judicial exceptions to the free provision of services

European L a w Journal, Vol. 1. No. 3, November 1995, pp. 308-329 0 Blackwell Publishers Ltd. 1995. 108 Cowley Road, Oxford OX4 IJF, U K and 238 Main Street, Cambridge, MA 02142, USA

Judicial Exceptions to the Free Provision of Services

Josk Maria Fernandez Martin and Siofra O'Leary*

Abstract: Recent case-law of the Court of Justice on general interest exceptions to the free provision of services has indicated a flexible approach to general interest exceptions involving moral or ethical issues. In contrast, where the general interest exception is relied on in a case which demonstrates predominantly econo)nic issues, it is subject to strict scrutiny, in particular, with reference to the principle of proportionality. The article anabses the Court's case-law and tries to deduce the criteria which now govern the Court's position. It also ~ i ~ h l i g h t s dif$cuIties which this two-tier approach may excite. The position of the Court of Justice reflects the lack of homogeneous European ethical and moral standards, but it also underlines the predominantly economic character of European integration to date. It is submitted, nevertheless, that divorcing the economic criteria for integration from general ethical considerations will prove an extremely dfjcult, if not fruitless, task.

I Introduction Articles 55 and 56 EC permit exceptions from the freedom to provide services in so far as the activity in question is related to the exercise of'offkial authority, or on grounds of public policy, public security and public health. This article focuses on further exceptions to the prohibition on restrictions of the free provision of services which have been fashioned by the Court of Justice. It first reviews developments in the Court's case-law which have led it, beyond direct and indirect discrimination, to prohibit, in addition, non-discriminatory national restrictions which are liable to impede the free provision of services. These indistinctly applicable restrictions are only permissible if they can be justified with reference to imperative requirements of public interest, which is an open category of justifications which have been created by the Court of Justice. In addition, in order to be justifiable, these restrictions must comply with the principle of proportionality.

The public interests which the Court has recognised to date are meant to reflect the social, moral and cultural diversity which still exists between Member States. The purpose of this article is to clarify the law as it stands with respect to these judicial exceptions from the free provisions of services and the use made by the Court of the proportionality principle. The Court has indicated that it may be more prepared in future to play an active role with respect to the identification of these values and

University of Cddiz.

November 1995 Free Provision of Service

whether they justify the restriction in question. This task had previously been reserved to the individual Member States. However, movement in the opposite direction in the Court’s use of the principle of proportionality may be noticeable. In Schindler’, for example, it allowed the United Kingdom to operate a complete ban on lotteries and, unlike other cases, made no reference to the requirements of proportionality. In conclusion, therefore, the article assesses whether the recent case-law of the Court reflects two distinct approaches to the assessment of social and economic public interest justifications on the one hand and moral and ethical public interest justifications on the other.

I1 Non-Discrimination and the Free Provision of Services Article 59 EC is a specific expression of the principle of non-discrimination in Article 6 EC. Its purpose is to secure equal access for nationals of Member States to the market for the provision of services in a Member State other than that where the provider of services is established. In Van Binsbergen, for example, the Court regarded Article 59 EC as a means of abolishing ‘any discrimination against a person providing a service by reason of his nationality or of the fact that he resides in a Member State other than that in which the service is to be provided.’* However, the principle of non- discrimination is not restricted in the area of services to clear incidences of discrimination founded on nationality or establishment. It also prohibits all forms of disguised discrimination which, although applying other criteria of distinction, lead, in fact, to the same result. This is known as indirect or covert discrimination3.

It appears that national measures which are directly or indirectly discriminatory can only be exempt from the prohibition on restrictions in Article 59 EC with reference to express derogations from the principle of free movement contained in Articles 55, 56 and 66 EC4. The derogations in Article 56 EC are similar in appearance and operate in a similar manner to those applicable to the free movement of workers pursuant to Articles 48(3) and (4) EC. The public policy derogation is thus applicable to ‘genuine and sufficiently serious threat[s] to the requirements of public policy affecting one of the fundamental interests of ~ociety.’~ Reliance on the public policy proviso cannot be determined unilaterally by each Member State, although they are afforded a margin of discretion in this respect. Furthermore, public policy considerations cannot be invoked

’ Case C-275192 (19941 ECR 1-1039. * Case 33/74 [ 19741 ECR 1299. para 10. See also Case 63/86 Commission v Italy [ 19881 ECR 29, at paras I2

and 13; Case 39/75 Coenen v Siiciaal-Economisch~ Raad [ 19751 ECR 1547, para 6; Case 52179 Procureur du Roi v Dehauve [ 19801 ECR 833. para 11; and Case 279180 Webb (19811 ECR 3305. para 14. ’ See Case 221185 Commissiiin v Belgium (19871 ECR 719; Case 20185 Roviellii v LandesversicherunRsanstalt Schwaben [ I9881 ECR 2805. para 14; Case 352/85 Bond Van Adverteerders v Nether1and.s [ I9881 ECR 2085; Case C-3/88 Commission v Italy [I9891 ECR 4035. para 8; Joined Cases 62 and 63/81 SECO v Evi (19821 ECR 223, para 8; and Case 205184 Commission v Germany [I9861 ECR 3755, para 25. For a definition of overt and covert discrimination see Advocate General Jacobs in Case C-76/90 Sager v Dennemeyer [I9911 ECR 14221, para 19.

Case 352185. para 3 I . Advocate General Van Gerven in Case C-l59/90 The Society fbr the Protection of Unborn Children Lid. v Grogan (19911 ECR 1-4685 required justification with reference to Article 56 for all discriminatory rules. both direct and indirect. pard 22. However, there is a tendency in recent cases to argue public interest justifications even in cases of indirect discrimination and to treat the grounds enumerated in Article 56 EC as expressions of the public interest exception. See infra n 37. See Case 30177 R v Bouchereou [I9771 ECR 1999, Para 35; Advocate General Mancini in Case 352/85. at 10; and Advocate General Van Gerven in Case c-l59/90 Grcigan, para 26.

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to justify restrictions of free movement for economic reasons6. Article 55 EC, on the other hand, excludes activities connected, even occasionally, with the exercise of official authority from the principle of free movement in establishment and services. The Court has limited this derogation to activities within the scope of Articles 52 and 59 EC which involve direct and specific participation in the exercise of official authority’. Finally, the scope of derogations from the free provision of services pursuant to Articles 55 and 56 EC must be limited to what is necessary to protect the interests which the Member States purport to guarantee thereunder*.

I11 Indistinctly Applicable Measures and the Free Provision of Services Besides prohibiting direct and indirect discrimination with regard to the free provision of services the Court has also devised a line of case-law on indistinctly applicable national measures which do not differentiate with respect to nationality or establishment, but which nevertheless restrict free movement. Unlike the provisions on establishment, which are primarily based on the notion of non-discrimination, unlawfulness in the area of services seems to be ‘independent of any inequality of treatment and depend[s] on the absence of a legitimate reason, or on some disproportion between the restriction and its r e a ~ o n . ’ ~

A Justifving Unlawful Restrictions with Reference to the Generul Interesl

The Dutch legislation impugned in Van Binsbergen‘O provided that only persons established in the Netherlands could appear as legal representatives or advisers before certain courts. The plaintiff’s adviser was declared ineligible when, in the course of proceedings, he moved to Belgium. The question arose whether the requirement that the provider of services be permanently established in the Member State where the service is provided is compatible with the prohibition of restrictions in Articles 59 and 60 EC. Although the requirement applied equally to nationals and non-nationals, the Court held that it was capable of depriving Article 59 EC of all effect, since the very object of the latter was to eliminate restrictions to the free provision of services by persons not established in the territory of the Member State where the service is provided. The Court was thereby protecting economic transactions originating from another Member State. This is reminiscent of its approach to restrictions to the free movement of goods. Although no Dassonville-like formula” was developed in the instant case, the Court has gradually developed its case-law on restrictions to services parallel to that on goods.

