, many of which had previously remained obscure, it will make them
more readily used in court to challenge laws adopted in EU matters. This could pave
the way for the greatest legacy of the Charter, as Paul Craig has suggested, namely an
increase of rights based claims and legal challenges, in particular in subject-matter
largely governed by EU law such as competition law.
A1.3 Other general principles of EU law

The Court has also developed other general principles of law beyond fundamental
rights. The following provide examples.
A1.3.1 Equality
Article 18 TFEU is the key article on equality and provides that discrimination on the
grounds of nationality is not permitted. The Treaty of Amsterdam created a new Article
13 EC which extended the Community’s ability to act against discrimination. This is
now Article 19 TFEU which provides as follows:
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‘Without prejudice to the other provisions of the Treaties and within the
limits of the powers conferred by them upon the Union, the Council, acting
unanimously in accordance with a special legislative procedure and after
obtaining the consent of the European Parliament, may take appropriate
action to combat discrimination based on sex, racial or ethnic origin,
religion or belief, disability, age or sexual orientation.’
Some general points can be made about Article 19:
 Unlike Article 18, Article 19 is not a direct prohibition against discrimination.
 Article 19 strengthens the power of the Union to take action, such as enacting
legislation or taking other regulatory action, against the forms of discrimination
mentioned in it.
 Action by the Union can only be taken ‘within the limits of the powers’ conferred
on it. This has encouraged a restricted interpretation of what constitutes
discrimination.
 The Article supplements existing principles of equality that exist within EU law in
specific areas. For example, in P v S & Cornwall County Council (Case C-13/94)
[1996] ECR I-2143, the Advocate General argued that, before Article 19 TFEU
was created, the general principle of equality alone imposed requirements in a
number of areas on EU institutions and Member States not to discriminate on
arbitrary grounds such as sex in areas like employment and pay.
 Article 19 and other anti-discrimination articles in the TEU and TFEU are
supplemented by secondary legislation, declarations and resolutions. For
example, Council Regulation 1035/97 created the European Monitoring Centre
on Racism and Xenophobia. The Regulation was made under Article 245 TFEU,
which gives the Commission a general information gathering power and Article
352 TFEU.
 An example of equality as applied to a specific subject area is Article 157 TFEU
which provides for the principle of equal pay between men and women.
There are two points about the general principle of equality which are worth noting:
 Violation of the principle will render an EU policy invalid. An example exists in
Sabbatini v Parliament (Case 20/71) [1972] ECR 345. In this case, the Court of
Justice held that, in the context of staff policy, the Union institutions are generally
bound by the principle of equal treatment of the sexes and that this is not
specifically limited to the provisions of Article 157 TFEU and the relevant
secondary legislation.
 Whilst the principle of equality can invalidate an EU provision, it does not provide
positive rights. In Prais v Council (Case 130/75) [1976] ECR 1589, a Jewish
applicant for a post as a translator at the Council sought to challenge a decision
which fixed the date for the open-competition on a Jewish feast day. The basis of
her challenge was that the decision was discriminatory given that her religion
forbade her to either travel or write that day. The Court of Justice held that the
institution should have taken steps to avoid that result. However, neither Staff
Regulations nor the fundamental right of freedom of religion could be considered
as imposing a positive duty to avoid a conflict with religious requirements.
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A1.3.2 Legal certainty and legitimate expectation

The principle of legal certainty dictates that individuals should be able to ascertain their
rights and the obligations imposed upon them with sufficient certainty. As the Court of
Justice explained in Administration des Douanes v Société Anonyme Gondrand Frères
(Case 169/80) [1981] ECR 1931 in the context of the common customs tariff:
‘The principle of legal certainty requires that rules imposing charges on the
taxpayer must be clear and precise so that he may know without ambiguity
what are his rights and obligations and may take steps accordingly.’
One manifestation of this is the prohibition on retrospective effect. This prevents an EU
act from taking effect from a point in time before its publication. Retroactive Union
measures will only be considered valid in exceptional cases. For example, a
retrospective measure will be allowed if it is needed to achieve a Union objective or to
meet certain legitimate expectations.
An associated principle is that of legitimate expectation. A legitimate expectation arises
where the EU creates an expectation in a person which is legitimately held and which
that person acts in reliance upon. The EU must not frustrate the expectation unless
there is an overriding reason in the public interest which justifies it doing so. For
example, in Comptoir National Technique Agricole (CNTA) SA v Commission (Case
74/74) [1975] ECR 533, a producer of Colza Oils complained about the adoption by the
Commission of Regulation 189 which had discontinued with immediate effect
compensation payments that had been made in respect of colza seeds under another
Regulation. The Commission had given no warning that it would do so. The company
claimed that it had a legitimate expectation that compensatory amounts would be
maintained for deliveries in progress. The Regulation had frustrated that expectation
and caused extensive trading losses to CNTA. The Court of Justice held that by failing
to provide a transitional measure in the Regulation, pursuant to which traders could
have avoided such losses, the Commission had breached the general principle of
legitimate expectation.
A1.3.3 The right to a hearing

An example of the application of this general principle can be found in Transocean
Marine Paint Association v Commission (Case 17/74) [1974] ECR 1063. TMPA took
action to annul a decision of the Commission which had been addressed to TMPA and
which stated that TMPA’s trading agreements were in breach of EU competition law.
The Court of Justice stated that it was a general rule that persons whose interests are
perceptibly affected by a decision taken by a public authority must be given the
opportunity to make their views known. Since the Commission had failed to comply
with this obligation its decision was annulled.
The principle of a right to a hearing was affirmed in Hoffmann-La Roche & Co AG v
Commission (Case 85/76) [1979] ECR 461. In this case, the Court of Justice stated
that the right to be heard existed in all proceedings in which sanctions (particularly fines
and periodic payment) may be imposed. This right was a fundamental principle of
Union law which must be respected even if the relevant proceedings were merely
administrative proceedings.
A1.3.4 Legal professional privilege

