Free Movement of Services

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Free Movement of Services

1. Meaning and structure

Services are, along with the supply of goods, a major economic sector and are covered by the freedom of services provisions of Arts 56 ff TFEU/ 49 ff TEC. All performances normally provided for remuneration are at issue; Art 57 TFEU/50 TEC gives a definition and adds that especially activities of an industrial character, activities of a commercial character, activities of craftsmen and activities of professions fall within the subject matter. A very wide spectrum is thus covered, and comprises, inter alia, activity of lawyers, construction in civil engineering, construction planning by an architect, banking and insurance services, time bargains, franchise contracts (ECJ Case C-36/02 – Omega [2004] ECR I-9609), gambling, patent supervision, broadcasting and television services, telecommunications, accounting services, guard and security services and much more. Services may also be provided in the framework of sporting activities. For services in the field of transport according to Art 58(1) TFEU/51(1) TEC the provisions on transport policy of Arts 90 ff TFEU/70 ff TEC apply. Services that are connected with the exercise of official authority are excluded according to Art 62 TFEU/55 TEC in conjunction with Art 51 TFEU/ 45 TEC.

The freedom of services can be exercised in different ways. In case of the active or positive freedom of services, the service provider crosses the border in order to provide his services in another Member State; in case of the passive or negative freedom of services the recipient of the services receives them in another Member State; in case of services through correspondence neither service provider nor service recipient cross the border but only the actual service itself. Furthermore, the freedom of services applies where both the service provider and the service recipient are located in the same Member State, but the actual service itself is provided in a different Member State. Where a national of a Member State goes to reside in the territory of another Member State and establishes his principal residence there in order to provide or receive services for an indefinite period of time, the case does not fall under the freedom of services because of the continuing duration of the newly established residence; however, relocation may be covered by the free movement of persons (ECJ Case 196/87 – Steymann [1988] ECR 6159). Accordingly, with regard to services for citizens of a different Member State in a senior citizen residence, the freedom of services will not be applicable due to the lack of a cross-border element (ECJ Case C-70/95 – Sodemare [1997] ECR I-3395).

For a long time, the freedom of services has already been seen not only as a prohibition of discrimination ([[discrimination (general)), but also as a prohibition of restrictions (ECJ Case C-76/90 – Säger [1991] ECR I-4221; ECJ Case C-3/95 – Reisebüro Broede [1996] ECR I-6511), though this occurred later than in the area of the [[free movement of goods. In particular, a Member State may not make the provision of services in its territory subject to compliance with all the conditions required for establishment (ECJ Case C-76/90 – Säger [1991] ECR I-4221, para 13). Selection rules for high-level international tournaments do not constitute a restriction on the freedom of services as long as they derive from a need inherent in the organization (ECJ Joined Cases C-51/96 and C-191/97 – Deliège [2000] ECR I-2549). In consequence of the freedom of services a Member State may not prohibit a service provider from another Member State moving with its entire staff freely on its territory, and also may not make movement of the staff members in question subject to more restrictive conditions (ECJ Case C-341/05 – Laval [2007] ECR I-11767). The development of the freedom of services largely followed the development of the [[free movement of goods. Whether the Keck case law regarding selling arrangements, developed for the free movement of goods, is to be applied to the freedom of services is, however, disputed. Though the ECJ case law (ECJ Case C-384/93 – Alpine Investment [1995] ECR I-1141) has been interpreted in very different ways, the question should in principle receive an affirmative answer. Nevertheless it must be noted that the Keck judgment does not in this context necessarily disclose the same important impact. In contrast to the delivery of goods, services appear to be more often defined by legal provisions; one speaks, for instance, of insurance as a legal product.

Even beyond the written grounds of justification of Art 62 TFEU/55 TEC in conjunction with Art 52 TFEU/46 TEC, a restriction can be justified and the [[ECJ states four requirements for such justification: ‘they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it’ (ECJ Case C-55/94 – Gebhard [1995] ECR I-4165). Sometimes the closer assessment of proportionality is left to the national courts by the ECJ. A Member State may not make the provision of services in its territory subject to all the preconditions that apply for an establishment. According to the case law of the ECJ, Member States can extend their minimum wage rules enshrined in legislative provisions or collective labour agreements concluded by social partners to every one who pursues employment within the sovereign territory of the Member State. In this context, Dir 96/71 concerning the posting of workers in the framework of the provision of services was enacted. The protection of fundamental rights can be a legitimate interest which, in principle, justifies a restriction of the freedom of services (ECJ Case C-341/07 – Laval [2007] ECR I-11767, para 93).The objective of combating drug tourism and the accompanying nuisance can also provide a justification (ECJ Case C-137/09 – Josemans, nyr).

