Fundamental Freedoms (General Principles)
1. Development and meaning
The fundamental freedoms, with their border opening effect, are a key element of the European internal market and in principle carry great significance for all law in Europe and in its Member States. The exact division between the fundamental freedoms is disputed. However, most commonly, they are divided into the free movement of goods, the free movement of persons, including the free movement of workers as well as the freedom of establishment, the free movement of services and the free movement of capital and payments. The free movement of Union citizens pursuant to Art 21 TFEU/18 TEC complements these freedoms as a central part of the status of Union citizenship and is also relevant to areas of private law. In its case law, the ECJ has extensively developed a general systemic structure of the fundamental freedoms with the free movement of goods initially playing a leading role in this process. The basis of this development is the direct effect (applicability) of the fundamental freedoms (ECJ Case 26/62 – van Gend & Loos [1963] ECR 1) with the effect that an individual can invoke these freedoms and that conflicting Member State law is not to be applied (ECJ Case 6/64 – Costa v ENEL [1964] ECR 125). Consequently, the application of legal norms, and especially also Member States legal norms, is subject to review by the ECJ against the standards set by the fundamental freedoms, ie primary law, in cases involving the internal market. Legal norms which disproportionately restrict the internal market are thus disapplied. The term ‘negative integration’ is occasionally used in this context as a counter-image to the approximation of laws by way of positive integration. In principle, judicial review under the fundamental freedoms and the approximation of laws aim towards a common goal, the European internal market, and interact with each other according to the principle of communicating vessels as known in physics. In cases where an approximation of laws has been achieved, but where there is a more stringent national measure in place as a result of a ‘minimum clause’, the fundamental freedoms can still intervene. For private law in particular two specific issues arise, firstly the problem of whether an individual is bound by the fundamental freedoms (direct horizontal effect) and secondly the review of private law norms, and also conflict of law rules, on the basis of the fundamental freedoms.
2. Addressees and structure
The addressees of the fundamental freedoms are, first and foremost, the Member States against whom they award rights of defence and even rights of protection (ECJ Case C-265/95 – Commission v France [1997] ECR I-6959; ECJ Case C-112/00 – Schmidberger [2003] ECR I-5659). For the delimitation vis-à-vis private restrictions a functional approach is to be followed (ECJ Case C-249/81 – Buy Irish [1982] ECR 4005; ECJ Case C-16/94 – Dubois [1995] ECR I-2421). Where a private law agreement is made the subject of a law, it is to be considered a national measure for this purpose (ECJ Case C-112/05 – Commission v Germany [2007] ECR I-8995, para 26). The Community itself as well as its organs are also bound by the provisions of the fundamental freedoms (already seen in ECJ Case 218/82 – Commission v Council [1983] ECR 4063, 4075; ECJ Case 15/83 – Denkavit [1984] ECR 2171). The direct horizontal effect of the free movement of goods as against third parties has, despite some questionable language (ECJ Case 58/80 – Dansk Supermarket [1981] 181, para 17), been expressly rejected, and for agreements between undertakings it is rather the competition rules of Arts 101 ff TFEU/81 ff TEC that are applicable (ECJ Case 65/86 – Bayer AG [1988] ECR 5249, paras 11 ff; competition (internal market)). For the free movement of workers, the freedom of establishment and the free movement of services the ECJ has acknowledged that a third private party may be bound in specific situations, such as for example in the context of rules laid down by sporting associations (ECJ Case C-415/93 – Bosman [1995] ECR I-4921; Joined Cases C-51/96 and C-191/97 – Deliège [2000] ECR I-2549), collective labour agreements and collective action taken by trade union organizations (ECJ Case C-351/05 – Laval [2007] ECR I-10779, paras 57 ff; ECJ Case C-438/05 – International Transport Workers’ Federation v Viking Line [2007] ECR I-10779, paras 57 ff). Even with regard to compulsory motor vehicle liability insurance there are corresponding indications (ECJ Case 251/83 – Haug Adrion [1984] ECR 4277). In this context, legal scholarship sometimes uses the term ‘intermediary powers’, which refers to institutions that have a kind of lawmaking power and which are thus also bound by the fundamental freedoms. Apart from the above-stated cases, direct horizontal effect should in principle be rejected as it would too severely affect private autonomy. Legal scholarship has considered the question whether an indirect third-party effect could result from a Member State’s obligation to protect against unlawful interferences by private individuals. According to the ECJ, it is not only the supplier of, for instance, goods or services who can invoke the fundamental freedoms but also the recipient (ECJ Joined Cases 286/82 and 26/83 – Luisi and Carbone [1989] ECR 195, para 15; ECJ Case 362/88 – GB-INNO-BM [1990] ECR I-667). If these rulings were to be carried through in a consistent manner, this could lead to collisions between the fundamental freedoms.