An example of this principle can be seen in AM & S Ltd v Commission (Case 155/79)
[1982] ECR 1575 concerns EU competition law. Here, AM & S brought an action to
annul a Commission decision. The Commission decision had required AM & S to
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produce various documents to assist a Commission investigation into suspected

breaches of competition law. The Court of Justice held that AM & S did not have to
produce its communications with its lawyers as these were protected by legal
professional privilege which was a concept recognised in most Member States.
A1.3.5 Proportionality
The concept of proportionality means that an act must be necessary and suitable to
attain the objective pursued and that it must not go further than is necessary to achieve
that objective. This principle is applied when determining whether or not Member
States are justified in restricting rights granted by the EU. Therefore, in Gebhard
Consiglio dell’Ordine degli Avvocati e Procuratori di Milano (Case C-55/94) [1995] ECR
I-4165, the Court of Justice held that national measures liable to restrict the exercise of
fundamental freedoms guaranteed by the Treaty ‘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.’ (See further Section 8.6.2 in Chapter 8.) Plenty of
illustrations of the application of the proportionality principle have been provided in
these Study Notes. For example, contrast Campus Oil Ltd v Minister for Industry and
Energy (Case 72/83) [1984] ECR 2727 with Commission v Greece (Case 347/88)
[1990] ECR I-4747, both of which are discussed in Section 6.3.3.
The principle of proportionality has also been employed by the Court of Justice in
cases involving challenges to the acts of the EU itself such as challenges to secondary
legislation adopted by the EU (on which, see Appendix 2). In this context, the principle
has been described by the Court of Justice in Fromançais SA v Fonds d'Orientation et
de Régularisation des Marchés Agricoles (FORMA) (Case 66/82) [1983] ECR 395 in
the following way:
‘In order to establish whether a provision of Community law is consonant
with the principle of proportionality it is necessary to establish, in the first
place, whether the means it employs to achieve its aim correspond to the
importance of the aim and, in the second place, whether they are
necessary for its achievement.’
In R v Minister of Agriculture, Fisheries and Food and Secretary of State for Health, ex
parte Fedesa (Case C-331/88) [1990] ECR I-4023, another case involving a challenge
to an act of the EU, the Court explained the principle of proportionality in the following
terms:
‘By virtue of that principle, the lawfulness of the prohibition of an economic
activity is subject to the condition that the prohibitory measures are
appropriate and necessary in order to achieve the objectives legitimately
pursued by the legislation in question; when there is a choice between
several appropriate measures recourse must be had to the least onerous,
and the disadvantages caused must not be disproportionate to the aims
pursued.’
An example of the principle being employed in a challenge to an act of the EU, in this
case a Regulation, is provided by Bela Mühle Josef Bergman KG v Grows-Farm GmbH
& Co KG (‘Skimmed Milk Powder’) (Case 114/76) [1977] ECR 1211. In this case, an
EU Regulation provided for a scheme under which producers of animal feed were
forced to purchase skimmed milk powder for use in their products at a price which had
been fixed at three times that of the soya they would otherwise have used. The Court
of Justice held that this scheme provided by the Regulation was disproportionate
because the obligation under it to purchase at such a price was unnecessary in order
to dispose of stocks of skimmed milk powder.
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Since the Lisbon treaty, the principle has been expressly provided for as a general
principle in the TEU, albeit only in respect of the limits to use by the EU of its
competences. In that context, Article 5(4) of the TEU now provides that:
‘Under the principle of proportionality, the content and form of Union action
shall not exceed what is necessary to achieve the objectives of the
Treaties.
The institutions of the Union shall apply the principle of proportionality as
laid down in the Protocol on the application of the principles of subsidiarity
and proportionality.’
219
220
Appendix 2
Administrative
Law of the EU
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222
Appendix 2: Administrative Law of the EU
EU rules can be enforced through two avenues. First, they can be enforced through the
national courts of the Member States. Secondly, they can be enforced by means of
direct action in the Court of Justice. The following chapter will seek to further clarify
aspects of EU law enforcement, in particular by focusing on the procedural
requirements for the involvement of the national courts and the Court of Justice.
A2.1 Enforcement through the national courts

The enforcement of the EU law in national courts has already been explored in Chapter
4. As will be recalled, this can be achieved by means of giving direct effect or indirect
effect to EU law and by means of state liability where there has been a sufficiently
serious breach of EU law by a Member State.
These provide a relatively quick method without putting the strain on EU resources.
Any questions that the national court has about the meaning and effect of EU law can
be resolved by making a preliminary reference to the Court of Justice. But these are
only concerned with ensuring that Member States and private parties comply with their
obligations under EU law. They will not avail the claimant who seeks to challenge an
act of the EU itself. However, it can be possible to challenge an act of the EU itself
indirectly in the course of a legal dispute being heard in a national court. This can be
done by the national court referring a question to the Court of Justice as to the validity
of the act by means of a preliminary reference.
A2.1.1 Preliminary reference procedure: Article 267 TFEU

Initiating an action in a domestic court does not mean that a decision from the Court of
Justice will not be required. In fact, this is where domestic courts and the Court of
Justice work together to produce a joint result. In a nutshell, whenever a case has an
EU law element, a national court may ask the Court of Justice to give a preliminary
decision on the matter before that national court delivers its final judgement. This is
known as a preliminary reference.
The idea of the Court of Justice working in tandem with the national courts, especially
after considering the principle of supremacy, may suggest a kind of hierarchy, with the
Court of Justice at the top and the domestic courts below this. However, the EU
Treaties create no such hierarchy. The preliminary reference procedure makes national
courts and the Court of Justice equal partners and the relationship between them is
one of cooperation rather than subordination.
Preliminary references differ from a normal appeals procedure in which the party
dissatisfied with the lower court’s decision can take the necessary procedural steps
and appeal to a higher court. In an appeals procedure, the higher court can replace the
decision of the lower court with one of its own. Under the preliminary reference
procedure, it is the national court rather than the parties to the case which decides
which specific issues should be referred to the Court of Justice. After reaching its
decision, the Court of Justice remits the case to the national court which then makes
the final decision.
Article 267 TFEU defines the regular preliminary reference procedure and outlines the
limits of the Court of Justice competence as follows:
‘The Court of Justice of the European Union shall have jurisdiction to give
preliminary rulings concerning:
(a) The interpretation of the Treaties;
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(b) The validity and interpretation of acts of the institutions,