See, for example, the rejection of economic policy considerations in Case 352/85 Bond Van Adverteerders, para 30. Case 2/74 Reyners v Belgium State [I9741 ECR 631. I t has been argued that the Court of Justice has been more restrictive in its interpretation of official authority in Article 55 than with respect to employment in the public service in Article 48(4), which also excludes employment with an indirect link with the public service from the scope of the free movement provisions: Advocate General Mischo in Case C-3/88 Commission v Italy. para 30.

* See Advocate General Mischo in Case C-3/88 Commi.wion v Italy. para 35; and the decision of the Court in Case 352185 Bond Van Adverteerders. para 36. See Marenco, ‘The Notion of Restriction on the Freedom of Establishment and Provision of Services in the Case-law of the Court’, (199 I ) 1 I Y EL 1 1 1, p 128.

lo Case 33/74 [ 1974) ECR 1299. I t Case 8/74 Procureur du Roi v Dassonville [I9741 ECR 837.

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The Court in Van Binsbergen accepted that the particular nature of certain services and the fact that many national technical and administrative rules regulating services have not yet been harmonised meant that specific requirements imposed on the provider of services are not automatically incompatible with the Treaty when their purpose is the application of professional rules governing such activities. Member States should be able to ensure that providers of services cannot, simply by establishing themselves in another Member State, avoid professional rules which would otherwise have applied to them had they remained in the Member State where the services are destined. Thus, the Court of Justice did not regard a requirement that legal representatives and advisers establish themselves as incompatible with the Treaty as such. However, such a condition had to be objectively necessary to ensure observance of the professional rules regulating the organisation of the profession, the grant of qualifications and respect for the professional rules of conduct. Furthermore. such a requirement could only be justified with reference to the general interest if the objectives in question could not be guaranteed by means less restrictive of the free provision of services. The Court thus introduced the principle of proportionality. The facts in Van Binsbergen indicated that a less restrictive means, namely, a requirement of domicile for the purposes of receiving judicial communications, did exist, so that the requirement of establishment was unnecessary to achieve the objectives in question and was disproportionateI2. The establishment requirement was also considered unlawful since the provision of the service in question was not subject to any qualification or professional regulation. The Court has since repeatedly held that the requirement of establishment is suspect and in need of ju~tification'~.

B The Requirements of the Principle of Proporfionulity

The restriction of free movement in Van Binsbergen was, however, indirectly discriminatory. Although the conditions imposed appeared neutral, they were more likely to prejudice the provision of services by persons established outside the territory of the Member State where the services were destined. However, the Court has persisted in developing a series of principles with respect to indistinctly applicable rules which do not differentiate on the basis of nationality or establishment. These rules restrict free movement simply because they reflect the diversity which still exists between national legislation regulating the provision of services. Restrictions of free movement in such circumstances may be justifiable if they are designed to protect imperative requirements of public interest. However, to remain compatible with Community law these restrictions must be necessary to achieve the objectives in question and less restrictive means to achieve that objective must not be available. The existence of less restrictive means to protect the public interest was fatal to the establishment requirement in Van Binshergen.

Another aspect of the principIe of proportionality arose in the Webb caseI4, namely, the existence of home control. This requirement is in line with the Court's case-law

I z See also Case 39/75 Ciwnen, where an insurance broker who had an office in the Member State where the service was provided could not, in addltion, be required to establish himself.

"See. for example, the insurance cases: Case 220183 Cotnmi.vsisicJn v France 119861 ECR 3663; Case 2SU83 C'ommission v Denmark [I9861 ECR 3713; Case 205184 Commisswn Y Germany: and Case 206/84 Commission Y Ireland [ 1986) ECR 38 17.

I4 Case 279/80 [ 19811 ECR 3305.

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following Rewe-Zentrale v Bundesmonopolverwaltung fur Branntwein", better known as Cassis de Dijon. An employment agency established in the United Kingdom was engaged in the supply of temporary staff in the Netherlands. The staff supplied were employed by the agency which was remunerated directly by the company for which the staff worked. Although the agency held a licence under British law, it was additionally required under Dutch law to possess a licence. The Court immediately recognised the sensitive economic and social nature of the services in question. The activities of employment agencies can directly affect relations in the employment market and the legitimate interests of the workers involved16. Member State legislation tended to reflect attempts to avoid any possible abuse in the provision of such services by limiting the scope of such activities, or in one case, forbidding their exercise. Given the sensitive nature of the service and the manner in which it was regulated at Member State level, the Court held that Member States could subject the supply of labour in their territory to a licence regime. Such a system constituted a legitimate political choice by Member States taken in the public interest. However, the Court emphasised in Webb that such justifications must be limited to what is necessary to achieve the public interest objectives in question. They can only be justified, in addition, to the extent that those interests are not already protected by the ruies to which the provider of services is subject in the Member State in which he or she is established. In Webb the licensing system was incompatible with Article 59 EC because it duplicated the guarantees required by the provider of services in his or her state of establishment".

C Overall Position ofthe Court of Justice

A number of cases have also arisen as a result of restrictions imposed by Dutch broadcasting legislation'*. These cases clarify the development of the Court's case-law which was already evident in the insurance and tourist guide casesI9. In the last case, Commission v Netherlands, the Court had to examine whether Dutch legislation which imposed an obligation on national broadcasting organisations to order all or part of the services necessary for making programmes from a public body, and restricted the re-transmission in the Netherlands of programmes from other Member States which included advertisements specifically aimed at the Dutch public, was incompatible with Community law. Following the decision of the Court in Bond Van Adverteerders Dutch authorities had substituted previous restrictions on advertising with a requirement that advertising was to be entrusted to a legal person independent of the broadcaster, it was not to profit third persons and all income from advertising was to be spent on the making of programmes. Furthermore, advertisements were to be clearly

I s Case 120/79 [ 19791 ECR 649. I6 Advocate General Slynn also emphasised the important effects which the activities of employment

agencies could have on employment policy problems at national, regional and sectoral levels, and their potential effect on the role and functioning of national employment agencies and on employment relations. He gives details of legislation at national level at p 3334. See also Joined Cases 110-1 11/78 Van Wesemael [I9791 ECR 35, paras 29 30.

l8 Case 352185 Bond Van Adverreerders; Case C-288189 Stichting Collectieve Anrennvoorziening Gouda v Commissariaat voor de Media [I9911 ECR 1-4007; and Case C-353BY Commission v Netherlands 11991) ECR 1-4069. See also Case C-23/93 TVlO v Commissariaat voor de Media, judgment of 5/10/1994, nyr.

l9 Case C-154/89 Commission v France [I9911 ECR 1-659; Case C-180/89 Commhion v Italy 119911 ECR I- 709; and Case C-198/89 Commission v Greece [I9911 ECR 1-729.



identifiable and separate from other parts of the programme, could not exceed five per cent of the broadcast and could not be transmitted on Sundays.