2. Addressees and binding effect on private persons

The freedom of services can be relied upon by citizens of a Member State, and according to Art 62 TFEU/55 TEC in conjunction with Art 54 TFEU/48 TEC also by companies, save for those established in a non-Member State (ECJ Case C-452/04 – Fidium [2006] ECR I-9521, para 25). To nationals of a third country who provide services and are established within the Union, the freedom of services may be extended according to Art 56(2) TFEU/49(2) TEC. The primary addressees of the freedom of services are the Member States. However, it does not apply only to actions of public authorities, but also extends to rules of any other nature aimed at regulating, in a collective manner, gainful employment and the provision of services (ECJ Case 36/74 – Walrave [1974] ECR 1405; ECJ Case C-341/05 – Laval [2007] ECR I-11767, para 98). It also covers rules laid down by sporting associations and collective action (ECJ Case C-341/05 – Laval [2007] ECR I-11767). In other cases, a direct horizontal effect is to be rejected.

3. Private law norms and the freedom of services

In the area of private law the freedom of services has already appeared in a variety of ways and not only with regard to liberal professions. It applies, on the one hand, to the prohibition of discrimination. The requirement that a foreigner provides security for the costs of legal proceedings shall constitute a prohibited discrimination (ECJ Case C-20/92 – Hubbard [1993] ECR I-3777; concerning [[discrimination (general) see also ECJ Case C-43/95 – Data Delecta [1996] ECR I-4661; ECJ Case C-323/95 – Hayes [1997] ECR I-1711; ECJ Case C-122/96 – Saldanha [1997] ECR I-5325). Another instance of discrimination was the former German rule which permitted the exclusion of a foreign commercial agent’s claim for compensation while compensation for domestic commercial agents was mandatory. Probably, the same then must be true for the Dutch rule that the agent of foreign travel services himself is to be seen as the tour operator. With regard to insolvency and bankruptcy insurance under Art 7 of the directive on package travel (Dir 90/314), the ECJ found that a French rule which required foreign financial services providers granting guarantees to enter into a second contract with an insurance company or credit institution established in France is discriminatory and not justified by the protection of the consumer (ECJ Case C-410/96 – Ambry [1998] ECR I-7875).

Great potential lies within the prohibition on restriction. In a case from 1978 the ECJ found that the debarment of recovery by legal action of debts arising out of a wagering contract and similar debts out of stock exchange time bargains did not interfere with the freedom of services (ECJ Case 15/78 – Koestler [1978] ECR 1971), but at that time the freedom of services had not yet been applied as a prohibition of restriction by the ECJ. A private law rule that characterizes certain debts as obligatio naturalis or otherwise unenforceable is nowadays to be seen as a restriction, so that its justification is of the essence. Accordingly, the rule of § 656 [[Bürgerliches Gesetzbuch (BGB) which makes marriage brokerage debts unenforceable is of doubtful permissibility—less severe consumer protection measures could indeed be possible. Where a particular kind of contract is declared null and void in application of a rule on illegality or on contracts contra bonos mores, this will constitute a restriction of the fundamental freedom—some say that the sanction of finding a contract null and void in cases of services has the same effect that an import ban has on goods. One might have in mind cases concerning dwarf throwing, prostitution, telephone-sex and contracts concerning surrogate motherhood, but a justification on grounds of mandatory requirements of public interest appears to be at hand and, with a view to the decision in the Omega case, is realistic (ECJ Case C-36/02 – Omega [2004] ECR I-9609). With regard to subcontracting, the action directe existing in some legal systems could be discussed in the light of the freedom of services, and for construction contracts the special insurance devices of the French construction law system.

Financial services provided by banks and insurance companies are of special economic relevance and of great academic interest. Since, contrary to a rather isolated academic opinion, the coordination of banking legislation does not require the recognition of contract law rules for specific services of the state of origin of the provider, the fundamental freedom can come into play directly. The Commission has stated in its interpretative communication on the freedom of services and the interest of the general good in the Second Banking Directive (Dir 89/646) from 1997 (SEC(97) 1193 final) that: ‘most contractual rules falling within the scope of civil law or procedural law (means of extinguishing obligations, limitation periods, expiry, invalidity, etc.) are unlikely to constitute barriers to the trade in banking services’; it has, however, regarded as restrictions rules excluding any variability of the interest rate or rules which grant a right to early repayment. In legal writing it is highly disputed whether mandatory termination rights in the area of loans (in Germany § 489 BGB) constitute a restriction of the freedom of services or are mere selling arrangements. Points which here are in issue are the application of the Keck case law, the notion of ‘product’ (‘loan with variable rate of interest and fixed duration’ as a product or rate of interest as well as duration as selling arrangements of the product loan?) and the evaluation of the access to the market. The French prohibition of the payment of remuneration on sight accounts has been seen as a restriction of the [[freedom of establishment by the ECJ (ECJ Case C-442/02 – Caixa Bank France [2004] ECR I-8961).