bodies, offices or agencies of the Union;
Where such a question is raised before any court or tribunal of a Member
State, that court or tribunal may, if it considers that a decision on the
question is necessary to enable it to give judgment, request the Court to
give a ruling thereon.
Where any such question is raised in a case pending before a court or
tribunal of a Member State against whose decisions there is no judicial
remedy under national law, that court or tribunal shall bring the matter
before the Court.
If such a question is raised in a case pending before a court or tribunal of a
Member State with regard to a person in custody, the Court of Justice of
the European Union shall act with the minimum of delay.’
From the above it follows that the Court of Justice can only look at questions
concerning the interpretation of EU law and the validity of EU legislation since the
Treaties themselves are constituent documents of the European Union their validity
cannot be questioned. The Court of Justice cannot rule on matters of fact nor of
national law. It also cannot rule on the application of the law in a particular case. For
this reason, the questions addressed to the Court of Justice are often phrased in
general terms. For example, whether a particular provision of EU law should be
interpreted in a particular way rather than whether it provides a defence for the charge
at hand or how the parties should act further.
Although, under the Treaties, the Court of Justice can only interpret EU legislation and
rule on its validity, its judgments do sometimes border on the application of the law to
the facts of a particular case. These kinds of judgments are so detailed that they leave
nothing for the domestic court to do, other than to repeat the Court of Justice’s decision
in their formal judgement. For an example of such a detailed ruling, consider Cristini v
SNCF (Case 32/75) [1975] ECR 1085.
 The power of national courts to refer
Article 267 TFEU provides that a preliminary reference may be sought by ‘any court or
tribunal of a Member State’. According to Garofalo v Ministero della Sanita (Cases
C-69 to 79/96) [1997] ECR I-5603, to be recognised as a ‘court or tribunal’ the body
concerned should be established by law; permanent; its jurisdiction should be
compulsory; its procedure should be inter-party; it should apply the rule of law; and it
should be independent.
Activity point
Read Srl CILFIT v Ministry of Health (Case 283/81) [1982] ECR 3415. This is available
from the official European Union Law website (eur lex.europa.eu) and the website of
the Court of Justice (curia.europa.eu).
What is the ‘Acte Clair’ doctrine? How has this case contributed to transforming the
relationship between national courts and the Court of Justice?
Under the second paragraph of Article 267 TFEU, a court that has the power to make a
preliminary reference can only do so if a question of EU law is raised and ‘it considers
that a decision on the question is necessary to enable it to give judgement’. The Treaty
therefore makes it clear that national courts have discretion as to whether or not to
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make a referral to the Court of Justice. For instance, if a lower court wants to avoid the
delay in proceedings that a preliminary reference entails, it is justified in deciding the
matter itself.
However, note that the third paragraph of Article 267 TFEU lays down an obligation to
refer matters to the Court of Justice with regard to a court or tribunal of a Member State
‘against whose decisions there is no judicial remedy under national law’.
A2.1.2 Effect of preliminary rulings

After the Court of Justice has reached its decision, that decision is then handed down
to the national court that made the preliminary reference. The national court is not
obliged to apply the decision of the Court of Justice, as it may decide the case on other
grounds. However, if it does apply the decision of the Court of Justice, it is bound by
that ruling (Milch-Fett und Eierkontor GmbH v Hauptzollamt Saarbrücken (Case 29/68)
[1969] ECR 165).
If the same issue arises again in a later case, whether in the courts of the same or a
different Member State, the Court of Justice may apply the same ruling. However,
national courts are not precluded from making new preliminary references. They can
do so if, for example, they consider that the previous ruling of the Court of Justice is
mistaken and want it to reconsider its position. Unless a new preliminary reference is
made, all of the national courts in the Member States should obey the decision of the
Court of Justice. It would be improper for a national court to depart from the Court of
Justice’s decision simply because it considered it to be wrong.
Thus the EU has created an ingenious method of ensuring that the decisions of the
supranational Court of Justice are carried out in the national courts of Member States.
Without creating a federation-like hierarchy of courts or forcing national courts to
always seek the opinion of the Court of Justice, the Treaty ensures that the decisions
of the Court of Justice are enforced domestically through the national courts of the
Member States. Domestic bodies and private individuals in Member States are then far
less likely to disregard the decisions. This therefore ensures that general compliance
with EU rules is facilitated and enhanced.
A2.2 Direct enforcement at the EU level

A2.2.1 Public enforcement actions against national governments: Articles
258 and 259 TFEU
The principle of State Liability, which was discussed in Chapter 4, provides individuals
with a remedy before their national courts against offending Member States. The
Treaty also allows actions against such Member States to be initiated at the European
level by the Commission (Article 258 TFEU) and by other Member States (Article 259
TFEU).
‘Article 258
If the Commission considers that a Member State has failed to fulfil an
obligation under the Treaties, it shall deliver a reasoned opinion on the
matter after giving the State concerned the opportunity to submit its
observations.
If the State concerned does not comply with the opinion within the period
laid down by the Commission, the latter may bring the matter before the
Court of Justice of the European Union.
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Article 259
A Member State which considers that another Member State has failed to
fulfil an obligation under the Treaties may bring the matter before the Court
of Justice of the European Union.
Before a Member State brings an action against another Member State for
an alleged infringement of an obligation under the Treaties, it shall bring the
matter before the Commission.
The Commission shall deliver a reasoned opinion after each of the States
concerned has been given the opportunity to submit its own case and its
observations on the other party’s case both orally and in writing.
If the Commission has not delivered an opinion within three months of the
date on which the matter was brought before it, the absence of such
opinion shall not prevent the matter from being brought before the Court.’
In both cases, the Commission appears to be the final negotiator representing the EU
before the matter goes to the Court of Justice. Indeed, it is often referred to as the
‘Watchdog of the Treaties’. Before the formal procedures described in Articles 258 and
259 are commenced, the Commission usually holds a series of investigations and
informal negotiations with the Member State that appears to have violated the treaty. It
is only when the Commission is satisfied that the factual and legal issues have been
fully investigated that it will move on to the formal stage.
A formal request for observations shows that there is a preliminary determination that a
breach might have taken place. The Commission is always keen on reaching an
amicable resolution of violations. It is only when it is clear that the offending Member
State is not prepared to rectify the situation that the Commission will formally deliver its
reasoned opinion and record any violation.
A2.2.2 Purpose of Commission’s reasoned opinion

A ‘reasoned opinion’ formally records a violation committed by a Member State. Its
purpose is to specify exactly what the Member State has done wrong and, if the matter
subsequently goes to the Court of Justice, the opinion defines the issues for the Court
and helps the Member State to prepare its case. Within its opinion the Commission
sets the time limit in which the Member State is to end the violation. The Commission
cannot bring any legal proceedings before the limit expires. It is only in situations when
the Member State does not act within this time limit that the matter is put before the
Court.
The time limit given to the State is within the discretion of the Commission, but it has to
be reasonable. If it is too short the Court might not accept the subsequent application
as admissible (Commission v Belgium (Case 293/85) [1988] ECR 305). However, the
Court itself cannot extend or reduce the time limit set by the Commission (Commission
v Italy (Case 28/81) [1981] ECR 2577).
The scope of the court proceedings will be limited to the issues specified in the
reasoned opinion. The Commission cannot raise new allegations before the Court
(Commission v Italy (Case 166/82) [1984] ECR 459).
A2.2.3 Judicial involvement in enforcement actions