Before examining the facts of the case, the Court in Commission v Netherlands reiterated that Article 59 EC required the suppression of any discrimination against the provider of services by virtue of his or her nationality, or the fact that he or she is established in a Member State other than that where the services are provided. Such discriminatory measures could only be justified with reference to an express provision establishing an exception such as Article 56 EC. Economic policy considerations could not qualify as justifications within the context of public policy in Article 56 EC. Secondly, given the lack of harmonisation in the area of services, it accepted that obstacles to free movement could arise from the application of diverse national rules which affect both persons established in the territory and providers of services established elsewhere. However, unless these indistinctly applicable measures which restrict free movement could be justified with reference to imperative requirements of general interest, they were also incompatible with Article 59 EC. Furthermore, to keep within the justifiable restrictions permitted by Article 59 EC, the general interest objectives in question must not already be protected by rules imposed on the provider in the Member State in which he or she is established and they must not be disproportionate to the objective or interest sought to be protected and must not go beyond what is necessary to achieve it.

The Court listed the imperative requirements of general interest which had already been identified. These included professional rules designed to protect the recipients of servicesZo, protection of intellectual property2’, protection of workers22, protection of

conservation and protection of national artistic and historical heritage24, evaluation of archaelogical, artistic and historical richness and the best possible dissemination of knowledge with respect to the artistic and cultural heritage of a country25. The protection of cultural policies in broadcasting and protecting TV and radio audiences from excessive advertising can subsequently be added to this list following the decisions on Dutch broadcasting legislation. Parallels clearly exist between the Court’s case-law on imperative requirements in the area of services and in the area of the free movement of goods. However, it has been said that the Court’s jurisprudence with respect to the latter has developed a limited set of unvarying reasons while it has been less precise in the area of services26. The grounds in question are generally similar, however.

The legislation impugned in Commission v Netherlands was clearly restrictive of the free provision of services. The Dutch government relied on the public interest which it claimed lay behind the legislation - safeguarding the freedom of expression of the different social, cultural, religious and philosophical groups in the Netherlands and

2o Joined Cases I10178 and 1 11/78 Van Wesemael. para 28. 21 Case 62/79 Coditel[1980] ECR 881. 22 Case 279180 Webb; Joined Cases 62 and 63/81 SECO v Evi; and Case C-ll3/89 Rush Portuguesa (19901

21 Case 205184 Commission v Germany; Case 220183 Commission v France; Case 252183 Commission v Denmark; Case 206184 Commission v Ireland: Case C- 180189 Commission v Italy; and Case C- 198189 Commission v Greece.

ECR 1-1417.

24 Case C- 180189 Commksion v Italy. 2s Case C- 1 54/89 Commission v France. paras 16- 17; Case C- 198189. *c. See Advocate General Van Gerven in Case c-t59/%. para 23.

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the protection of pluralism in Dutch broadcasting - to exclude the legislation from the provisions of Article 59 EC. In order to guarantee the Dutch public absolute protection from commercial interests, Dutch legislation required the advertisements of foreign companies broadcasting in the Netherlands to be subject to the same conditions which applied to Dutch companies. No profit could be derived from advertisements and the company organising advertisements was to be totally immune to commercial considerations. The Court accepted that a national cultural policy could constitute an imperative requirement of public interest. However, obliging national broadcasting bodies to procure all or part of the services they required (recording studies, technicians, orchestras, design studies) from a national company went beyond what was necessary to protect pluralism and freedom of expression. Pluralism in the audiovisual sector would not have been adversely affected if broadcasting bodies had been allowed to procure these services from other companies established in other Member States2’. With respect to the restrictions on advertising, it held that it was disproportionate to oblige foreign companies to comply with conditions equivalent to the Dutch advertising model to ensure pluralism. It was enough, in the Court’s view, to regulate the advertising of national broadcasters. The Court was also willing to accept that the protection of consumers from excess advertisements, or the maintenance of the quality of programmes might justify restrictions on advertisements in certain circumstances. However, like the legislation impugned in Bond Van Adverfeerders, although to a lesser extent, the Mediawet effectively protected the income of the Dutch national advertising body (STER) and objectives of an economic nature could not be used to justify restrictions of the free provision of services28. The Court has since explicitly held in Sager that the prohibition in Article 59 EC also applies to indistinctly applicable measures. This case will be discussed in the following section.

IV Divergent Approaches to National Discretion with regard to General Interest Exceptions

This section examines more recent developments in the Court of Justice which suggest that it may adopt a more active role in future with respect to the evaluation of the general interests claimed by Member States. This trend emerged, in the first instance, in the Sager case and has recently been confirmed in Alpine Investments B V v Minisfer van Financien, although, on the facts of that case, the Court of Justice reached the opposite conclusion when it applied the principle of proportionality. However, the Grugun and Schindler cases suggest that the nature of the general interest justification in question may influence the extent of the margin of appreciation permitted Member States and, moreover, the extent to which the Court of Justice is prepared to subject the justification to the requirements of proportionality. These cases suggest that the Court is loathe to get involved in the delicate moral and ethical choices of Member States.

z7 Case C-353189, para 31. ** Similar issues had arisen in Case C-288189 Collectieve Anrennevoorziening Gouda, where amended

provisions of the Mediawet were similarly held to impermissibly restrict Article 59 EC.



A Justifying Restrictions of Economic Services

In Sager v D e n n e m e ~ e r ~ ~ the defendant company was founded by two patent agents who were experts in patent renewal services. The company was established in the United Kingdom and provided patent renewal services to titleholders of patent rights established elsewhere in the Community. The services offered by the company consisted in guaranteeing, using a computerised system, that the patents were still in force, that the titleholders were warned about the lapsing of their annuity for renewal of the patent and that those annuities were paid in their name once they had sent back the forms sent to them by the defendants. Clients were not advised about what they should do with their patents, or about the consequences of payment or non-payment of the annuity. Furthermore, the client was solely responsible for notifying the patent company with regard to changes in circumstances which might affect payment of their annuity for the purposes of renewal. The national court was of the view that these services could only be supplied by a lawyer or patent agent acting in a personal capacity. In order to provide the service in question, therefore, Mr. Dennemeyer was required to possess specified professional qualifications.

For the first time the Court explicitly held in Sager that Article 59 EC also applied to any restriction which, even if applied indistinctly to national providers of services and those from other Member States, could prevent or otherwise hinder the activities of the provider established in another Member State where he legally provides the same kind of services30. This explicit position had been urged by the Advocate General, who maintained that the question being posed in the instant case was, in fact, whether Article 59 EC is limited to prohibiting direct and indirect forms of discrimination, or whether it requires the suppression of all restrictions, including non- discriminatory ones, when they are not justified by the general interest3*. In his view, the cases cited in support of the latter position had all contained elements of indirect discrimination. He pointed out, however, that it was possible to uncover indirect discrimination like this in a number of cases. Although national legislation might not distinguish on the basis of establishment, the conditions which it employs, based on different criteria and different traditions, have a tendency to disadvantage persons not established in the territory where the services are provided. In rejecting the argument that Article 59 EC only applies to discriminatory obstacles to the free provision of services the Advocate General devised the following rule of thumb - if an undertaking complies with the legislation of the Member State in which it is established it may provide services in another Member State, although the provision of such services might not normally be legal from the point of view of the second Member State. The restrictions imposed by the legislation of the second Member State can only apply to the foreign company if they are justified by requirements compatible with the objectives of Community law. The justification required will depend on the nature of the services and on the restriction. Advocate General Jacobs was clearly in favour of the ‘mutual recognition’ line of reasoning which had developed following Cussis de Dijon.