Apart from these rights of termination or rules concerning the duration of the contract, prohibitions of intermediary activity, rights of withdrawal, the obligation to contract, mandatory language rules, mandatory contents rules, usury rates, extension of withdrawal rights or other objections to the linked contract and information duties of clients of insurance undertakings are also discussed. With regard to unfair contract term review, it should be borne in mind that Art 4(2) of Dir 93/13 exempts the main subject matter of the contract from assessment. With a view to the ECJ’s concept of a consumer it has been concluded that, instead of prohibitions in the area of banking services, information duties have to be used. With reference to the characterization of insurance—and often also banking services—as legal products, it is sometimes assumed that their legal regulation does not constitute mere selling arrangements but is subject to a far-reaching review under the fundamental freedoms. However, as also mentioned by the Commission in its interpretative communication on the freedom of services and the general good in the insurance sector in 2000, consumer protection may step in as a justification as long as the [[principle of proportionality is preserved. In legal writing as well, sometimes a very extensive justification on grounds of mandatory requirements of public interest is advocated. The requirement of granting a special power of attorney in order to bring a suit as a civil party in criminal proceedings does not restrict the freedom of services or the freedom of establishment of the suing foreign insurance company (ECJ Case C-177/94 – Perfili [1996] ECR I-161)—the freedoms do not extend to ‘any disparities in treatment which may result, between Member States, from differences existing between the laws of the various Member States, so long as they affect all persons subject to them in accordance with objective criteria and without regard to their nationality’.

In a number of sectors, pricing rules are a further important topic. Minimum wages for posted workers are, according to the case law of the ECJ, in principle not disallowed for the Member States if they pursue an objective of public interest, namely the protection of employees. However, it has to be verified whether, viewed objectively, the rules in question provide for the protection of posted workers (ECJ Case C-164/99 – Portugaia Construçoes [2002] ECR I-787). The permissibility of a collective action in the form of blockading sites to force a foreign provider of services to sign a collective agreement with more favourable conditions for his posted workers has been assessed under the freedom to provide services (ECJ Case C-341/05 – Laval [2007] ECR I-11767). The prohibition of derogation, by agreement, from the minimum fees set by a scale of lawyers’ fees for services amounts to a restriction (ECJ Joined Cases C-94/04 and C-202/04 – Cipolla [2006] ECR I-11421). However, such restriction may be justified. Fixed prices for private security services, with the approval of the Prefetto, within the limits of a predetermined margin for variation have been held a limitation on the freedom to set fees, an impairment of the access to the market and thus an infringement of the freedom of services (ECJ Case C-465/05 – Commission v Italy [2007] ECR I-11091, paras 122 ff). The problem whether the minimum fee rules set forth in the German Official Scale of Fees for Services by Architects and Engineers (Honorarordnung für Architekten und Ingenieure (HOAI)) are a restriction of the freedom of services, but can be justified, is disputed, and the Bundesgerichtshof has recommended that this question be referred to the ECJ for preliminary ruling (BGH 27 February 2003, BGHZ 154, 110). The requirement of a qualification as a patent agent for the service of monitoring patents and renewing them constitutes a restriction on the freedom of services (ECJ Case 96/76 – Säger [1991] ECR I-4221), albeit the prohibition of the professional recovery of debts by way of judicial proceedings through debt-collecting undertakings was upheld (ECJ Case C-3/95 – Reisebüro Broede [1996] ECR I-6511). German rules requiring a foreign lawyer to act in conjunction with a lawyer established on German territory were assessed under the freedom of services (ECJ Case 427/85 – Commission v Germany [1988] ECR 1123). In the law of costs of legal proceedings, a judicial rule which provides that the successful party cannot recover from the unsuccessful party, in addition to the fees for the foreign lawyer, those for the lawyer practising in conjunction with him before the deciding court has been held to be an impediment (ECJ Case C-289/02 – AMOK [2003] ECR I-15059). A Greek rule which deprives foreign tourist guides of the possibility of working as self-employed individuals by prescribing a mandatory legal form of employment relationship between tourist and travel agencies on the one hand and tourist guides on the other has been held to infringe the freedom of services (ECJ Case C-308/95 – Syndesmos ten en Elladi Touristiko [1997] ECR I-3091).

Literature. Manfred Wolf, ‘Privates Bankvertragsrecht im EG-Binnenmarkt, Auswirkungen der II. EG-Bankrechtsrichtlinie auf privatrechtliche Bankgeschäfte’ (1990) WM 1941; Thomas Wernicke, Privates Bankvertragsrecht im EG-Binnenmarkt (1996); Nils Wördemann, International zwingende Normen im Internationalen Privatrecht des europäischen Versicherungsvertrages (1997); Oliver Remien, Zwingendes Vertragsrecht und Grundfreiheiten des EG-Vertrages (2003); Torsten Körber, Grundfreiheiten und Privatrecht (2004); Josef Heimann, Zwingender Verbraucherschutz und Grundfreiheiten im Bereich der Finanzdienstleistungen (2005); Eckhard Pache, ‘Freedom of Services’ in Dirk Ehlers and Ulrich Becker (eds), European Fundamental Rights and Freedoms (2007); Catherine Barnard, The Substantive Law of the EU (2nd edn, 2007); Kolja Stehl, Die Überwindung der Inkohärenz des Internationalen Privatrechts der Bank- und Versicherungsverträge (2008).

Retrieved from Free Movement of Services – Max-EuP 2012 on 14 August 2022.

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