Unlike the Preliminary Ruling procedure discussed above, the Court has full
competence to consider all issues in Enforcement Actions. Moreover, it delivers actual
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judgements which apply to the matter before the court. For this reason, this type of
action might be more beneficial to the parties seeking to enforce EU law.
Proceedings cannot be brought against a Member State if the breach is terminated
before the deadline laid down in the reasoned opinion expires. However, the Court of
Justice held in Commission v Italy (Pork Imports) (Case 7/61) [1961] ECR 317 that they
can still be brought if a breach is terminated after the deadline expires but before the
judgment of the Court is delivered.
If a Member State is found to be in violation of the Treaty it is required to take
necessary measures to comply with the judgment of the Court of Justice.
According to Article 279 TFEU, before the judgement is delivered the Court can issue
an interim measure. These interim measures are close in nature to English
interlocutory injunctions. Before issuing such a measure the Court will take into
consideration three things. First, it will consider the likelihood of the main proceeding
being successful – no order will be made if the claim in the main action is manifestly
unfounded. Secondly, it must be shown that the need for the order is urgent. Thirdly,
the Commission will normally be required to demonstrate that irreparable damage to
the EU’s interests will occur if the order is not given. To see an application of these
principles, consider the Court’s judgment in Commission v Germany (Road Tax) (Case
C-195/90 R) [1990] ECR I-3351.
Once the judgment of the Court in the main proceedings is delivered and if the Member
State fails to comply with it, the Commission will step in again in its role of Watchdog of
the Treaties. It will issue another reasoned opinion specifying the points on which the
Member State has failed to comply with the judgment. According to Article 260 TFEU,
after considering the Member State’s observations – and if the violation persists – the
Commission may ‘advise’ the Court on a pecuniary penalty to be paid by the State. The
provision requesting the offending State to pay a penalty for any breach of EU Law is
relatively novel. It was inserted into the text of the Treaty in 2002 and now adds to the
enforcement of EU law, providing Member States with an incentive to comply.
Note that the direct effect of an EU provision and hence the ability of individuals to
enforce it before national courts does not preclude the Commission from bringing an
action under Article 258 TFEU since the two procedures have different objectives: the
first aims to protect individual rights in a specific case, whilst the second aims to ensure
uniform observance of EU law (see Commission v UK (Case C-508/03) [2006] ECR
I-3969).
A2.2.4 Defences
Various defences are available for Member States that are found to be in violation of
the Treaty. These include the following:
(a) Administrative difficulties and economic problems
This defence was used by the Belgian Government as a reason for not complying with
a Community Directive on the quality of drinking water (Commission v Belgium (Case
C-42/89) [1990] ECR I-2821). The Belgian Government pleaded that the complexity of
construction works at the water station in a Belgian town meant that the authorities
needed a longer time to comply with the European norm. However, this argument did
not succeed in the Court as it was made four years after the implementation date had
passed – far too long.
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(b) EU law itself is illegal

The Court usually does not accept this argument unless the relevant law concerned is
so defective as to be deemed non-existent (as in the case of Commission v BASF
(Case C-137/92P) [1994] ECR I-2555). The Court is quite definite about the function of
Article 258 TFEU, which is to give a declaration that the Member State concerned has
violated the Treaty and not to provide a judicial review of the EU law.
(c) Force majeure
This is a recognised but rarely used defence under EU law. It refers to an extraordinary
event or circumstance beyond the control of a Member State, such as a war, strike,
riot, crime, or an event described by the legal term ‘act of God’ such as flooding,
earthquake, or volcanic eruption, which prevents that Member State from fulfilling its
obligations under EU law. In the leading case of Commission v Italy (Case 101/84)
[1985] ECR 2625, the Italian government failed to compile statistical returns required
by Community Directive 78/546. The Court accepted the force majeure defence as the
Italian Data Processing Centre had suffered a bomb attack in 1978 and its vehicle
register had been destroyed.
A2.3 Actions for Annulment and Judicial Review of EU Law

(Article 263TFEU)
The Court of Justice also has jurisdiction to rule on the validity of acts of the EU itself.
Indeed, in Foto Frost v Hauptzollamt Lübeck-Ost (Case 314/85) [1987] ECR 4199, the
Court of Justice emphasised that only it has jurisdiction to quash EU legislation as
invalid. However, challenges to the validity of an act of the EU can come to the Court
via two separate routes, depending upon the situation:
 As was noted above, a challenge can be made indirectly when a question as to
the validity of an act of the EU is referred by a national court pursuant to the
preliminary ruling procedure under Article 267. Here, the national court can be
seen as some kind of filter as it may refuse to make a referral to the Court of
Justice and consider the act to be valid instead.
 A challenge can be made directly before the Court of Justice using the procedure
under Article 263 TFEU.
This section only examines direct challenges before the Court of Justice under Article
263 TFEU. However, it is worth noting from the outset that both procedures are meant
to complement each other in their delivery of an effective system of judicial remedies.
In particular, a direct challenge to the validity of an EU act may be inadmissible by
reason of the conditions under Article 263 but may still be perfectly arguable in the
context of an action before a national court which causes the latter to request a
preliminary ruling from the Court of Justice on the validity of the EU act pursuant to
Article 267. Thus, the conditions under which an act can be challenged under Article
263 should not be understood in isolation. It is only by considering this dual system of
judicial review as a whole involving both Article 263, on the one hand, and Article 267
on the other, that one could truly evaluate the system of judicial remedies within the
EU.
A2.3.1 What acts are reviewable?

