Can a policy maker ever resist the application of EU law? Yes, perhaps, if there is a ‘purely internal situation’. It is EU law that in such a situation, EU law will not apply. Dutch authorities are adept at exploiting this ‘loophole’. A couple of years ago, Amsterdam’s council invoked it when partly re-regulating Amsterdam’s red light district. Now, a Dutch authority has invoked it in a dispute about a planning decision. The decision relates to an industrial estate. The authority’s plan reserves the land for shops selling really bulky goods, like building materials or kitchens. Consequently, there will be no shoe shops. A real estate investment company thinks the plan contravenes EU services law. The authority points out that this is a ‘purely internal situation’ to which EU law does not apply. The trouble is: what does the CJEU’s case law on a ‘purely internal situation’ mean?
On the outskirts of a Dutch town close to the German border, is a piece of land hemmed in by major arterial roads. The local authority has decided that this is the perfect place for an industrial estate just for shops that sell really bulky items such as building materials, kitchens, white goods, furniture, car parts, and the like.
However, there is an objection to the authority’s plan from a real estate investment company, Visser Vastgoed Beleggingen. The company points out that the authority’s plan in effect precludes retail units being devoted to the sale of shoes and fashion, and that exclusion contravenes EU services law.
The company takes as its starting point the EU’s ‘services’ Directive 2006/123/EC (OJ  L376/36). It claims the services Directive applies to shops in the retail sector because Article 4 provides:
For the purposes of this Directive, the following definitions shall apply:
1) “service” means any self-employed economic activity, normally provided for remuneration, as referred to in Article [57 TFEU];
Having brought retail within the concept of a service, and thus within the scope of the Directive, the company believes that the local authority’s planning rules and planning consents constitute rules and decisions which are subject to the Directive’s strict rules on ‘authorisations’, as outlined in Articles 9 and 10 of the Directive.
Article 9 of the Directive, entitled ‘Authorisation schemes’, provides:
1. Member States shall not make access to a service activity or the exercise thereof subject to an authorisation scheme unless the following conditions are satisfied:
(a) the authorisation scheme does not discriminate against the provider in question;
(b) the need for an authorisation scheme is justified by an overriding reason relating to the public interest;
(c) the objective pursued cannot be attained by means of a less restrictive measure, in particular because an a posteriori inspection would take place too late to be genuinely effective.
Equally, Article 10 of the Directive governs the ‘Conditions for the granting of authorisation’. The main thrust of the Article is that it stops authorities from exercising their powers in an arbitrary manner. Hence, sub-section 2 of Article 10 requires an authority’s criteria to be: (a) non-discriminatory; (b) justified by an overriding reason relating to the public interest; and (c) proportionate to that public interest objective.
Against that legislative backdrop, the company claims that the authority’s plan falls foul of the Directive’s requirements. The authority has failed to provide any evidence to show that there is a real risk of empty shops in the town’s high streets occurring if, for example, shoe shops and clothes shops were to be allowed to set up store in the out-of-town industrial estate. Without that evidence, the authority’s policy is not proportionate. Thus, the local authority’s plan is illegal because it breaches EU law.
Of course, the local authority denies any such illegality. It too takes as its starting point the EU Services Directive. It too relies on the wording of the Directive to justify its belief that the EU Services Directive does not even apply to planning.
In that context, the authority notes that Recital 9 to the Directive provides:
This Directive applies only to requirements which affect the access to, or the exercise of, a service activity. Therefore, it does not apply to requirements, such as road traffic rules, rules concerning the development or use of land, town and country planning, building standards as well as administrative penalties imposed for non-compliance with such rules which do not specifically regulate or specifically affect the service activity but have to be respected by providers in the course of carrying out their economic activity in the same way as by individuals acting in their private capacity.
Thus, it is clear that by dint of Recital 9, the Directive does not apply to rules concerning the development or use of land, town and country planning.
That said, even if the concept of service were to apply, then Article 4(8) is still relevant:
“overriding reasons relating to the public interest” means reasons recognised as such in the case law of the Court of Justice, including the following grounds: public policy; public security; public safety; public health; preserving the financial equilibrium of the social security system; the protection of consumers, recipients of services and workers; fairness of trade transactions; combating fraud; the protection of the environment and the urban environment; the health of animals; intellectual property; the conservation of the national historic and artistic heritage; social policy objectives and cultural policy objectives;
Thus, the legally binding part of the Directive recognises the protection of the urban environment and social policy objectives and cultural policy objectives are areas of policy that are capable of constituting an overriding reason of public interest.
The dispute between the company and the local authority has already been litigated up to the Dutch Council of State [the Raad van State].
At the Dutch Council of State
Having heard the parties on these issues and more besides, the Dutch Council of State started to work out the applicable EU law.