Since the providers of services were required to possess certain professional qualifications, it could be argued that the Member State to which the services were

29CaxC-76/90[1991] ECR 1-4221. WJ See previously Advocate General Warner in Case 52/79 Debawe. pp 870-873; and Advocate General

‘I Opinion of the Advocate General in Case C-76/90, at para 19 and 20. Slynn in Case 279/80 Webb. p 3330.



destined was impeding firms established abroad from providing services in its territory and impeding patent titleholders established in its territory from freely choosing how to control their patents. The national legislation in question, however, was designed to protect the recipients of services from the damage they would suffer if given legal advice by persons who did not enjoy the necessary moral or professional qualifications. This interest could justify restrictions of the free provision of services. However, legislation designed to protect such an interest went beyond what was necessary if it subjected the exercise of an activity such as that in question to the possession of a particular qualification and if i t was disproportionate to the needs of the recipients of services. The Court therefore examined the nature of the services actually provided by Mr. Dennemeyer. He did not advise clients on technical aspects of patents, nor on the possibility of applying for and renewing patents. The Court regarded his activities as straightforward and held that they did not require any specific professional qualification. There was thus no valid reason for reserving the exercise of this activity to lawyers and patent agents. Furthermore, the risk run by a titleholder when the company charged with controlling the patents failed to fulfil its obligations was very limited, since they would be independently notified by the German patent authorities in the event of non-payment. Finally, the majority of the clients of the provider of services were themselves patent agents or firms. As a result, neither the activities of the provider of services, nor the effect on clients of a failure to fulfil those activities justified reserving the provision of this service to persons holding professional titles.

This decision shows that the Court is determined to apply a strict interpretation of the general interest and national discretion when the restrictions in question affect the provision of economic services which are regarded as uncontroversial and when the general interest refers to market regulatory objectives, such as consumer protection32. The Court in Sager applied a strict test of proportionality, but it also actually regulated the service itself and could be said to have judicially created a European standard for the service concerned3’. Since German legislation required professional qualifications it could be argued that Germany wished to ensure a higher standard protection, which is a legitimate national choice, or in the Court’s words, a legitimate general interest. The Court found, however, that the higher standards chosen were incompatible with Community law, given the obstacles to the free provision of services which they created. As a result, the Court substituted Community standards for the national standards which it held to be incompatible with Community law. According to the Advocate General in Alpine investment^^^, however, Member States retain a discretion to establish their own standards as regards investor protection in the absence of Community harmonisation. This case will be examined in detail to determine whether it reinforces or disturbs the position which the Court has developed with respect to general interest exceptions.

At issue in Alpine Investments BV v Minister van F i n a n ~ i e n ~ ~ was a Dutch law which prohibited companies engaged in securities transactions from contacting individuals by telephone, without their prior consent in writing, in order to offer them various financial services. Alpine Investments, which specialised in commodities futures, was

’* For a definition of market regulatory policies as distinct from redistributory policies, see Majone. ‘The

33 See Case C-76/90. paras 17, 18 and 19. 14 See the Opinion of the Advocate General in Case C-384193. 26/1/1995, para 90. l5 Case C-384/93, judgment of the Court of 10/5/1995, nyr.

European Community Between Social Policy and Social Regulation,’ (1993) 31 JCMS 153.



incorporated and established in the Netherlands. It received orders from clients with respect to transactions in commodities futures markets and passed these orders on for execution to brokers in markets in and outside the Community. One of the ways in which Alpine Investments marketed its services as a financial intermediary was to phone potential clients, or to approach them in person, in order to ask them if they were interested in receiving further information, or to invite potential clients to seminars where its services were explained. This practice, which was known as cold calling, was common among companies providing financial services. Following complaints about this practice by investors who had made unfortunate investments, the Dutch minister prohibited financial intermediaries, such as Alpine Investments, who offered investments in off-market commodities futures, from cold calling potential clients. This prohibition applied to the provision of services by financial intermediaries both to potential clients in the Member State of establishment and in other Member States. The purpose of the prohibition was said to be to protect the reputation of the Dutch financial services market and to protect consumers.

In order to determine whether the services in question constituted services for the purposes of Community law, the Court stated that it was not necessary to establish the existence of identifiable recipients of services36. In addition, there was no need for the provider of services to physically move from one Member State to another for the Treaty provisions to apply. Article 59 EC was thus held to apply to services which are offered by telephone by the provider of services to potential clients established in another Member State. The Advocate General also emphasised the need for a cross- border element for the Treaty provisions on services to apply, but held that this condition is fulfilled once the provider and (potential) recipient are established in different Member States3'. Furthermore, the fact that the legislation was Dutch and that it applied to firms established in the Netherlands did not imply that this case was purely internal, since these providers of services were prevented from using this marketing technique with respect to recipients established in other Member States.

The Court then addressed whether the prohibition of cold calling constituted a restriction on the freedom to provide services within the meaning of Article 59 EC. The Court pointed out that simply because less restrictive rules regulating the providers of these financial services existed in some other Member States did not automatically imply that the Dutch prohibition constituted a restriction of services. As noted above, however, the Court in Sager regarded the standards imposed by German legislation to be disproportionate to protect the general interest. This different appreciation of what exactly was required to protect the consumers of these two services seems to be the point which distinguishes these two cases. However, it accepted that the prohibition prevented the providers of services from using a rapid and direct marketing method for contacting clients in other Member States and, as such, it was capable of restricting free movementJ*. In addition, the Court discussed whether the fact that the prohibition in question was imposed by the legislation of the Member State in which the provider of services was established influenced whether or not it amounted to a restriction within the meaning of Article 59 EC. Most restrictions of services addressed by the Court so far had been imposed by the Member State where the services are destined, not by their Member State of origin. The Court unequivocally found that Article 59 EC applied

'O /hid. para 19. " Opinion or the Advocate General. 261111995, paras 27-29. '' Case C-384/93. para 28.



both to restrictions laid down by the Member State where the services originated and the Member State where they were destined.

Some Member States had claimed that the Dutch prohibition fell outside the scope of Article 59 EC in the same way that the non-discriminatory measures governing selling arrangements were held to fall outside the scope of Article 30 EC in Keck and A4ith0uat-d~~. The Court distinguished the Keck case, however, on the grounds that it concerned the restriction of selling arrangements which did not prevent access of products from other Member States to the market of the Member State of importation and they did not hinder that access any more than they hindered the access of domestic products. In contrast, the prohibition at issue in Alpine Investments directly affected access to the market in services in other Member States and was therefore capable of hindering intra-Community trade in services40. As the Advocate General pointed out, whether or not a measure restricts services can be determined by the application of a functional criterion - whether it substantially impedes the ability of persons established in its territory to provide intra-Community services. If, as it should be, the market in services is approached from the perspective of the realisation of an internal market, this criterion, rather than the criterion of nationality, was relevant, since the fundamental objective in an internal market is to merge the national markets4'. Although the Advocate General was in favour of similar principles applying to both Articles 30 and 59 EC, he was unconvinced by the use of the Keck reasoning in the instant case. He clearly regarded Keck as a difficult precedent and distinguished it, as the Court had done, on the grounds that it related to national legislation imposed on the sale of domestic and foreign goods within the territory of the state. Alpine Investments concerned national legislation determining how services could be offered to potential recipients in other Member States. Both the Court and Advocate General held, therefore, that the Dutch prohibition amounted to a restriction within the meaning of Article 59 EC.