Article 263 TFEU provides:
‘The Court of Justice of the European Union shall review the legality of
legislative acts, of acts of the Council, of the Commission and of the
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European Central Bank, other than recommendations and opinions, and of

acts of the European Parliament and of the European Council intended to
produce legal effects vis-à-vis third parties. It shall also review the legality
of acts of bodies, offices or agencies of the Union intended to produce legal
effects vis-à-vis third parties.’
In International Business Machines Corporation v Commission (IMB) (Case 60/81)
[1981] ECR 2639, the Court held that:
‘… any measure the legal effects of which are binding on, and capable of
affecting the legal interests of, the applicant by bringing about distinct
change to his legal position is an act or decision which may be subject to
an action under Article 173 [263 TFEU] for a declaration that it is void.’
However, it added further that:
‘… measures of purely preparatory character may not themselves be
subject to application.’
Documents such as letters from the Commission initiating competition procedures
against a company would be preparatory documents. A statement of objections made
after proceedings have begun, whereby the Commission notifies any such company of
any infringements it believes to have been committed, would not alter the legal position
of that company, but it might notify it that its position might be altered in the future.
A reviewable act will have legal effect until it is set aside by the Court of Justice or
General Court. In accordance with Article 263 TFEU, the proceedings against the
decision should normally be instituted within two months of the publication of such a
decision. Article 264 TFEU further provides that if the action is well founded ‘the Court
of Justice shall declare the act concerned to be void’.
A2.3.2 Standing to contest legality of EU Acts

Article 263 TFEU grants standing to so-called ‘privileged’ applicants. This allows
actions to contest the legality of EU acts to be brought by a Member State, the
European Parliament, the Council or the Commission. The article also grants standing
to ‘non-privileged’ applicants. These can be natural or legal persons. However for an
action brought directly before the Court of Justice to be admissible, the applicant will
need to demonstrate one of the following:
1. The act contested is addressed to the applicant
The paradigm example of this is a decision addressed to the applicant.
2. The act contested is not specifically addressed to the applicant but
nevertheless is of direct and individual concern to them
This breaks down into two criteria. First, the applicant must show that the act is of
direct concern to them. This has been interpreted as requiring that the act must affect
the legal position of the applicant and must do so directly without leaving the addressee
any discretion as to how it is to be implemented (NV International Fruit Company v
Commission (Case 41-44/70) [1971] ECR 411). In other words, any implementation of
the act by the addressee must be purely automatic so that it is the EU act itself rather
than the implementation of the act by the addressee which can be said to have affected
the applicant’s legal position.
The second criterion is that the act must be of individual concern to the applicant. The
Court has made it very difficult to satisfy this criterion. The applicant has to be very
closely connected to the decision and should be distinguished from the general public
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in the same way that the addressee is. In Plaumann v Commission (Case 25/62) [1963]
ECR 95 the Court introduced the so-called ‘closed category test’. It held that:
‘…to establish individual concern the applicant must show that the measure
affects him by reason of certain attributes peculiar to him or by reason of
circumstances that differentiate him from all other persons just as in the
case of the persons directly addressed’.
The Court went on to say that a closed category is one in which the membership is
fixed at the time of the decision, whereas an open category is one in which
membership is not fixed at the time of the decision and anyone can enter it. For
example, in Plaumann the Court held that Plaumann, a trader in clementines, could not
challenge the Commission’s decision regarding the collection of duties on the
importation of clementines from non-EU countries. According to the Court, Plaumann
was not a member of a closed group as anyone could join the trade.
This test has been notoriously difficult to satisfy save for exceptional situations. This
fuelled recurrent criticisms that a large number of EU acts were practically immune to
judicial review. This, it was said, compromised the Union’s aspirations to be acting
within the rule of law. For example, in Greenpeace v Commission (Case T-585/93)
[1995] ECR II-2205, a group of fishermen, farmers, residents, and environmental
interest groups sought annulment of the Commission’s decision granting financial
assistance to build two power stations in the Canary Islands. They hoped that the
General Court would relax the application of the Plaumann test and award standing by
taking into account the extent of the potential environmental damage and impact on the
economy of the region. The General Court replied that the presence of such factors
does not affect standing. Those potential types of harm might affect a large number of
persons who could not be determined in advance in a way which would allow them to
be distinguished individually.
A more recent example of how restrictive both the direct concern and the individual
concern requirements can be is Inuit v European Parliament and Council (Case
T-18/10) [2011] ECR II-5599. Members of the Inuit community who were involved in the
hunting and trapping of seals and certain organisations which represented their
interests had sought to bring an action for the annulment of Regulation 1007/2009
which, with some narrow exceptions, banned seal products from being placed on the
European internal market. The General Court found only four applicants to be directly
concerned by the Regulation. These were the applicants who were active in placing on
the European market seal products supplied by Inuit and non-Inuit seal hunters and
trappers. The members of the wider Inuit community of seal hunters and trappers were
not regarded as being directly concerned because they were not actively placing seal
products on the market themselves, notwithstanding that the ban may have
consequences for their business activities and other economic consequences for them.
The General Court went on to find that the four applicants who were directly concerned
could still not bring an action because they were not individually concerned. The ban
was expressed in a general manner and capable of applying equally to any trader who
is covered by the Regulation. There was nothing to distinguish these four applicants
from any other trader who places seal products on the market. On appeal, the Grand
Chamber of the Court of Justice held in Inuit v European Parliament and Council (Case
C-583/11P) [2013] ECR I-0000 that none of the applicants were individually concerned
and so the actions of all of the applicants were inadmissible on that ground alone
without having to consider whether any were directly concerned.
230
3. The act contested is a regulatory act which is direct concern to the