In that context, the first issue was to determine the scope of Recital 9. The Recital itself had already been discussed in the CJEU’s earlier case of Case C-197/11, Libert. The background to that case was a ‘public works contract’ and land and buildings that were located in specific communes in Belgium. Under Belgian law, the transfer of land and buildings had been made subject to a condition that there was a ‘sufficient connection’ between the prospective buyer or tenant and the target commune.
In Libert, the CJEU had reasoned:
103 By these questions, the referring court asks, in essence, whether Directive 2006/123 is applicable in circumstances such as those in the main proceedings and, if so, it asks the Court to interpret several provisions of that directive.
104 In order to reply to these questions, it should be noted that, as stated in recital 9 to Directive 2006/123, that directive does not apply to, inter alia, ‘requirements, such as … rules concerning the development or use of land, town and country planning, building standards …’.
105 In addition, under Article 2(2)(j) of Directive 2006/123, that directive does not apply to services relating to social housing or to persons permanently or temporarily in need which are provided by the State or by providers mandated by the State.
106 As stated in paragraphs 50 and 51 above, the objectives of the Flemish Decree relate to land planning and social housing.
107 In those circumstances, the Court finds that Directive 2006/123 is not applicable to legislation such as the Flemish Decree and that, consequently, there is no need to answer the third to eighth questions referred in Case C‑203/11.
That reasoning of the CJEU seemed clear to the Dutch Council of State. However, the Dutch judges were also aware of other later developments in the law. In 2015, the French Conseil d’Etat had handed down a judgment that had brought retail within the scope of the Services Directive.
Furthermore, the concept of retail and services was evolving in another area of EU law: trade mark law. In Case C-420/13, Netto Marken Discount ECLI:EU:C:2014:2069, the CJEU had remarked:
33 For the purpose of such an interpretation, the Court has already held, in a case concerning an application for registration of a trade mark brought by a retail trader, that services provided in connection with retail trade of goods can constitute services. The retail trade of goods includes, in addition to the sale itself of those goods, other activities of the retail trader, such as selecting an assortment of goods offered for sale and a variety of services aimed at inducing the consumer to purchase those goods from the trader in question rather than from a competitor (see, to that effect, Praktiker Bau- und Heimwerkermärkte EU:C:2005:425, paragraphs 34, 39 and 52).
Thus, in the area of trade mark law, services connected to retailing goods could be considered to be services. Consequently, the Dutch judges wondered what the true scope of Recital 9 was, and whether the retail sector fell within the scope of the Directive.
That though, was not the only problem with Recital 9. What was its legal status? The problem was two fold. First, it was a fact that the scope of Recital 9 contained elements that were not reflected in the (legally binding) main body of the Directive. Did that matter?
Second, the Dutch Council of State’s sister/rival court – the Dutch Supreme Court – had recently heard a case about taxes and services. The Dutch Supreme Court had not known how to interpret EU law correctly and had therefore made a preliminary reference to the CJEU. The questionable legal status of Recital 9 formed the object of Question 3 in that reference (the case is now docketed as Case C-360/15, X).
In light of this legal uncertainty surrounding the scope of the EU Services Directive and whether retail would fall within it, the Dutch Council of State decided to make a preliminary reference even if the Dutch Council of State was still minded to believe that retail was not a service that fell within the scope of the EU Services Directive or the EU Treaty.
However, the scope of the services Directive was not the only matter to vex the Dutch Council of State. It felt that there was further uncertainty surrounding the correct interpretation of earlier references it had made to the CJEU and the subsequent judgments emanating from Luxembourg. The references concerned whether a situation was a ‘purely internal situation’.
The starting point of the law in this area was Case C-292/12, Ragn-Sells AS, ECLI:EU:C:2013:820. In Ragn-Sells, the CJEU had remarked that because there was nothing in the referring court’s file to suggest that there were any companies established in any other Member State that were wishing to provide services for processing the waste refuse from a particular region, the consequence of this was to render the scenario a ‘purely internal situation’ so that EU law did not apply.
However, when those cases were seen in the round it transpired that even if at first blush there was an ‘internal situation’ in which all of the relevant circumstances took place in just one Member State, the CJEU seemed to apply the EU’s Treaty rules in respect of freedom of establishment and the free movement of services, where the national rules could have an effect outside of the Member State concerned.
Thus in Venturini the CJEU had explained:
25 In that regard, the Court has consistently held that, while national legislation such as that at issue in the main proceedings – which applies indiscriminately to Italian nationals and to nationals of other Member States – is, generally, capable of falling within the scope of the provisions relating to the fundamental freedoms established by the Treaty only to the extent that it applies to situations connected with trade between the Member States, it is far from inconceivable that nationals established in Member States other than the Italian Republic have been or are interested in operating para-pharmacies in that latter Member State (see, to that effect, Joined Cases C‑570/07 and C‑571/07 Blanco Pérez and Chao Gómez  ECR I‑4629, paragraph 40 and the case-law cited).