The Netherlands still had to demonstrate that imperative requirements of public interest justified the prohibition on cold calling and that, in addition, the prohibition was objectively necessary and proportionate to the objective sought to be achieved. Here the Court and Advocate General began to examine the nature of the services market involved and the nature of the service being restricted. I t argued that the speculative and complicated nature of the services in question meant that potential recipients of these services had to be inspired by confidence before acting and that this confidence in the Dutch market would grow if they felt that it was governed by professional regulations which ensured the competence and trustworthiness of the providers of services. The Advocate General also pointed to the high element of risk and the speculative nature of investments in securities and commodities markets. Given these characteristics, recipients of the services of financial intermediaries in this market had to be protected. The Court accepted that the Netherlands was not responsible for the protection of consumers in other Member States, but held that the reputation of the Dutch financial services market would be damaged if consumers in other Member States were insufficiently protected. As a result, the Court regards maintenance of the good reputation of the financial services market as an imperative requirement of public interest which could justify restrictions on the free provision of

19 Joined Cases C-267 and 268/91 [I9931 ECR 1-6097.

4 1 Paras 4748 . Case C-384/93, supra n 35. paras 37-38.



services. The Advocate General, in contrast, carefully linked the protection of consumers and protection of the reputation of the market in his Opinion and went as far as examining the travaux preparatoires of the Dutch legislation in question and the Community's harmonisation programme in financial services. The importance of this reference will be discussed below. Given the object behind the Dutch legislation (stamping out the abuse by firms established in the Netherlands of its previously lax legislation), the Advocate General held that the protection of consumers established in other Member States was closely linked to protecting the reputation of the Dutch financial services market. In his view, both interests may justify restrictions on the free provision of services.

As regards the principle of proportionality, which the Dutch legislation also had to pass muster, the Court rejected Alpine's claims that the controls in the Member State where the services were destined were sufficient to protect the public interest. Since the public interest in question was the reputation of the financial services market of the Member State where the services originated. the Court held that that Member State was best placed to regulate marketing techniques such as cold calling and that the prohibition could not, therefore, be considered inappropriate. Furthermore, the fact that less strict rules operated in other Member States did not imply that the Dutch prohibition was disproportionate. Finally, although Alpine argued that the prohibition was too general and that it did not take into account the legitimate activities of individual firms, the Court held that the general nature of the prohibition did not render it disproportionate. First of all, the prohibition only extended to contact by telephone or in person without prior written consent. Secondly, it only applied to potential clients and thirdly, i t only applied to the commodities futures market, which was where abuse had previously been detected.

The Advocate General also held that the Dutch measures were not disproportionate to the objective sought to be achieved or the effects which they created. The Advocate General pointed to the fact that the Minister had prohibited cold calling as a matter of policy following complaints received by investors who had been subject to cold calling. The purpose of the prohibition was to restore and maintain consumer confidence in the market, which would, in turn, benefit all providers of services. It was not confined to a few firms on the basis of their past conduct because of the administrative costs which this would entail and the possibility of inequality and ineffectiveness. Further- more. the prohibition was not unduly restrictive, since it only applied to new clients and since all the financial intermediaries had to do was to contact these clients in writing and ask for their permission to contact them in future. In the view of the Advocate General. whether restrictions imposed by national law satisfy the test of proportionality should be assessed infer afiu by reference to the conditions prevailing in the national market and to the reasons which led to its adoption.

It is contended that the reasoning of the Court in Alpine Investments, although not the actual outcome of that case, confirms and reiterates the approach adopted in Sager. The Court established whether the service in question came within the scope of Community law. whether it was being restricted, whether that restriction could be justified by a general interest exception and finally, whether the restriction was objectively necessary to protect the general interest and whether it was proportionate. Furthermore, when examining whether the prohibition on cold calling could be justified by a general interest exception. the Court began, as it had done in Sugt~r"~, to

~

J2 See Caw C-76/90, .sicprcr n 3. paras 18-20.

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examine the nature of the services and, in addition, the nature of the financial services market in which the services were offered. It is also arguable that it began to establish a European standard for the protection of consumers and the financial services market, since it regarded the guarantees provided by the British Securities and Futures Authority as insufficient to protect the general interest at stake - the reputation of the Dutch financial services market. Nevertheless, with reference to the nature of the service in question and the level of protection required to protect the interests of consumers and the reputation of the financial services market, the Court in Alpine Investments found that the measures adopted by the Dutch government were not disproportionate to the objective sought to be achieved. In Sager it had regarded the German requirement of professional qualifications as disproportionate.

The Opinion of the Advocate General in Alpine Investments differs slightly, however, with this ‘centralised’ Community law approach adopted by the Court to date with respect to unequivocally economic services. Advocate General Jacobs examined the nature of the service being offered and the market in which they were offered in detail. However, he also examined the truvuux prepurutoires of the Dutch legislation, the policy of the Minister in introducing the prohibition, the regulation of this service in another Community Member State and the Community’s harmonisation programme on financial services. In particular, he stated that ‘whether restrictions imposed by national law on the use of a marketing technique satisfy the test of proportionality should be assessed inter aliu by reference to the conditions prevailing in the national market and the reasons which led to it.’43 Furthermore, in the absence of Community harmonisation rulesu, each Member State, in his opinion, enjoys a level of discretion as regards the extent to which investors are protected in its territory. Investors in the United Kingdom, for example, are subject to cold calling, however, financial intermediaries who conduct unsolicited calls must tape record them and keep documentary records of such calls. However, the fact that other Member States apply less strict rules does not mean that higher standards of investor protection in some Member States are disproportionate. This examination of national markets and national standards contrasts with the Community standards approach adopted by the Court, which was keen to promote regulated and, therefore, attractive national financial services markets. Furthermore, the position of the Advocate General on the extent of Member State discretion contrasts with the rejection of the higher German standards in Sager. The Advocate General’s reference back to national legislative choices and the policies behind national legislation also conflict with his careful choice of criteria with reference to the establishment and functioning of the internal market when determining whether the provision of services was restricted4’. The difference in the approaches of the Court and the Advocate General in AIpine Investments could be attributed to two factors. First of all, reference to national discretion and national standards reflects a ‘subsidiarity-like’ approach by the Advocate General to an area of services which has not been harmonised. Secondly, although the Court, like the Advocate General referred to consumer protection, it seemed to give prominence to the other imperative requirement which it considered to be at stake, maintenance of the good reputation of the national financial sector and the improvement of

4’ See the Opinion of the Advocate General, supra n 34, para 91. 4.1 Directive 93/22, OJ 1993 L141127, does not harmonise national rules concerning the marketing of

45 See the Opinion of the Advocate General, supra n 34, paras 4748. investments.



competition in this field which protection of this imperative requirement would entail. The Advocate General was more concerned with the need to protect consumers.

It is argued in the following section, in contrast, that the Court’s approach to general interest justifications and the application of the principle of proportionality has been less straightforward when morally or ethically sensitive issues are involved, a situation which may increasingly occur in the services market.

B Ethical Aspects of the Free Provision of Services

The details of Society for the Protection of the Unborn Child v G r o g ~ n ~ ~ are generally well known and will be repeated here only to the extent necessary for the subsequent discussion. Various students’ associations in Ireland issued welfare guides to their members which included information as to the identity, location of and method of communication with abortion clinics in the United Kingdom. The plaintiff in Grogan sought a declaration in the High Court that any publication of the aforementioned information was contrary to the guarantee of the protection of the unborn child in Article 40.3.3. of the Irish Constitution. A number of questions were referred to the Court of Justice to establish whether the activities of abortion clinics constitute services within the meaning of Article 60 EC and, if so, whether the Treaty provisions on the freedom to supply services precluded a national rule prohibiting the provision of information concerning abortion services legally carried on in another Member State.