The structure of the fundamental freedoms is more or less uniform—one speaks of the convergence of fundamental freedoms (Peter Behrens)—and pluri-membered, consisting of two, three or four separate freedoms depending on the division followed. With regard to the scope of application, attention needs to be paid to the supremacy of secondary legislation, the substantive scope of protection afforded by the individual fundamental freedoms as well as the delimitation between different freedoms which, where applicable, will depend on the focus of the activity in question (ECJ Case C-275/92 – Schindler [1994] ECR I-1039). Furthermore, there is—though sometimes applied generously—the requirement of a cross-border element within the boundaries of the internal market (eg ECJ Case C-332/90 – Steen [1992] ECR I-341, 365; ECJ Case C-23/93 – TV10 [1994] ECR I- 4795; ECJ Case C-425/93 – Bosman [1995] ECR I-4921)—or in the case of the free movement of capital according to Art 56 TEC/63 TFEU even vis-à-vis third countries. In purely domestic cases the fundamental freedoms are not applicable. This can lead to reverse discrimination (ie of nationals of the Member State concerned) and also exert pressure on Member States to deregulate. Finally, there are special sectoral exceptions, in particular for the ‘exercise of administrative powers’, Art 51(1), 62 TFEU/45(1), 55 TEC. The nationality of a person is expressly considered only in Art 56 TFEU/49 TEC.
Interference with a fundamental freedom is deemed to have occurred when there is a less favourable treatment vis-à-vis nationals of a certain Member State; fundamental freedoms thus demand an equal treatment of persons irrespective of nationality and are, in comparison to Art 18 TFEU/12 TEC, specific prohibitions of discrimination (discrimination (general)). Overt (direct) as well as covered (indirect) discriminations are prohibited. Furthermore, the fundamental freedoms also entail prohibitions of restrictions. In this context, the Dassonville formula, which was originally developed for the free movement of goods but which was later transferred and applied to the other freedoms, is of constitutive significance: ‘all trading rules, which are capable of hindering directly or indirectly, actually or potentially, intra-community trade’ (ECJ Case 8/74 – Dassonville [1974] ECR 873, para 5). In principle, private law rules may also constitute trading rules for this purpose. The Dassonville formula is limited in its application by the controversial but justified judgment in Keck as well as subsequent cases. According to this judgment ‘contrary to what has previously been decided, the application to products from other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder directly or indirectly, actually or potentially, trade between Member States … so long as those provisions apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States’ (ECJ Joined Cases C-267 and 268/91 – Keck [1993] ECR I-6097, para 16). According to the ECJ, market access would thus not be impeded in such cases. This development will most likely lead to a differentiation between product-related and—‘selling arrangements’—sales-related measures. The impact on the review of private law under the fundamental freedoms is still subject to debate (see 3. below). Keck is most likely to be transferred and applied to the other fundamental freedoms as well.
