EU Freedom of Establishment. In this essay I will discuss the definition of establishment and consider the relevant case-law which has shaped this fundamental freedom.

4.4 One fundamental difference between the MS’s is the approach taken to deciding where a company is actually located: the place of incorporation or the place where the economic activity really takes place. Some states take an approach, which identifies, where the predominate economic activity is exercised. Other States use a more formal ‘place of incorporation’ approach. The harmonisation of company law in the EU has been slow and the MS’s are anxious to impose restrictions upon the movement of companies where they suspect that migrating companies may try to evade local laws and regulations.

4.5 In the Daily Mail case, the newspaper publisher wanted to move its central management and control to the Netherlands but also to maintain its legal personality and status as a company in the UK. There were a number of tax advantages to this plan. It needed the prior approval of the UK treasury to do this but relocated to the Netherlands before receiving such approval. The ECJ dismissed the argument that the requirement of prior approval for such relocation was contrary to articles 43 and 48 EC. The Court recognised that a company must be anchored in at least one MS for regulatory rules to apply and that in the absence of harmonising measure MS were able to regulate the movement of companies. Thus, the Daily Mail had wanted to establish a subsidiary in the Netherlands, the UK would have had to justify rules which prevented the partial emigration of the economic activities of the Daily Mail. It still would have been possible for the UK to raise the public policy defence in relation to tax evasion.

4.6 This case can be viewed as the court prompting MS to move forward on the harmonisation of Company law; a hint which was ignored by the MS.  

5 A discrimination based test:

5.1 Equal Treatment is implicit in Article 49 TFEU which sets out that in the absence of specific Union rules, each MS is free to regulate access to a profession in its territory, provided that it does not directly or indirectly discriminate on the grounds of nationality

5.2 The early case law of the ECJ tended to focus on personal rights and broad principles of discrimination on the grounds of nationality.  In Reyners v Belgian State, the applicant, a Dutch national, attempted to get access to the Belgian Bar. Jean Reyner was a Dutch national residing in Belgium. He had the necessary qualifications needed for access to the Belgian Bar. He was denied admission as he was not a Belgian national ECJ stressed the importance of the right to equal treatment enshrined in Article 18 TFEU and Article 49 He was entitled to be treated on equal terms with Belgian nationals in seeking admission to the profession

5.3 This case also established that the freedom of establishment provisions had direct effect, in the absence of directives. The court stated, 

‘…in laying down that the freedom of establishment shall be attained at the end of transnational period. Article 52 thus imposed an obligation to attain a precise result, the fulfilment of which had to be made easier by, but not made dependent on, the implementation of a programme of progressive measures’

5.4 It is possible for a MS to invoke a derogation from the right to establishment on grounds of public policy, public security or public health. In Omega, the plaintiff operated a ‘laserdrome’(laser-tag games) and they acquired their equipment from a British company, Pulsar Advanced Gaming Systems. A police order was decreed to prevent Omega from providing their services as ‘simulated homicide’ and ‘trivialised’ violence contrived fundamental public values. Omega argued that such an order breached Art 49, as it would also prevent Pulsar from providing services. The ECJ decided that, it did in fact, primia facie, infringe Article 49. However, it found that this was justified under Article 46.

The ECJ held:

‘The Community legal order undeniably strives to ensure respect for human dignity as a general principle of law. There can therefore be no doubt that the objective of protecting human dignity is compatible with Community law... Since both the Community and its member States are required to respect fundamental freedoms guaranteed by the treaty such as the freedom to provide services’

5.5 In Sager, the ECJ stated ‘the freedom to provide services may be limited only by rules which are justified by imperative reasons relating to the public interest and which apply to all persons and undertakings pursing an activity in the State of destination in so far as that interest is not protected by rules which the person providing the service is subject in the State in which he is established. In particular, these requirements must be objectively necessary in order to ensure compliance with professional rules and must not exceed what is necessary to attain those objectives’

5.6 The ECJ confirmed the applicability of those criteria in Gebhard. Thus, for a national rule which restricts the freedom f establishment or the freedom to provide services to be compatible, a four part must be satisfied:

• the rule must be non-discriminatory
• it must be justified by imperative requirements in the general interest
• it must be suitable for the attainment of the objective it pursues
• it must not go beyond what is necessary in order to attain its objective (the proportionality doctrine)

5.7 Indirect discrimination may be objectively justified or saved by an express derogation for example a national law requiring professionals to hold a licence before they can practice and/or be registered with a professional body, usually after having passed the relevant examinations and holding certain qualifications. Individual has dual burden of satisfying home and then host MS of their suitability to practise, while nationals have only to satisfy only one authority-i.e. that of the home MS. Often the ECJ will allow such indirect discrimination if the requirements can be justified

5.8 In Klopp the court ruled that a ban on secondary establishment, used by the Paris Bar was contrary to Article 43 EC. This was a forward-looking judgement in that the Court held that while it was legitimate for the Paris Bar to want to exercise control over lawyers practising locally, a ban on secondary establishment, forcing lawyers to give up their primary establishment, was out of proportion given that lawyers were able to maintain contact with their clients and the French courts through modern methods of transport and tele-communications. Where there is indirect discrimination the State may be able to justify rules which are objective. Other cases have involved more overt forms of discrimination based upon nationality which is contrary to Community law and cannot be justified under one of the Treaty derogations.

