ECJ Grand Chamber: Sevic Systems (C-411/03)

Last tuesday was a busy day at the ECJ, with Grand Chamber judgments being handed down in both Marks & Spencer (C-446/03) and Sevic Systems (C-411/03), both on articles 43 and 48 of the Treaty (freedom of establishment). Here's a short description of and some thoughts on the Sevic case (on M&S, see Sjoerd Douma's post above). The decision itself can be found here.

The preliminary reference in Sevic was brought by a German company which was prevented from merging with a Luxembourg company because of the fact that German legislation provided only for the inscription in the company register of mergers between German firms. The Court deals with the case through the familiar model of (a) applicability of the freedom of establishment, (b) the existence of a restriction on this freedom and (c) the possible justification for the restriction. As to the applicability of articles 43 and 48, the Court notes that "cross-border mergers constitute particular methods of exercise of the freedom of establishment, important for the proper functioning of the internal market". With regard to the existence of a restriction, the Court finds sufficient the differential treatment accorded to internal and cross-border mergers. Such difference in treatment can only be justified if it complies with the well known criteria of (1) a legitimate objective justified by imperative reasons in the public interest, (2) a measure appropriate to securing this objective, (3) which does not go further than necessary to attain the desired result. The Court notes that imperative reasons in the public interest could, in certain circumstances, justify a measure dealing with special problems caused by cross-border mergers. A general refusal of registration as at issue in this case, however, goes further than what is necesarry to protect these legitimate interests.

It is noteworthy that, in this case, it was the German company, that claimed infringement of its rights under the Treaty. This means that the freedom of establishment at issue was the right of the German company to undertake commercial activities in another Member State, by way of a merger with a local company. At times, it seems that the Opinion of A-G Tizzano looks at the case as if it involved a claim by the Luxembourg company, for example when dealing with the German government's objection that because the Luxembourg company would cease to exist at the time of the merger, there could be no question of establishment in another Member State. (Tizzano disagrees, referring to the fact that this only happens when the merger is complete, and that the contested legislation applies to an earlier stage, when both companies still have full legal personality).

The fact that its the German company that claims, also brings the case close enough to the Daily Mail case as to merrit an explicit distinction. That case also concerned restrictions on the freedom of establishment coming from the state of origin). It's true that Daily Mail was different in various respects, - for example in that it dealt with the transfer of the seat of a company, not a cross-border merger - but it would perhaps have been worthwile to point out the specific differences between the cases.

Daily Mail is discussed by A-G Tizzano when countering an objection by the Dutch government that the German legislative measure did not fall within the scope of articles 43 and 48. In the course of this argument, the Advocate General gives the following assessment (at par. 30) of the scope of these provisions:

"Therefore, the right of establishment covers all measures which permit or even merely facilitate access to another Member State and/or the pursuit of an economic activity in that Member State by allowing the persons concerned to participate in the economic life of the country effectively and under the same conditions as national operators."

This seems to be a very broad conception of the right to freedom of establishment. The Opinion refers to various cases (Case 63/86 Commission v Italy, Case 305/87 Commission v Greece, Case C-302/97 Konle, Case C-251/98 Baars and Case C-208/00 Überseering), but in none of these did I find a similar categorical and broad statement. I look forward to comments on whether this definition is indeed novel in some respects. It's an important point as the Court accepts the A-G's defintion in principle (with reference only to the Opinion and no additional citing of case law).