Interference with a fundamental freedom may be justified on grounds of a written authorization (Arts 36, 45(3), 52 in conjunction with 62, 64–66 TFEU/30, 39(3), 46 in conjunction with 55, 58–59 TEC) and—as long as there is no direct discrimination (ECJ Case 46/76 – Bauhuis [1977] ECR 5)—also by mandatory public interest requirements in accordance with the Cassis de Dijon formula (ECJ Case 120/78 – Rewe (Cassis de Dijon) [1979] ECR 649). According to the ECJ ‘in the absence of a Community rule, obstacles to movement within the Community resulting from disparities between the national laws relating to the marketing of the products in question must be accepted insofar as those provisions may be recognized as being necessary in order to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defense of the consumer’ (ECJ Case 120/78 – Rewe (Cassis de Dijon) [1979] ECR 649, para 8; also protection of the environment, ECJ Case 302/86 – Commission v Denmark—returnable containers [1988] ECR 4607). Fundamental rights may also be a ground for justification (see ECJ Case C-112/00 – Schmidberger [2003] ECR I-5659, para 74; ECJ Case C-36/02 – Omega [2004] I-9609, para 35).
While these justifications may limit fundamental freedoms, they are themselves subject to limitations (in German Schranken-Schranken), especially to the principle of proportionality. The measures must therefore be both suitable and necessary. Adequacy has only a very narrow meaning in the relevant case law, primarily in cases of collisions with fundamental rights or third party effects on private organizations. A measure is in particular not necessary, when the public interest has already been taken into account by equivalent measures in the country of origin; in this respect, a form of the country of origin principle has been integrated into primary law, which, however, also does not apply free of limitations. The ECJ tends to be strict with its test of necessity, which results in the frequent denial of justificatory reasons for restrictions.
3. Private law norms and fundamental freedoms
Furthermore, private law norms may, contrary to isolated opinions advanced in legal scholarship, be subject to review on the basis of the fundamental freedoms; the TFEU does not differentiate between public and private law. A variety of individual private law issues has already been analysed by the ECJ, albeit only in a very selective manner. The details, however, are subject to considerable controversy and the case law of the ECJ is not yet widely developed.
In addition—and contrary to the mostly territory-related character of public law—private law requires the conflict of laws question to be asked first, ie the question as to the applicable law according to the relevant rules of private international law (PIL). Arguably, conflict of laws rules can already by themselves infringe the fundamental freedoms. Some opinions in literature have even tried to derivate clear conflict of laws rules from the fundamental freedoms, such as for example a country of origin principle or a favor offerentis principle. However, this approach has not met with a great deal of acceptance; this is justifiable to the extent that the understanding of the fundamental freedoms as freedoms not only of the supplier but also of the recipient of goods or services and the constant possibility of justification speak against it. Contrary to an isolated opinion in legal scholarship, the fact that a conflict of laws rule is compatible with the fundamental freedoms does not mean that application of the substantive rule is equally in conformity with the fundamental freedoms. Rather, conflict of laws rules as well as substantive rules need to be reviewed against the standard of the fundamental freedom in question; compatibility of the conflict of laws rule thus does not provide any immunity for the substantive rule in question. Instead, it is the outcome that is decisive. However, it is disputed whether only norms which are mandatory in an international context or also internationally or nationally dispositive law may infringe the fundamental freedoms. In Alsthom Atlantique, the ECJ (ECJ Case C-339/89 – Alsthom Atlantique [1991] ECR I- 107) rejected such an alleged infringement in its dictum by reason of the possibility of a choice of law (para 15: in any case, it is generally open to the parties to an international contract to agree on the law that will apply to their contractual relations and avoid being subjected to French law). This seems justified, as the restriction lies in the hands of the parties due to the choice of law by the parties. However, this point is nevertheless disputed. (Internationally) overriding mandatory provisions are in any case subject to review for their compatibility with the fundamental freedoms. The implications of the Keck judgment for selling arrangements are very controversial. While it is commonly held that private law norms very often, though not always, constitute mere selling arrangements, this view is contested by others. A most careful analysis is called for in this context.