In that context, how should the element of interest from elsewhere in the EU be established? The CJEU in Trijber and Harmsen had said:
41 In that regard, it should be noted that in Case C‑340/14, while it is true that, according to the wording of the third question, the service provided by Mr Trijber which is the subject of the application for authorisation at issue in the main proceedings is in essence intended for residents of the Netherlands, the fact remains that the referring court itself notes, in the order for reference, that that service may also be enjoyed by nationals of other Member States and that the scheme at issue could impede access to the market for all service providers, including those from other Member States who wish to establish themselves in the Netherlands in order to provide such a service. Moreover, with respect to Case C‑341/14, that court clearly states that the recipients of the services provided by Mr Harmsen which are the subject of the applications for authorisation at issue in the main proceedings are nationals of Member States other than the Kingdom of the Netherlands.
This was not clear to the Dutch Council of State. In that context, the Dutch Council of State also diplomatically but wryly observed that the application of ‘purely internal situation’ in EU services law had been expressly asked about by the Dutch Council of State in its Harmsen and Trijber references to the CJEU but that the CJEU had failed to answer the question. Thus, it would ask a question about this in the current reference.
In light of these and more legal uncertainties, a bench of three judges decided to make a preliminary reference to the CJEU.
My unofficial translation of the questions asked by the Dutch Raad van State reads:
1) By dint of Article 2(1) of the Services Directive, is the concept of “service” in Article 4 (1) to be interpreted as meaning that retail trade, consisting of the sale of goods such as shoes and clothing to consumers, is subject to the Directive?
2) The local authority’s scheme [explained in para 8 of the referring order] prevents specific types of shops, such as those selling shoes and clothes, from setting up outside of the town centre. The policy aims to maintain the quality of life in the town and to prevent shops from becoming empty in the town centre. Does a legal measure enshrining such a scheme fall outside of the scope of the Directive by dint of Recital 9 of the Directive because they can be considered to be “rules concerning the development or use of land, town and country planning”, which do not specifically regulate the provision of services or have a specific influence on those services but which service providers should take into account in the performance of their economic activity, in the same way as natural persons who trade commercially?
3) In order to assume that there is a cross-border situation, will it suffice that it cannot be completely excluded that a retailer from another Member State could establish themselves in the locality (or that the retailer’s suppliers could come from another Member State), or do there need to be actual indications of this?
4) Is Chapter III (freedom of establishment) of the Services Directive applicable to purely internal situations or does the assessment of whether this Chapter is applicable depend on the CJEU’s case law interpreting the treaty provisions on the freedom of establishment and the freedom movement of services in purely internal situations?
5a) Is a measure contained in a zoning plan [such as that in para 8 of the referring order], within the scope of the concept of ‘requirement’ as that term is defined in Article 4(7) and Article 15 and Article 14(5) of the Services Directive and not within the scope of the concept of “authorisation scheme” as referred to in Article 4 (6), and Articles 9 and 10 of the Directive?
5b) If a measure [such as that in para 8 of the referring order] falls either within the scope of the term “requirement” or “authorisation”, then does either Article 14(5) of the Directive, or Articles 9 and 10 of the Directive respectively, preclude the administration of a local authority from finalising such a scheme?
6) Does a measure [such as that set out in para 8 of the referring order] come within the scope of Articles 34, 35 and 36 or within Articles 49, 50, 51, 52, 53, 54 and 55 TFEU; and, if so, then are the exceptions recognized by the Court of Justice applicable to that measure, provided that the measure is proportionate?
Besides Case C-360/15, X, and this Visser Vastgoed Beleggingen reference, the issue of a ‘purely internal situation’ is also at stake in Case C-268/15, Ullens de Schooten.
Readers interested in the Visser Vastgoed Beleggingen case should remember that the Dutch industrial zone concerned is close to the German border.
Readers who are interested in judicial discourse should be aware that the relationship between the Dutch Council of State on the one hand, and the Dutch Supreme Court on the other, is peculiar. The judges at the Council of State specialise in administrative law and this might explain why their interpretations of EU law sometimes differ from the interpretations of the same EU law that are produced by the Dutch Supreme Court. One example of a divergent approach occurred in the area of access to information in the context of applications for asylum. The consequent divergent approach in Dutch law then stymied a Dutch inferior court which had to decide which court to follow and how. Two preliminary references were subsequently made to the CJEU; one from the Council of State, the other from the lower court that was following the approach of the Dutch Supreme Court. See further, the Council of State’s reference in C-372/12, M and S; and the Dutch Supreme Court’s approach in Case C-141/12, Y.S. The CJEU dealt with the cases together.
Update – 15 January 2017
The Grand Chamber is due to hear Visser Vastgoed together with Case C-360/15, X on 14 February 2017.