Fireworks or back-fire? The Austrian Chimney Sweeper Case
In a recent judgment the European Court of Justice clarified the scope of the Services Directive. The outcome of the Hiebler case shows that the Court relies on competition law case law when balancing public interests and fundamental freedoms.
In the latest case of the Court of Justice coming down the chimney before Christmas, the Court has tried to extinguish certain ‘fire hazards’ concerning the application of the Services Directive. The Hiebler case (C‑293/14) is exemplary for the recent case law from the Court on the interplay between the Treaty principles of the TFEU and the scope ratione materiae of the Services Directive. Moreover the Hiebler Judgment also provides some interplay and divergence between case law on competition law and the fundamental freedoms with regard to public interests.
The case of Mr Hiebler is both charming and interesting, in fact and in law. Hiebler is a chimney sweeper in the Alpine region of Carinthia, Austria. He is designated by the Austrian authorities to sweep chimneys in a certain district in Carinthia, partially on account of fire prevention. He has acquired a trade licence which contains a territorial restriction. Following a trade dispute before the local district court, Hiebler invoked the Services Directive, claiming that the territorial trade licence restricts him from engaging in chimney-sweeping activities in other districts. In appeal, the Higher Regional Court in Graz asked the CJEU in a preliminary reference whether the territorial restriction can be justified under Articles 10 and 15 of the Services Directive.
The Hiebler case is the latest case in a series of cases in which the Court has had to align the TFEU provisions on the fundamental freedoms with the scope of application of the Services Directive. In this case, the Court chooses an in-depth analysis of the preliminary questions by investigating the scope of the Services Directive predominantly on its own merits. In addition, the Court applies the principles of EU law in the context of the Directive.
The Court attempts to clarify the applicable justifications by using a two-tier approach. Firstly, the Court tries to apply the Rule of Reason on the territorial restriction. Article 10 (4) of the Directive restricts territorial trade licences unless they can be justified by an overriding reason relating to the public interest. The Court concludes that the measure is necessary, since Article 15 (3) of the Services Directive directly considers public health to be a necessary mandatory requirement. The Court does, however, question the suitability of the measure, since the Austrian authorities failed to indicate which actual geographical limits apply to the profession of chimney sweeper. Moreover, it is not clear whether the mandatory requirement only encompasses the fire prevention activities, or also the “every-day” chimney sweeping services provided to customers. As a result, the trade licence cannot be justified under the Rule of Reason.
In a final attempt to seek justification for the licence the Court applies Article 15 (4) of the Services Directive. This provision allows Member States to justify territorial restrictions as so-called services of general economic interest (SGEI). The concept of SGEI is mentioned in Articles 14 and 106(2) TFEU; however, this concept is not defined in the EU Treaties. Qualifying SGEI is left to the Member States. However, there are limits: “every-day” economic activities, such as loading goods, livestock inspections or dentist practices (C‑172/03, Austrian Dentists) cannot be considered as economic interest with an overriding public interest, since these economic activities can be left to the market mechanism. According to the Court, the Services Directive clearly stipulates that the EU principles of proportionality and non-discrimination must be applied to SGEI, unless these principles obstruct the performance of the SGEI, in law or in fact However, applying this derogation would lead to disregarding the competition case law of the Court on Article 106 (2) TFEU. Therefore the Court chooses to interpret Article 15 (4) of the Services Directive within the context of the Corbeau (C‑320/91) and Ambulanz Glöckner (C‑475/99) cases. In these two cases the Court conducted a proportionality test. It balanced the economic interests of the undertaking discharged with an SGEI with the need to ensure overall access to economically non-viable services. To that end the Court considers that the Regional High Court must conduct a similar balancing test; implicitly suggesting that the referring court will have to disregard a strict interpretation of Articles 10 and 15 of the Services Directive.
Interplay and divergence between competition law and the Services Directive
Although this case does not exactly contain ‘fireworks’, the Hiebler case might lead to a back-fire situation between the applicable legal frameworks for SGEI in competition law and those concerning fundamental freedoms . First of all, the Hiebler case shows that the Court has some trouble in applying the principle of proportionality within the scope ratione materiae of the Services Directive. If the Court had applied Article 15 (4) of the Services Directive in a stricter fashion, in my opinion it would have disregarded the overriding principles of EU law and standing case law (C-265/08, Federutility). Due to the fact that protocol no. 26 to the TFEU requires SGEI to be entrusted based on the principles of proportionality and non-discrimination, the Austrian Higher Regional Court is obligated to conduct a proportionality test; focusing on the suitability, necessity and the proportionality strictu sensu of the trade licence for chimney sweepers. To that end the Court rightfully implemented the proportionality test that derives from Article 106 (2) TFEU.
Secondly, the Hiebler Case also shows that there is divergence in applying the proportionality test between the fundamental freedoms and competition law. In competition law cases the proportionality test includes a more economic suitability test. Member States are only allowed to classify a SGEI when the service at hand is not sufficiently offered by the market mechanism (C‑172/03, Austrian Dentists) and when there is a market failure (T-461/13, Spain v Commission). Moreover, a Member State must clearly delimit the geographical area in which the SGEI will be offered (T-461/13, Spain v Commission). These specified conditions show that the CJEU has established clear sub-conditions for the suitability test in competition law. Compared to the relatively open suitability test based on the Rule of Reason these conditions provide extra guidance for national courts in applying the proportionality test. Hopefully the Court will not burn its fingers when incorporating these proportionality elements in its next application of the SGEI-provisions in the Services Directive!