Obvious infringements of the fundamental freedoms are at hand in the case of discriminatory private law norms, even though these are fairly uncommon. With regard to the rules of civil procedure, the ECJ held that there is an infringement in the case of a requirement of security for costs placed upon foreign nationals (ECJ Case C-20/92 – Hubbard [1993] ECR I-3777) as well as in the case that the need for the foreign enforcement of a judgment constitutes sufficient grounds for seizure of assets (ECJ C-398/92 – Hatrex [1994] ECJ I-467). Likewise, this is not excluded in the area of substantive law, such as in the rule of § 239 Bürgerliches Gesetzbuch (BGB) limiting eligible sureties to persons resident within the national territory. If—as is the case in the Netherlands—stricter rules for the control of standard contract terms or the activity as an agent for package holidays apply to parties established abroad, this could be classified as discriminatory. So far, the ECJ has even found there to be a case of disguised discrimination (ECJ Case 33/88 – Allué [1989] ECR 1591 ff) where a specific limit was placed on the duration of the employment relationship applicable to foreign language assistants—who, in the majority of cases, are indeed foreign. Even more problematic is the prohibition of restrictions.
Due to the Court’s tendency to construe the fundamental freedoms as prohibiting any sort of restrictions, the judgment in Koestler no longer appears to be good law. In this case the ECJ had been asked to rule on the application of a then-applicable rule of German law according to which debts stemming from time-bargains in respect of the differences between the prices of transferable securities had become unenforceable. The Court did not consider this to be a restriction of the free movement of services (ECJ Case 15/78 – Koestler [1978], 1971, 1980, para 5). However, according to present day understanding, the classification of a claim as unenforceable or obligatio naturalis does constitute an infringement of the fundamental freedoms. For rules prohibiting certain contracts this is true without any doubt, but it always needs to be asked whether the restriction is justified and in case of contracts contra bonos mores (illegality of contracts)—for instance dwarf-throwing (the throwing of small statured adults for purposes of entertainment), prostitution, telephone sex, surrogacy motherhood, etc—it is doubtful to what extent a margin of discretion will be left to the Member States (see ECJ Case C-36/02 – Omega [2004] ECR I-9609). A case of pre-contractual liability because of a duty to give notice of problems regarding services under a guarantee for products which have been the subject of parallel imports was before the ECJ in CMC Motorradcenter and held to be too uncertain and indirect to hinder trade (ECJ Case C-93/92 CMC Motorradcenter [1993] ECJ I-5009). In Alsthom Atlantique, internationally dispositive provisions on defective performance were not measured against the free movement of goods; in case of internationally mandatory provisions, the question of selling arrangements would need to be asked.
Price regulations, however, have been dealt with differently by the ECJ. Initially, they were effectively exempt from review against the standards set by the fundamental freedoms (ECJ Case 82/77 van Tiggele [1978] ECR 25, para 16/20; ECJ Joined Cases C-177 and 178/92 van de Haar [1984] ECR 1797). More recently, they have occasionally been objected to or been viewed as an infringement, as for example in the case of the French fixed prices for books (ECJ Case 229/83 Leclerc [1985] ECR 1) as well as in the Italian case of provisions fixing minimum fees for members of the legal profession for court services (ECJ Joined Cases C-94 and 202/04 – Cipolla [2006] ECR I-11421, but possibly justified); in Germany, the question now arises with regard to fees for members of the architectural profession. A prohibition on the payment of remuneration on sight accounts, provided for by banking law, was regarded as a breach of the freedom of establishment (ECJ C-442/02 – Caixa Bank France [2004] ECR I-8961). A prohibition on request for the payment card number before expiry of the period for withdrawal (right of withdrawal) is considered as infringing the freedom of export provided for in Art 35 TFEU/29 TEC; conversely, a prohibition on requiring an advance or any payment before expiry of the period of withdrawal was not held to constitute an infringement (ECJ C-205/07 – Gysbrechts and Santurel Inter [2008] ECR I-9947).
In the realm of property law, the ECJ held that the fact that a Dutch provision of seizure on the collection of direct taxes did not take account of a German reservation of title did not amount to an infringement of the free movement of goods (ECJ Case 69/88 – Krantz [1990] ECR I-583). In legal scholarship, however, attempts have been made to draw extensive deductions from the free movement of goods, regulated in Art 28 TEC/34 TFEU, and to apply them to the laws on security for credit. In the realm of company law within the internal market, the ECJ has, since Centros, considered it appropriate to draw broad deductions from the freedom of establishment. Trade names or commercial names also may have to be considered as restrictions calling for justification (ECJ Case C-255/97 – Pfeiffer [1999] ECR I-2835).