applicant and does not entail implementing measures
To improve the scope of protection of non-privileged applicants, the Lisbon Treaty
introduced a third category of acts in Article 263(4) TFEU. These are obscurely defined
as ‘regulatory acts which are of direct concern to the applicant and do not entail
implementing measures’. The admissibility of a challenge to such regulatory acts is
only subject to the direct concern requirement. There is no need for the applicant to
demonstrate that they are individually concerned by the act. This liberalises standing
rules for this category of acts as can be illustrated with the case of Microban
International Ltd v Commission (Case T-262/10) [2011] ECR II-7697. Microban was
one of the many manufacturers and sellers of an antibacterial additive called triclosan.
The additive had been banned by the Commission from being used in certain
materials. In accordance with the more relaxed rules of admissibility under Article
263(4) for challenging regulatory acts, Microban only had to demonstrate that its legal
position has been directly affected by the decision of the Commission and that it was
thereby directly concerned by that decision. It did not have to demonstrate that it was
individually concerned by the decision and so did not have to establish that it belonged
to a closed category of persons who were affected by that decision. The challenge was
held by the General Court to be admissible and Microban was able to obtain an
annulment of the Commission’s ban.
Naturally, the precise reach of the Article 263(4) reform depends upon the scope of this
new category of acts. Yet the concept of regulatory acts was given a restricted
meaning in Inuit v European Parliament and Council (Case T-18/10) [2011] ECR
II-5599. It will be recalled that this case involved an action for annulment of Regulation
1007/2009 which prohibited seal products from being placed on the European internal
market. The General Court held that a regulatory act had to be distinguished from a
legislative act. An act which had been adopted using the ordinary legislative procedure
in the European Parliament was a legislative act and not a regulatory act. Regulation
1107/2009 had been adopted using this procedure and so was not a regulatory act.
This conclusion was upheld by the Grand Chamber of the Court of Justice in Inuit v
European Parliament and Council (Case C-583/11P) [2013] ECR I-0000. The Grand
Chamber resorted to the history of Article 263(4) and observed that the new standing
rule was meant to ‘maintain a restrictive approach in relation to actions by individuals
against legislative acts’.
A further requirement of the third category of acts under Article 263(4) is that the
regulatory act must not entail implementing measures if a non-privileged applicant is to
have standing to challenge it directly before the Court of Justice. This is because the
appropriate avenue for a non-privileged applicant to challenge those regulatory acts
which do entail implementing measures is an action brought before a national court
which challenges the implementing measure. The national court can then make a
preliminary reference to the Court of Justice on the question of the validity of the
regulatory act which the measure was implementing. As the Grand Chamber explained
in Inuit:
‘…where that implementation is a matter for the Member States, persons
may plead the invalidity of the European Union act at issue before the
national courts and tribunals and cause the latter to request a preliminary
ruling from the Court of Justice, pursuant to Article 267 TFEU.’
It is interesting to note that the Court of Justice in Inuit had at its disposal a number of
newly applicable provisions including Article 47 of the Charter of Fundamental Rights
conferring the protection of an effective system of judicial remedies. The provision that
231
the Court decided to emphasise instead was the duty of the Member States
themselves under Article 19(1) TEU to contribute towards the provision of these
remedies. This reaffirms that, under the unique structure of the European Union, the
normal judge for private parties in all matters covered by European Law remains the
domestic judge, if necessary with the collaboration of the Court of Justice under the
preliminary reference procedure (Article 267 TFEU). Article 47 of the Charter, which
had been relied upon by the Inuit community as an argument to strengthen the
standing of non-privileged applicants, does not, in the view of the Court, ‘require that an
individual should have an unconditional entitlement to bring an action for annulment of
European Union legislative acts directly before the Courts of the European Union’.
A2.4 Article 277 TFEU: plea for illegality

Article 277 provides that:
‘Notwithstanding the expiry of the period laid down in Article 263, sixth
paragraph, any party may, in proceedings in which an act of general
application adopted by an institution, body, office or agency of the Union is
at issue, plead the grounds specified in Article 263, second paragraph, in
order to invoke before the Court of Justice of the European Union the
inapplicability of that act.’
Article 277 is not an independent cause of action, but an additional and incidental form
of challenge that can be brought in an annulment action under Article 263. It is subject
to two constraints. It cannot be used where the measure is already being challenged
before a court elsewhere by the parties, and it also cannot be used where the parties
have already had the opportunity to challenge the measure but did not take up that
opportunity.
A2.5 The Grounds of Review

A2.5.1 Lack of competence
EU institutions can only exercise the powers allocated to them by the Treaty and
cannot assume new ones. Therefore, there needs to be a legal basis within the Treaty
for every act, otherwise those institutions might be acting ultra vires and their decisions
might be annulled for lack of competence. This ground of review corresponds to
substantive ultra vires in English law.
This fundamental ground for review is rarely used, mainly because of the Court of
Justice’s wide approach to interpreting EU competence. The doctrine of implied powers
extends the reach of the EU institutions even further. The Treaty itself also contains
enabling provisions which, if need be, can be interpreted very widely to give further
powers to the European. For instance, Article 352(1) TFEU provides that:
‘If action by the Union should prove necessary, within the framework of the
policies defined in the Treaties, to attain one of the objectives set out in the
Treaties, and the Treaties have not provided the necessary powers, the
Council, acting unanimously on a proposal from the Commission and after
obtaining the consent of the European Parliament, shall adopt the
appropriate measures. Where the measures in question are adopted by the
Council in accordance with a special legislative procedure, it shall also act
unanimously on a proposal from the Commission and after obtaining the
consent of the European Parliament.’
232
This effectively means that even if there is no apparent legal basis in the Treaty, the
Council can nevertheless create a new power for the EU institutions in order to meet
the objectives of the Treaty, which are also very widely drafted.
One of the few cases in which a Lack of Competence challenge was successful is
France v Commission (Case C-327/91) [1994] ECR I-3641. The Commission had
concluded an agreement with the United States to lessen the possibility of conflict on
the application of competition rules. The Court ruled that, under what is now Article 260
TFEU, the Commission had the power to negotiate agreements with States outside of
the Community and international organisations, but that such agreements had to be
concluded by the Council.
A challenge for Lack of Competence is more commonly used if the EU institutions have
the power to adopt the decision under one provision, but in fact act under another (see
Commission v Council (Re Titanium Dioxide Waste) (Case C-300/89) [1991] ECR
I-2867) or where the applicant alleges that there has been an unlawful delegation of
power (see Meroni v High Authority (Case 9/56) [1958] ECR 133).
A2.5.2 Infringement of an essential procedural requirement

When establishing essential procedural requirements for EU law, the Court of Justice is
inspired by the administrative rules of the Member States. Infringement of an essential
procedural requirement is one of the most popular grounds for review and is equivalent
procedural ultra vires in English law. It comprises breaches of formal requirements
contained in the Treaty and informal rules of fairness that are required by the General
Principles of Community Law as discussed below.
(a) Right to be heard
As in English Administrative law, the right to be heard is an essential minimum; a
general rule that must be satisfied regardless of whether it is specified in a Treaty
article, regulation, directive or decision. It is a bare minimum of fairness and is included
in Article 41 of the Charter of Fundamental Rights of the European Union.
The Court of Justice has insisted that the right to be heard applies before the decision
on the individual case is reached. It includes the right to have notice of the nature of the
case and reasonable time to respond to it (Koninklijke PTT Nederland NV v
Commission (Cases C-48 and 66/90) [1992] ECR I-565).
(b) Duty to consult
Although application of the duty to consult ensures greater legitimacy for EU law, it is
interpreted rather restrictively by the Court of Justice. Unless the duty is mentioned in
the relevant Treaty provision or is an EU norm, the courts are generally unwilling to
allow persons to be consulted or to participate in the making of EU laws (Atlanta AG v
Commission (Case C-104/97) [1999] ECR I-6983).
(c) Duty to give reasons
The most important general procedural requirement in the TFEU – the duty to give
reasons – is mentioned in Article 296. This provides that secondary legislation must
state the reasons on which they are based. In Eugenio Branco Lda v Commission
(Case T-85/94) [1995] ECR II-45 the then CFI (now the General Court) stated that:
‘According to a consistent line of case law, the purpose of the obligation to
state reasons on which an individual decision is based is to entitle the
Community judicature to review the legality of the decision and to provide
the person concerned with sufficient information to make it possible to
233
ascertain whether the decision is well founded or whether it is vitiated by a