5.9 The court has moved on to considering rules which are non-discriminatory but nevertheless prevent access to the local market. This is very similar to the indistinctly applicable rules considered in relation to goods in Cassis de Dijon. In Gebhard (principles outlined above) which saw the court set out the conditions to be consider by the ECJ. The courts have imposed some limits on this test where the alleged impediment is too remote. But other cases, for example, prior authorisation for a trade fair, a language requirement among dentists and a restriction on multidisciplinary partnerships between lawyers and accountants have been held to be restrictions on the freedom of establishment. As with other fundamental economic freedoms, such restrictions may be justified by the MS, subject to the principle of proportionality.

5.10 In Thieffry (1977)  a Belgian national, who obtained a law degree at a Belgian university, which was recognised as equivalent by the University of Paris, proposed to train for the French bar. He was refused on the grounds that he did not possess a French law degree. The ECJ ruled that this was indirect discrimination which was prohibited.

5.11 In Gebhard, it was argued that Gebhard is authority for this proposition in the field of establishment. Here the applicant, a German lawyer, set up chambers in Italy and lived there since 1978, married with children, his wife was Italian, he paid tax in Italy. From 1980 to 1989, he was an associate member of a chamber and no complaints ever emerged during this time. In 1989 he set up his own chambers and most of his business involved non-contentious work. 65% of his turnover was representing German-speakers and 30% of his turnover was representing Italian-speakers in Germany and Austria and finally the last 5% of his turnover was in assisting Italian practitioners whose clients were faced with problems of German law. A complaint was made by various lawyers in Milan, as he had avvocato on headed paper and used the title in court. The Milan Bar Council prohibited Mr Gebhard from using the title avvocato.

5.12 They suspended him from practice for six months on the ground that he had contravened Italian Act 31/82, which implemented Directive 77/249 on the facilitation of the effective exercise by lawyers of freedom to provide services. The Italian Act prohibited lawyers established in another Member State who provided services in the territory of Italy from opening in Italy chambers or a principal or branch office. The matter went before the ECJ. The ECJ held although Gebhard was still practising in Stuttgart, this was nevertheless held to be establishment. The ECJ then distinguished “establishment” from “services”. It was held that establishment:  ‘was the right of a Union national to participate on a stable and continuous basis in the economic life of a MS other than his/her own MS ‘

5.13 The rule restricting the use of the title avvocato could be seen as non-discriminatory (neither non-nationals nor Italian nationals could use the title without fulfilling the criteria laid down by the Milan bar) or the rule could be seen as indirectly discriminatory (more likely that non-nationals would not satisfy the criteria than nationals) However, ECJ did not go down either route. The ECJ decided that Gebhard was established and focused on the obstacles to freedom of establishment created by the Italian rules. Gebhard confirmed that is it possible to be established in two MS at the same time.

6 Professional Qualifications:

6.1 Article 49 removed restrictions on the freedom of nationals to establish themselves in another MS. However there was no mention of the training/education required by MS. Requirements were different from MS to MS. Thus the refusal of host MS to recognise qualifications acquired in another MS represented a serious obstacle to the freedom of establishment

6.2 Article 53 (1)

“In order to make it easier for persons to take up and pursue activities as self employed persons, the Council shall, acting in accordance with the ordinary legislative procedure, issue directives for the mutual recognition of diplomas, certificates and other evidence of formal qualifications”

This Article required unanimity, for a long time and this thus slowed down the process immensely. There were very few professions which actually had directives. The ECJ was required to reconcile the host MS legitimate need for qualified people to do certain jobs with the fundamental principle of the freedom of movement (balancing act). Where the EU had not enacted legislation, MS and legally recognised professional bodies retained the jurisdiction to adopt the necessary measures as long as they complied with the principle of cooperation and non-discrimination.

 6.3 In Patrick v Ministre des Affiares Culturelles; a British architect applied for authorization to practise in France.  His application was rejected on the ground that there was neither a diplomatic convention between France and the UK concerning the mutual recognition of certificates nor an EC directive on the recognition of architectural qualification. The ECJ rejected this contention and held that Patrick had the right to establish himself in France and the French authorities could not require him to satisfy additional conditions (such as being authorised to practise) which were not applicable to nationals. The ECJ held it to be a breach of Article 49 and 18.