Initially, the fundamental freedoms had an extensive effect in the area of competition law, for instance in case of a prohibition of advertising using price comparisons by way of an eye-catcher (ECJ Case C-126/91 – Yves Rocher [1993] ECR I/2361); however, it is in this very field that the Keck judgment regarding selling arrangements will now often apply. The ECJ did not deem a prohibition against the resale of goods at a price lower than the actual purchase price (resale at loss) to be a restriction (ECJ Joined Cases C-267 and 268/91 – Keck [1993] ECR I-6097). However, unfair competition law can also have a product-related effect restricting trade (ECJ Case C-315/92 – Clinique [1994] ECR I-317 ff). In the area of intellectual property, the ECJ has derived the principle of Community-wide exhaustion of intellectual property rights under Member State laws from the free movement of goods (ECJ C-78/70 – Deutsche Grammophon [1971] ECR 487, paras 11 ff).
The ECJ has also measured rules regulating industrial action by reference to the fundamental freedoms (ECJ Case C-351/05 – Laval [2007] ECR I-11767; ECJ Case C-438/05 – International Transport Workers’ Federation v Viking Line [2007] ECR I-10779). The ECJ has held that the exclusion of a claim of entitlement to compensation on termination of employment to a worker who voluntarily terminates his contract of employment in Austria cannot be deemed to amount to a restriction on the free movement of workers (ECJ Case C-190/98 – Filzmoser [2000] ECR I-493). The case law thus confirms the existing but moderate role of the fundamental freedoms in reviewing private law rules. In contrast to the scrutiny under constitutional fundamental rights, the review under the fundamental freedoms has, thus far, only had a liberalising effect.
Literature
Wulf-Henning Roth, ‘Der Einfluß des Europäischen Gemeinschaftsrechts auf das Internationale Privatrecht’ (1991) 55 RabelsZ 623; Peter Behrens, Die Konvergenz der wirtschaftlichen Freiheiten im europäischen Gemeinschaftsrecht, Europarecht (1992) 145 ff; Luca Radicati de Brozolo, ‘L’influence sur les conflits de lois des principes de droit communautaire en matière de liberté de circulation’ (1993) 82 Rev crit dr int priv 401; Jürgen Basedow, ‘Der kollisionsrechtliche Gehalt der Grundfreiheiten im europäischen Binnenmarkt: favor offerentis’ (1995) 59 RabelsZ 1; Wulf-Henning Roth, ‘Drittwirkung der Grundfreiheiten?’ in Festschrift Ulrich Everling (1995) 1231–47; Ernst Steindorff, EG-Vertrag und Privatrecht (1996); Nicolas Bernard, ‘Discrimination and Free Movement in EC Law’ (1996) 45 ICLQ 82; Thorsten Kingreen, Die Struktur der Grundfreiheiten des Europäischen Gemeinschaftsrechts (1999); Malcolm Jarvis and Peter Oliver, Free Movement of Goods in the European Community (4th edn, 2002); Oliver Remien, Zwingendes Vertragsrecht und Grundfreiheiten des EG-Vertrages (2003); Torsten Körber, Grundfreiheiten und Privatrecht (2004); Peter Oliver and Wulf-Henning Roth, The Internal Market and the Four Freedoms (2004) 41 CMLR 407–41; Dirk Ehlers and Ulrich Becker (eds), European Fundamental Rights and Freedoms (2007); Arthur S Hartkamp, Europees recht en Nederlands vermogensrecht, Mr C Assers Handleiding tot de beoefening van het Nederlands Burgerlijk Recht, Vermogensrecht algemeen, Deel 1 (2008); Michael Schilling, ‘The Interpretation of European Private Law in the Light of Market Freedoms and EU Fundamental Rights’ (2008) 15(3) MJ 285.