defect which may permit its legality to be contested. The extent of that
obligation depends on the nature of the measure in question and on the
context in which it was adopted.’
The above case dealt with Commission decisions withdrawing approval or partial
support of projects financed by the European Social Fund. Besides the obligation
imposed by Article 296 TFEU, there was also a breach of Article 6(1), Regulation
2950/83 which stated that before deciding to suspend, reduce or withdraw financial aid,
the Commission had to give the relevant Member State the opportunity to comment.
See also cases Consorgan Lda v Commission (Case C-181/90) [1992] ECR I-3557 and
Socurte Lda v Commission (Cases T-432 to 434/93) [1995] ECR II-503.
A2.5.3 Infringement of the Treaty or any rule relating to its application

The ambiguity of the original formulation for this ground provided the Court of Justice
with scope for interpretation. Through this ground, the Court of Justice has been able to
use General Principles of Community law, such as non-discrimination, human rights,
the rule of law and proportionality to review the legality of EU legislation. It is an area
with an abundance of case law.
(a) Fundamental rights
Member State legal systems and international law recognise that protection of
fundamental rights may not be absolute at all times. However, any interference or
limitations should be kept to a minimum.
(b) Proportionality
Article 5 TEU provides that the Union shall only act within the powers conferred on it by
the Treaty and actions shall not go beyond what is necessary to achieve the objectives
of the Treaty. The Court of Justice has interpreted proportionality widely and it can now
be used not only to challenge Union actions, but also the legality of actions of a
Member State which fall within the sphere of EU law.
To establish whether a measure is proportionate the Court usually asks three
questions: (a) was the measure suitable to achieve the desired end; (b) was it
necessary to achieve the desired end; and (c) whether the measure imposed a burden
on the individual that was excessive in relation to the objective to be achieved (see
Germany v European Parliament and Council (Case C-233/94) [1997] ECR I-2405.
One of the reasons for the abundance of proportionality cases is the vagueness of the
objectives that the Treaties were stated to achieve. Making policy decisions based on
those objectives, the Council and the Commission often have to make difficult
discretionary choices. Many Common Agricultural Policy (CAP) initiatives have been
attacked using proportionality as a ground. In Bela-Mühle Josef Bergmann KG v
Grows-Farm Gmbh & Co KG (Skimmed Milk Powder) (Case 114/76) [1977] ECR 1211,
the Court of Justice found that it had been disproportionate to require farmers to buy
animal feeding stuffs containing skimmed milk, which had displaced the cheaper soya,
as a method of dealing with the EU milk mountain.
(c) Legal certainty
The principle of Legal Certainty comes as a part of the EU commitment to the Rule of
Law. It was first mentioned by the Court of Justice in SNUPAT v High Authority (Cases
42 and 49/59) [1961] ECR 53. This principle takes on many legal forms. For instance, it
can be used as a prohibition of retrospectivity – no rule should apply retrospectively to
234
a situation that occurred prior to the date on which any given rule was promulgated
(see also Amylum v Council (Case108/81) [1982] ECR 3107).
Another aspect of the principle of legal certainty is the protection of legitimate
expectations, in which it is connected with the notion of ‘good faith’. In EU law it has
been held that the common organisation of markets should not proceed in such a way
as to defeat a legitimate expectation. In Efisaol SA v Commission (Case T-336/94)
[1996] ECR II-1343, the Court held that ‘any individual who is in a situation in which it is
apparent that the Community administration, by giving him precise assurances, has led
him to entertain justifiable expectations’ is entitled to benefit from this principle. As
illustrated in Mulder v Minister van Landbouw en Visserij (Case120/86) [1988] ECR
2321, even the mere undertaking of a certain course of conduct may give rise to a
legitimate expectation.
(d) Transparency
Transparency has been a widely debated principle of EU law. It encompasses several
aspects: access to documents, holding meetings in public, the provision of information,
etc. Some of these are enshrined in the text of the TFEU; for example access to
documents is set out in Article 215 TFEU, whilst others have been developed by the
Court of Justice.
(e) Equality and non-discrimination
The equality principle can be found in various provisions of the TFEU. Article 18 TFEU
contains the general principle of non-discrimination; Article 40 TFEU prohibits
discrimination between producers and consumers in the area of CAP; Article 110
prohibits discriminatory taxation; and Article 157 provides that men and women should
be treated equally in terms of pay for equal work, etc.
Article 19 TFEU empowers the Council, acting unanimously on a proposal from the
Commission and after consulting the European Parliament, to take appropriate action
to combat discrimination based on sex, racial or ethnic origin, religion or belief,
disability, age or sexual orientation.
A2.5.4 Misuse of power

This is the fourth ground of review found under Article 263 TFEU. Although it features
in many Member States’ systems, its origins lie in French administrative law. Misuse of
power means that a measure has been adopted for the purposes other than those for
which it was intended and corresponds to improper purpose in English administrative
law. Since the Court requires ‘objective, relevant and consistent indications of misuse
of power’ there are very few cases in which applicants have successfully claimed this
ground. Those few cases that exist usually tend to deal with staff of the European
institutions (see Gutmann v Commission (Cases 18 and 35/65) [1966] ECR 103).
A2.6 Intensity of judicial review