6.4 Thieffry ECJ began to change its focus from the principle of non-discrimination to one of mutual recognition. The plaintiff was a Belgian advocate and had been awarded a Belgian diploma of Doctor of Laws which had been recognised by a French university as equivalent to the French licentiate’s degree in law. He then obtained a French advocate’s certificate having passed a French exam.

6.5 However he was refused entry into the French equivalent of the bar even though his qualifications were officially recognised in France, they were not however, a French qualification. The ECJ found this to be discriminatory and in breach of Articles 49 and 18 and declared this an unjust restriction on the freedom of establishment. The ECJ made clear the importance of the principle of mutual recognition. The ECJ held that host MS had to compare a non-national’s qualifications and abilities with those required by the national system to see whether the applicant had the appropriate skills to join the equivalent profession

6.6 If equivalent, but not identical, the host MS was obliged to recognise the diploma. If applicant only partially fulfilled the necessary qualifications, then the host MS could require the applicant to demonstrate that he/she had acquired the relevant knowledge and qualifications which then had to be taken into account The decision making body had to give reasons for its decisions which also had to be reviewable by the courts to verify compatibility with Union law

6.7 Where there is Union legislation, the Council took a vertical approach and harmonised the diverse national rules profession by profession. This lead to directives on doctors, nurses, dentists, vets (Directive 78/1026 and 78/1027 Veterinary Surgeons), manufacturing and processing, food and retail. These directives prescribe minimum standards on training. Once the individual has completed the training and acquired the qualification then recognition is automatic-the host MS must accept the equivalence of the qualifications and cannot require the individual to comply with requirements other than those laid down by the relevant directives.

6.8 In Broekmeulen, the Dutch General Practitioners’ Committee was unable to refuse Breokmeulen permission to practice as a GP in Holland even though he had qualified as a GP in Belgium, where it was not necessary to complete the three years’ specalisied training required for GP’s in Holland. The EC Directive 75/362 relating to training for GPs did not require GPs to undergo training additional to the original (three year) qualification.  

6.9 Progress of negotiating these Directives were very slow-Architect’s Directive (Directive 85/384) took 17 years to agree-the lawyers’ services Directive was limited in that it only applied to services and not establishment (Directive 77/249 Lawyers’ services)

6.10 Single market programme heralded a new approach in the form of horizontal harmonisation based on the principle of mutual recognition derived from ECJ’s rulings in Cassis and Vlassopoulou. Instead of attempting to harmonise by profession, known as the sectoral or ‘vertical’ approach, the Commission adopted a general or ‘horizontal’ approach, based not on harmonisation but on mutual recognition of qualifications. This applied not just applied to individual professions but to all aeras of activity for which a higher education diploma was required. Directive 89/48, based on these principles, was approved in December 1988. The Council then agreed a second directive, this time dealing with secondary education. This directive was also based on the principle of mutual recognition. Both directives have been amended a number of times since they were first enacted, but the basic principles remain.

6.11 In 1999 with Directive 99/42, the Council introduced a directive which covered recognition of qualifications in various commercial and industrial sectors (agriculture, carpentry, hotels and restaurants and textiles). Up until 2007 there were three categories

• Professions where specific harmonising directives existed-GPs, dentist, nurse, vets, midwife, pharmacist and architect
• All other professions-Accountants, lawyers and bankers where one of the Mutual Recognition Directives applied
• Commercial and industrial sectors

However Directive 2005/36/EC repealed and replaced earlier directives and it also included the case law of the Court of Justice. This directive was subsequently amended by Directive 2006/100/EC following the accession of Romania and Bulgaria to the EU. The provisons of these directives had to be transposed by MS by the 20th October 2007. They Consolidated earlier professions (regulated professions) (consolidates the three categories above). It not only replaced the mutual recognition directives but also put in one text the following (thus repealed their specific directives): professions of nurse responsible for general care, dental practitioner, veterinary surgeon, midwife, architect, pharmacist and doctor.

Bibliography:

• Understanding EU: Erika Szyszczak and Adam Cygan 2nd edition
• EU Law: Josephine Steiner and Christian Twigg-Flesner 9th edition
• Unlocking EU law: Tony Storey and Chris Turner
• European Union Law: Margot Horspool and Matthew Humphreys 4th edition
• European Union Law: Damian Chalmers, Christos Had jiemmanuil, Giorgio Monti, Adam Tomkins. Cambridge University Press 1st edition.
• EU law, lectured by Norah burns: lecture hand-outs and class notes, Topic 4 and 4.1
• : for case citations
•  for ECJ case judgements
•  
• : The Right of Establishment for Professionals in European Law, Michael Tremblay PhD, Tremblay Consulting
• Freedom of Establishment for Companies: The European Court of Justice Confirms and Refines its Daily Mail Decision in the Cartesio Case C-210/06 Veronika Edit: Korom University of Economics and Business Administration, Peter Metzinger, Trinn Law Office, Budapest

---