The Court held that the medical termination of pregnancy covers a number of services which are normally provided for remuneration and which thus fall within the scope of Article 60 EC. In coming to this conclusion, the Court referred to the arguments which the plaintiffs had introduced with respect to the moral aspect of abortion and held that ‘It is not for the Court to substitute its assessment for that of the legislature in those Member States where the activities in question are practised legaily.’ However, the Court further held that the link between the students’ associations and the clinics operating in another Member State was too tenuous for the prohibition on the distribution of information to be regarded as a restriction within the meaning of Article 59 of the Treaty. The economic operators at issue were the medical clinics operating in the United Kingdom. The information distributed by the Irish students’ associations was not distributed on their behalf and was independent of the economic activity or service which the clinics performed. In such circumstances the prohibition could not be regarded as a restriction within the scope of Article 59 EC. Given the position adopted in Sager, the Court might have been expected to examine whether the prohibition on information could be justified with reference to the general interest. Abortion was a service legally provided in the United Kingdom and a prohibition on information regarding that service was clearly capable of restricting its provision. However, by excluding the provision of information in the instant case from the scope of Article 59 EC the Court avoided the issues of values which an analysis of the general interest would have entailed. The Court has held on other occasions, however, that Article 60 EC does not require that services are paid for specifically by recipients4’, implying that a direct link between the two is unnecessary. There seems to have been no need in this instance, therefore, to insist on a link

46Ca~eC-159/90[1991] ECR 14685. 47 Case 35U85 Bond Van Adverreerders. para 16.

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between persons providing a service and persons advertising it for Community law to

The Opinion of Advocate General Van Gerven in Grogan differed significantly from the decision of the Court. The Advocate General stressed the fundamental importance of freedom to supply services in the Community framework, the need to respect this fundamental principle and further, the possibility of promoting it ‘by means of the provision of information, whether or not for consideration, concerning services which the provider of information supplies himself or which are supplied by another person’. Although the Court had not yet expressly held that Article 59 EC covered non- discriminatory measures impeding intra-Community trade in services, he argued that the logic of some of the Court’s judgments did not preclude such a finding4*. He concluded that the national prohibition on information, though not discriminatory, may overtly or covertly, actually or potentially, impede intra-Community trade in services and as such it fell within the scope of Articles 59 and 60 of the Treaty. This formulation of the extent of the prohibition on restrictions in the area of services is remarkably similar to the language the Court used in Dassonville.

The Advocate General then addressed the imperative requirements of public interest in the instant case. He accepted that the objective behind the prohibition of information in Grogan - the protection of the unborn - was justified in Community law. It related to a moral and philosophical policy choice which Member States are entitled to make. The constitutional protection of the life of the unborn enshrined in the Irish Constitution reflected ‘the fundamental values to which a nation solemnly declares that it adheres’ and which they are entitled to defend and promote in Community law by invoking the ground of public policy referred to in Articles 56 and 66 EC49. The Advocate General then discussed whether the prohibition on information complied with the principle of proportionality. First of all, was the prohibition in question objectively necessary to achieve the aim sought by the rule? In other words, was it useful and indispensable and was it impossible to replace it by an alternative rule which was equally useful but less restrictive of free movement? Secondly, were the restrictions caused by the prohibition proportionate to the aim sought to be achieved? The Advocate General came to the conclusion that the national measures were not disproportionate and, in doing so, he placed considerable emphasis on the fact that the aim of the prohibition ‘is intended to effectuate a value-judgment’ enshrined in the Constitution. Unlike the Advocate General, the Court, as its decision clearly shows, was unwilling to become entangled in the moral and ethical issues which a decision on abortion information might entail. A clearer statement of the Court’s new position with respect to services entailing moral and ethical issues was left to the Court in SchindIerSo.

The Schindler brothers operated as independent agents for a public body (the Suddeutche Klassenlotterie (SKL)) which was responsible for the organisation of class

apply-

4x The Opinion of the Advocate General in GroKun was handed down before the decision in Sager. J9 The Advocate General seemed to confuse the public policy proviso in Article 56 and the judicially created

catalogue of imperative requirements of public interest. Since the prohibition was indistinctly applicable, in principle, he should only have addressed the latter category. His opinion suggests that the exceptions to free movement pursuant to Article 56 are being subsumed under a general comprehensive category of imperative requirements of public interest in much the Same way that Article 36 has been used after Cussh cle Dijon as a basis for non-discriminatory measures. See, for example. Joined Cases C-1/90 and C-

Case C-275/92 [I9941 ECR 1-1039. 176/90 A ~ U ~ O ~ W S U d~ Puhlrcidud EYrcr//Ir SA [ I99 I ] ECR 4 I 5 I , pard 13.

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lotteries on behalf of four German Lander. Their activities consisted in promoting and selling tickets for the SKL‘s lotteries. They sent envelopes addressed to British nationals which contained letters inviting the recipients to participate in the next issue of the lottery, forms for participation and pre-printed reply envelopes. This mailshot was intercepted and confiscated by British customs officials on the grounds that British legislation prohibited lotteries in the United Kingdom which do not constitute gaming, subject to a few limited exceptions, and further prohibited the importation of material publicising lotteries which might contravene such legislation5’. The Schindlers contested the seizure of the items by the Customs and Excise on the grounds that the British legislation, as a restriction on goods imported into the United Kingdom, was incompatible with Article 30 EC or, in the alternative, Article 59 EC, since the ‘goods’ in question were for a lottery legally organised in another Member State. The Customs and Excise commissioners argued that lottery tickets and advertisements did not constitute goods and that even if they did, the British legislation was not discriminatory, was justified for social policy reasons and was therefore not incompatible with Community law. A number of questions were referred to the Court of Justice, inter aliu, whether the United Kingdom legislation could be justified in accordance with Community law.

The Court examined the argument put forward by a number of Member States that lotteries could not constitute economic activities since they were subject in a number of Member States t o strict control by public authorities and that they were often limited to objectives of general interest, such as raising funds for public use. Nevertheless, the Court pointed out that lotteries were not totally prohibited in such Member States, but that, on the contrary, they were rather commonplace. In these circumstances it was impossible to treat lotteries as activities prohibited in all Member States due to their harmful nature. Reminiscent of its judgment in Grogan, the Court held that although the morality of lotteries may be questionable, it was not up to the Court of Justice to substitute its assessment for that of the Member States in which such activities were legally practised. Furthermore, the fact that certain national legislation limited the allocation of profits did not deprive the activity of its economic nature.

The Court then reiterated its decision in Sager to the effect that indistinctly applicable national legislation could come within the scope of Article 59 EC when it is liable to prohibit, or otherwise impede, the activities of a provider of services established in another Member State, where he or she lawfully provides services. This was the case for national legislation which prevented lottery organisers from other Member States from promoting and selling lottery tickets in its territory. Although small-scale lotteries could be organised in the United Kingdom, the Court felt that the object of such lotteries and the rules and method of organisation were not comparable with the type of lotteries prohibited by the British legislation at issue. The legislation in Scliindler was indistinctly applicable and the Member States which had intervened in the case argued that it was justified by imperative requirements of public interest, namely, protection of consumers, prevention of delinquency, protection of public morality, limitation of the demand for gaming and financing of activities in the general

s’ Pursuant to the s.2 of the Lotteries and Amusements Act 1976. as amended by the National Lottery Act, 1993 and s.1 of the Revenue Act, 1893. For details of the exceptions to this prohibition see Gormley. ‘Pay Your Money and Take Your Chance?’. (1994) 19 ELR 644. The exceptions essentially refer to small lotteries organised for no commercial gain.

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interest. They also claimed that the legislation was proportionate to the aim sought to be achieved. The Court accepted that the objectives behind the British legislation, as proposed by the intervening Member States were related to the protection of the recipients of the services, of consumers in general and of social order. These objectives had already been recognised by the Court as permissible restrictions of the free provision of services in previous casess2.