In reviewing the legality of Union acts, the Court of Justice exercises only limited
jurisdiction. Its powers are restricted to reviewing conformity of the measure with the
Treaty and other rules. It has the power to annul the decision, but it may not substitute
it for one of its own. In addition, although it might seem like the Court of Justice has
been given a great deal of discretionary power, it has made little use of it. This is
primarily because of the vagueness of some of the provisions in the Treaty. For
instance, Article 39 on the CAP contains broad instructions for institutions to pass
measures that would help to ‘increase agricultural produce’, ‘stabilise markets’, ‘ensure
supplies reach consumers at reasonable prices’, etc. This means that institutions have
235
to make difficult decisions in variable market conditions. In such cases, the Court of
Justice has been willing to let the choices of the Commission and the Council stand
and has rarely sought to re-evaluate their decisions.
The Court of Justice stated in Deuka v Einfuhr- und Vorratsstelle für Getreide und
Futtermittel (Case 78/74) [1975] ECR 421 that:
‘… the Commission enjoys a significant freedom of evaluation both as
regards the taking into account of possible factors of disturbance and in
choosing the means to deal with them…when examining the lawfulness of
exercise of such freedom the courts cannot substitute their own evaluation
of the matter for that of the competent authority, but must restrict
themselves to examining whether the evaluation contains a patent error or
constitutes a misuse of power.’
The Court of Justice therefore uses its power very carefully. When applying the
principle of proportionality, it has held that the measure in question must be ‘manifestly’
inappropriate or disproportionate. In areas where complex economic choices need to
be made, it is more deferential towards the opinion of the Council and the Commission.
However, in areas clearly defined in the Treaty, such as competition law, the Court of
Justice has been more willing to engage in substantive review and substitute the
decision of the Commission for one of its own.
A2.7 Actions for failure to act: Article 265

Community institutions may breach the rules not only by exceeding their powers, but
also by failing to carry out the duty imposed on them by the Treaty or some other
provision having legal effect. This form of breach may result in action under Article 265
TFEU which states:
‘Should the European Parliament, the European Council, the Council, the
Commission or the European Central Bank, in infringement of the Treaties,
fail to act, the Member States and the other institutions of the Union may
bring an action before the Court of Justice of the European Union to have
the infringement established. This Article shall apply, under the same
conditions, to bodies, offices and agencies of the Union which fail to act.
The action shall be admissible only if the institution, body, office or agency
concerned has first been called upon to act. If, within two months of being
so called upon, the institution, body, office or agency concerned has not
defined its position, the action may be brought within a further period of two
months.
Any natural or legal person may, under the conditions laid down in the
preceding paragraphs, complain to the Court that an institution, body, office
or agency of the Union has failed to address to that person any act other
than a recommendation or an opinion.’
Some of the provisions within the Treaty contain a clear obligation for the institutions to
act, as for instance Article 105 TFEU does in relation to breaches of Articles 101 and
102. In Ladbroke Racing (Deutschland) GmbH v Commission (Case T-74/92) [1993]
ECR II-535, Ladbroke had complained to the Commission about the denial of access
for the televising of horse racing, alleging breach of Articles 101 and 102 by the
German and French companies in the horse racing and communications business.
After deciding to investigate the complaint in 1990, by 1992, the Commission had still
not defined its position. The CFI (now the General Court) found that the Commission
should have either formulated its position on the alleged breach of Article 102,
236
dismissed the complaint in a formal letter to the complainant, or made the reasoned
decision not to pursue the complaint on the ground of the lack of Community interest.
Lack of any decision constituted a ground for an Article 265 TFEU procedure.
The Treaty does not specifically set a time limit within which EU institutions have to
respond before a procedure for failure to act can be triggered against them. The Court
states that an Article 265 procedure should be initiated within a ‘reasonable time’.
Usually once the request to act has been made the institution has two months within
which to define its position. If it has not done this, the applicant has a further two
months within which to bring an Article 265 action.
237
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The Law of the European

British Library Cataloguing-in-Publication

Published by BPP Law School

Your learning materials, published by BPP

1 The Treaties and the Historical Development of the EU 1

3 Constitutional Principles and the Institutions 17

4 EU Law and National Law: Supremacy, Direct Effect,

5 Free Movement of Goods I: Articles 28–30 and 110 TFEU 61

6 Free Movement of Goods II: Articles 34–36 TFEU 75

7 Free Movement of Persons: Articles 20 and 45 TFEU 97

8 Freedom of Establishment: Articles 49–55 TFEU 127

9 Freedom to Provide Services: Articles 56–62 TFEU 147

10 Competition Law I: Article 101 TFEU 165

11 Competition Law II: Article 102 TFEU 187

Appendix 1: Fundamental Rights and Other General Principles of EU Law 205

Appendix 2: Administrative Law of the EU 221

1.1 The dawn of a new Europe – a brief history of European

1.2 The founding treaties and the European Communities

1.2.1 The European Coal and Steel Community

1.2.2 The European Economic Community and Euratom

1.3 The Merger Treaty and the Single European Act

1.4 The European Union

1.5 Post-Maastricht developments

Reforms were also made to the institutional framework and decision-making

1.6 The accession treaties and changes in membership

2.1 The primary sources of EU law

2.1.2 Citation and renumbering of Treaty articles

2.1.3 Third country Treaties

2.2 Secondary sources of EU law and other acts of the EU

2.2.2 Citation of Regulations

Example: Directive 2004/38

2.2.5 Recommendations and opinions

Example: UK v Council (Case C-84/94) [1996] ECR I-5755

3.1 Constitutional Principles

forward by the Commission has to be expressly justified on the basis of subsidiarity.

Article 3 TFEU: Article 4 TFEU: Article 6 TFEU:

3.2 The institutions

3.2.4 The Commission (Article 17 TEU and Articles 244–250 TFEU)

diplomats or international civil servants. There is now an increasing trend for

3.2.6 The Court of Auditors (Articles 285–287 TFEU)

3.3 Institutional balance in practice

4.1 A new legal order

4.1.1 Van Gend en Loos

4.2 Supremacy of EU Law

4.3 Direct effect distinguished from directly applicable

4.4 The Van Gend en Loos criteria for direct effect

Moreover, a provision is sufficiently precise to be relied on by an individual

within the meaning of Articles 3, 4 and 5 to pursue their claims by judicial

4.5 Direct effect of Treaty articles

4.5.1 Negative and positive obligations

4.5.2 Vertical and horizontal direct effect

4.6 Direct effect of regulations and decisions

4.7 Direct effect of recommendations and opinions

4.8 Direct effect of directives

4.8.1 The implementation date must have passed

Ondernemingen (VNO) v Inspecteur der Invoerrechten en Accijnzen (Case 51/76)

4.8.2 Vertical direct effect but no horizontal direct effect

4.8.3 An emanation of the State – an expanding concept