The Court then analysed the specific nature of lotteries, as it had previously done with respect to patent renewal services in Sager. However, in the instant case it recalled the moral, religious and cultural considerations which surrounded lotteries and gaming at Member State level. Such considerations led Member States to limit and even prohibit gaming and to avoid it becoming a source of personal enrichment. Furthermore, given the amount of money which they generate, lotteries involve high risks of crime and fraud. They also invite people to spend, which has its own harmful social and individual consequences. Finally, although not an objective reason in itself, they are an important source of funding for charitable and social work and for sport and culture. These factors meant that national authorities should enjoy a sufficiently wide margin of appreciation to determine how to protect lottery participants and, given the socio-cultural characteristics of each Member State, to determine how lotteries are operated, the size of the stakes and the allocation of profits. As long as the restrictions imposed by Member States were not discriminatory, it was up to them to decide whether it was necessary, not only to restrict lottery activities, but also to ban them. If Member States choose to prohibit large-scale lotteries, a prohibition on the importation of material to facilitate its residents participating in lotteries in other Member States does not unjustifiably restrict free movement, since it is a necessary element of the protection which that Member State seeks to secure in its own territory with respect to lotteries. The justifiable social policy and fraud considerations behind the British legislation meant that the ban in the United Kingdom did not unlawfully restrict free movement.

V Consequences of the Divergent Approach of the ECJ What are the consequences of the jurisprudence of the Court examined in Section IV? Are Grogun and Schindler in conformity with the methods used by the Court in Sager and Alpine Investments, namely, recognition of an extensive category of national public interest justifications and rigorous use of the principle of proportionality to assess whether the means suit the ends, or do these cases indicate a different approach? If so, what are the reasons for the Court’s departure?

Both Grogan and Schindler involved social and moral issues which were considered highly sensitive by the Member States whose restrictions of free movement were being challenged. In the Grogun case the Court avoided the difficult issue of access to abortion information by simply holding that the facts of the case did not bring the prohibition on information about abortion within the scope of Article 59 EC. There was consequently no need to subject the public interest objective - protection of the unborn - to the competing Community interest in guaranteeing free movement, or to subject the prohibition to the requirements of proportionality. A similar approach was adopted in the area of goods in Duphar, where the Court held that Dutch rules on the

52 See Joined Cases 1 10 and 1 1 1178 Van Wesemael, p 52; Case 220183 Commhion v France. p 3709; and Case 15/78 Koesfler, p 1981.



funding of the national sickness insurance system did not come within the scope of Article 30, despite their undeniably serious restrictive effect on importQ3. It was thus not necessary to apply the proportionality test to the public health justification alleged by the Dutch government. The Court was clearly not prepared to interfere with the organisation by a Member State of its social security systems, so that even though the Dutch system restricted imports and its objectives were primarily economic, the fact that the measures were said to lie outside the scope of Community law on the free movement of goods cancelled any need for justification and consequently proportionality. The Opinion of the Advocate General in Grogan, on the other hand, was reminiscent of the Court’s previous case-law and its subsequent decision in Sager.

In contrast to the Grogan decision, the Court in Schindler did analyse the ban in the United Kingdom with reference to a public interest justification. Moreover, it analysed the interest in question in considerable detail. This contrasts with its rather terse discussion of the political and economic choices and socio-cultural characteristics at issue, for example, in the Sunday trading cases54 and with the avoidance of such discussion in Grogan, but ties in with the Court’s active assessment in Sager. This active evaluation in Schindler is particularly noticeable, however, given that the Court did not proceed to assess the public interest at stake in the light of the Community’s established principle of proportionality, as it has done until now in cases such as Webb or Sager. Having held that the interest in question was justifiable, the Court in Schindler went on to hold that the particular nature of lotteries justified national authorities enjoying a wide margin of appreciation to determine what was necessary to protect persons involved in gaming and to protect the social order generally. National authorities had to be allowed to decide whether or not it was necessary not only to restrict gaming activities, but also to ban them. However, just as expulsion is the very negation of the free movement of personsss, banning a particular activity is the very negation of free provision of services. No mention was made of the need to assess the proportionality of such a ban, or the home control imposed in Germany. The only condition imposed was that the restrictions must not be discriminatory. In Sager, however, where an uncontroversial service was at stake, little, if any, discretion was left to national authorities and the Court went as far as redefining the measures necessary to protect the general interest in question.

I t is suggested that Schindler may represent the Court’s approach in future cases where indistinctly applicable barriers to trade entail sensitive moral and ethical issues This approach contrasts with cases like Sager, Commission v Netherlands, Webb etc, where the restrictions imposed by national measures were justifiable on the grounds of the general interest, but which were subject to fairly strict scrutiny on grounds of proportionality. Most restrictions have fallen by the wayside, not because they were unjustifiable, but because they were disproportionate. It was unlikely is Schindler, given the unanimous support of all the intervening Member States, that the Court would reject the public interest considerations alleged by the United Kingdom. However, acceptance of an outright ban on lotteries without reference to the principle of proportionality is a significant departure from previous balancing of home and host state control, of whether the restriction was necessary to achieve the objective in

s3 Case 238/82 Duphar (19841 ECR 523. s4 See. for example, Case C-145188 Torfaen Borough Council Y B and Q pic [I9891 ECR 3851; and Case

C-169/91 Norwich BOrOUgh Council v B and Q [I9921 ECR 6635. 55 See Case 1 18/75 Wur.wn and Bdniann [ I9761 ECR 1 185. para 20.

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question and whether less restrictive means existed to achieve that objective. Gormley suggests, rightly in our view, that previous applications of proportionality had been ‘in relation to the equivalence of tangible socio-economic concepts.. . . The rather wider public interest justifications advanced by the Court [in Schindler] are not of such a nature as to permit an adequate assessment of eq~ivalence.’~~ De Burca also suggests that the Court of Justice does not always examine justifiability with the same degree of rigour in all casess7. In conclusion she lists a number of factors which can usefully be kept in mind when examining the extent to which the Court of Justice subjects a national measure to review - inter alia, whether the measure relates to a nationally sensitive or ideologically contentious matter; whether it involves a complex political objective; whether there is no European-wide or internationally agreed standard: or whether, if a measure were found disproportionate, it would impose a considerable financial burden on the Member State. The decisions of the Court in Grogan, Campus Oils8, Schindler and Duphar closely correspond to these four reasons for not subjecting national measures to strict scrutiny.

If Schindler does suggest a disregard of equivalence in cases involving sensitive social and moral issues, it resolves the difficulties which the Court might face were it confronted with a Grogan-like case in future. There would now be no need, given the wide margin of appreciation open to Member States with respect to such social and moral general interest issues and the means to protect them, to subject a national restriction on access to information about a service such as abortion to proportionality considerations. If one examines the Opinion of the Advocate General in Grogan, the really difficult issue he faced was precisely that of the proportionality of the prohibition. Once again, a parallel can be drawn with the Duphar case. The Advocate General there admitted that an examination of the proportionality of the Dutch legislation would be very difficult given the delicate balance of the Dutch scheme and the fact that it pursued numerous objectivess9. As a result, he defined the public health justification very widely and left the question of proportionality to the national court. However, if proportionality is redundant, it is still questionable whether the decision of the Court in ERTm would apply. The Court there held that when a Member State invokes the derogations in Articles 56 and 66 EC to justify a measure restricting free movement the measure in question must be interpreted in the light of, and be in conformity with, the Community’s general principles, especially fundamental rights6’. Presumably, the margin of appreciation approved in Schindler would not allow Member States to disregard the Community’s fundamental rights principles, although the terms of the Court’s judgment do not automatically point to such a conclusion. This suggestion seems to be supported by the Opinion of the Advocate General in

5h See Gormley, op cif n 51, pp 651-652. 57 See De Burca, ‘The Principle of Proportionality and its Application in EC Law’. (1993) 13 Y E L 105, p

I I I : ‘the Court of Justice is influenced not only by what it considers to be the nature and importance of the interest or right claimed by the applicant. and the nature and importance of the objective alleged to be served by the measure, but by the relative expertise, position and overall competence of the Court against the decision-making authority in assessing these factors.’

5x Case 72/83 Campus 011 Y Minibfry I;,r Inducfry and Energy { 19841 ECR 2727, where Irish legislation requiring oil importers to purchase a certain amount of their needs from a refinery was successfully justified on grounds of national security.

59 Case 238182. supra n 53, 549-552.

h1 /hid, para 43. 6o Case C-260/89 [I9911 ECR 1-2925.

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Grogan. Advocate General Van Gerven there introduced two separate tests of proportionality. The first, related to the general interest justification and is outlined above. The second test was devised to resolve the conflict between two fundamental rights6*. The Advocate General asked: (i) does the prohibition of information pursue a legitimate aim of public interest which fulfils an imperative social need; (ii) is that aim realised using means which are necessary and acceptable in a democratic society; and (iii) are the means employed in proportion to the aim pursued and is the fundamental right concerned impinged upon as a result? if Grogun were revisited following the Schindler decision, the Court could address the substance of the case this time and examine the regulation of information about abortion in other Member States. However, it would still be able to avoid the sensitive social and moral issue involved, since it is no longer obliged to examine such a prohibition with reference to proportionality. However, as the Advocate General demonstrates in his Opinion in Grogan, if fundamental rights are at stake, an assessment of the proportionality of national measures will and should re-emerge anyway.

The wide margin of appreciation permitted in Schindler may be commendable from a broad perspective of subsidiarity, but it is problematic, nevertheless, in other respects. A distinction between social and ethical public interests (SchindZer, Grogan) and socio-economic and cultural interests (Webb, Sager) is not one explicitly drawn by the Court. However, its previous case-law on consumer, employment or social policy issues seems to support the argument that a division is in fact developing, since these cases demonstrated the Court’s readiness to subject restrictive national measures in these fields to considerable scrutiny on grounds of proportionality. However, what guidelines is the Court going to follow to determine when a public interest touches sufficiently sensitive moral and ethical issues for proportionality to apply? The Court in Webb regarded the activities of employment agencies as sensitive because of their potential effect on labour relations and workers. Are these issues not reflections of the ethical choices of Member States in the area of employment which are equally worthy of the highest possible respect at Community level? The Alpine Investments case also illustrates that it is not always easy to distinguish between economic and ethical issues. The Court and Advocate General in that case pointed to the highly speculative nature of the financial services at issue. The Advocate General, in particular, argued that investments in the securities and commodities markets involve a high element of risk, are susceptible to abuse, are highly speculative and that the value of the investment depends on a series of extraneous factors which the ordinary investor may neither determine nor influence. In contrast, in Schindler, the Court discussed the nature of lottery services and betting. Participation in a lottery does not always guarantee financial gain and, as a result, it is a highly speculative practice. Nevertheless, like investors in financial markets, lottery competitors have a chance and some hope of winning. Given the similarities between these two highly speculative activities, what is the difference from the point of view of Community law between betting or participating in a lottery or, say, currency speculation in the Community’s financial markets? Neither bring definite financial rewards. both present the possibility of abuse and fraud and both can result in negative individual and social consequences. Is it so easy, after all. to differentiate between services which entail sensitive ethical issues and those which entail purely economic considerations?

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The approach adopted by the Court in Grogun and Schindler could also be recognition of the fact that the Community must respect the limits to its competence in certain fields. Thus, although the Community is competent to prohibit restrictions of services such as abortion, it has no competence to regulate abortion itself, or to require Member States to legalise it. Nationally sensitive or ideologically contentious issues which lie on the borders of Community competence are likely to be subject to less strict scrutiny on grounds of proportionality. However, following Schindler, the Court may actively assess the nature of the public interest justification itself, which seems contradictory.

Another issue which arises in the light of Schindler is to whom the Court is willing to permit such a wide margin of appreciation. What, for example, if national legislation regulating a particular service was the same or similar in all Member States, bar one. Would the Court permit the remaining Member State to impose an outright ban on the performance of that service, or ancillary activities such as the provision of information, without even subjecting the ban to the requirements of proportionality? Furthermore, would a decentralised Member State be answerable for restrictions to the free provision of services imposed by one of its regions which wished to protect social and moral values peculiar to it?63 It will be interesting to see whether the Court will be willing to reject the social and ethical values peculiar to one Member State, or region, if an examination of legislation at national level reveals a similarity amongst the remaining regions in a state, or the remaining Member States.

VI Conclusions It appears that moral, political or ethical choices are still to be considered within the scope of Member State competence. The Court is reluctant to interfere in this sphere and to substitute its own judgment for that of the Member States. In contrast, where economically related issues are at stake, the Court is willing to treat them as a Community law matter, even to the extent, in Sager, of analysing the conditions in which a service may be provided efficiently at Community level.

This divergent approach reflects the fact that the Community is still, predominantly, an economic venture, in which moral and ethical issues are accommodated rarely and with difficultly. However, there are a number of problems with this approach. The distinction between social, ethical and moral issues is a fine one, since it is arguable that economic choices also reflect definite ethical and political choices. The situation in the Webb case is surely a fine example of a service where economic, social and ethical issues converge. The same may be said about the Dutch broadcasting cases, where the political and social principles underlying the legislation had undeniable and insepa- rable economic consequences. It will be a difficult task indeed to define on which side of the line a specific national restriction may fall and the completion of this task will also, inevitably, lead the Court to take an ethical stance of its own. As Mishan has pointed out, the efficient allocation of resources cannot itself be justified on purely economic grounds: an ethical consensus concerning allocative issues within which notions of efficiency can be introduced must exist@.

The possibility of social and ethical differences between a Member State and its regions was confirmed recently in Germany, where one region now permits the sale of soft drugs in pharmacies to the consternation of the Federal government. See Mishan, Economic Efficiency and Social Welfare: Selected Essays on Fundamental Aspects of Economic Theory on Social Welfare (London, 1981 ).



The position of the Court is justifiable in terms of the absence of common ethical or moral standards in the Community. Assuming that such a consensus existed in certain areas, there seems to be no effective means at Community level, at present, to democratically translate these choices into Community policies. In the absence of such consensus, or the means to express whatever consensus does exist, Member States must be accorded a large margin of discretion to give effect to their communities’ ethical or political aspirations and choices without the interference of Community law. However, these limitations on Community law and the role of the Court of Justice reflect the preeminence of economic aspects of integration over aspirations for political integration. At the present stage of development of the Community or Union, this could hardly be otherwise. Only through the construction or gradual development of a European polity which shares similar values and enjoys the means to translate those common values into law may increased interference by the Court in these spheres be legitimised. Until that happens, however, the Community will either lack European democratic, moral and ethical standards, or will have to derive them from another source. It is suggested that the European Convention for Human Rights, as interpreted by the Court of Justice, might provide such an appropriate standard. However, this would mean that if the European Court of Human Rights handed down a decision which also affected ethical and moral issues, the Court of Justice in a similar subsequent case should be bound by the substance of the Court of Human Right’s decision, whether or not, in the process, it would have to assess the proportionality of ethical or moral general interests. In cases involving fundamental rights therefore, the Court of Justice would have a yardstick with which to assess controversial issues which arose in the context of services at Community level. There is no doubt, however, that the Court is in an unenviable position, since the delimitation of the various moral, ethical and economic aspects of social regulation, in this case in the field of services, is bound to create controversy and to highlight the fact that, though the Community has come far, differences and tensions still persist.

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Marenco, ‘The Notion of Restriction on the Freedom of Establishment and Provision of Services in

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