Audacious though unsuccessful arguments presented by Liechtenstein in a recent infringement case E-18/15

On 29 July 2015, ESA brought an infringement action against the Principality of Liechtenstein for breaching the obligation imposed by the free movement of services, freedom of establishment and the Service Directive:

(a) by maintaining in force Article 7 of the Liechtenstein Trade Act which sets up a prior authorisation scheme for undertakings wishing to establish themselves in Liechtenstein; and,

(b) by maintaining in force Article 8(1) of the Liechtenstein Trade Act in so far as it imposes conditions that are not clear and unambiguous for granting prior authorisation for undertakings wishing to establish themselves in Liechtenstein (namely the obligation to have the necessary personnel and the obligation to have an adequate command of the German language); and,

(c) by failing to ensure that requirements, which are equivalent or essentially comparable as regards their purpose to which the service provider is already subject in another EEA State or in the same EEA State, in the procedure for prior authorisation for undertakings intending to establish themselves in Liechtenstein are not duplicated and that the procedure and formalities concerning the authorisation scheme under the Trade Act are clearly laid down; and,

(d) by maintaining in force Article 21 of the Liechtenstein Trade Act which sets up a prior authorisation scheme for undertakings intending to provide cross-border services in Liechtenstein. 

Article 9 of the Services Directive

The defendant sustained that the restrictions implied by the prior authorisation requirements were justified by  overriding reasons in the public interest. It mentioned the following three reasons:

1)  the protection of service recipients;

2) the fight against fraud and tax evasion; and

3) legal certainty.

The reasons 1) and 2) have - in principle - the status of overriding reason in the public interest. The reason 3) has never been invoked as an independent justification of a restriction of free movement, but it is often used in relation to the procedural autonomy of the State and the application of EEA law by making appeal to national remedies whenever the EEA law does not provide for specific remedies.

The ESA did not exclude the possibility that legal certainty could constitute an overriding reason in the public interest within the meaning of Article 4(8) of the Services Directive, but it contested the appropriateness and proportionality of the prior authorisation in relation to the objectives that had been invoked by the EEA State. The defendant asserted that a posteriori inspections would not be genuinely effective, since no service may be considered as wholly without risk. It is absolutely obvious that such an affirmation has the character of a general presumption of abuse. In order to be admitted as lawful under EEA law, a requirement of prior authorisation must be defined narrowly, as an exception from the main rule that recognises the restrictive character of any prior authorisation scheme.

The second surprising argument presented by the defendant claims that the lack of concrete examples supporting the ineffectiveness of a posteriori inspections proves the effectiveness of a priori measure. If a preventive measure succeeds in discouraging the potentially interested service providers to conduct business in Liechtenstein, no ulteriorinspection would be ever necessary. However this argument lacks validity concerning the application of less restrictive means that could enable the exercise of freedoms within the EEA while serving the attainment of the objectives of public interest.

The third innovative argument puts forward that legal certainty may, in principle, justify restrictions on fundamental freedoms. The EFTA-Court establishes that

" the principle of legal certainty is intended to shield commercial activity against undue restrictions and cannot therefore be invoked to justify a restriction".  

In consideration of the restriction of free establishment within the EEA, the EFTA-Court reaffirmed that the defendant's authorisation schemes constituted a source of legal uncertainty by being unclear and ambiguous, thus left  at the whim of the national authorities. The Court had the opportunity to confirm that the EEA law requires EEA States "not only to bring their legislation in line with EEA law, but also to adopt rules of law capable of creating a situation which is sufficiently precise, clear and transparent to allow individuals to know the full extent of their rights". The lack of clarity infers that the obligations imposed by EEA law have not been properly implemented. This is why, the mere amendment of relevant legislation does not suffice in order to demonstrate that a State has implemented a directive in its national legal order. 

Formalities must be transparent in order to be able to guarantee the impartiality and objectivity of the procedures.

Article 16 of the Services Directive

In consideration of the restriction of free provision of services within the EEA, the defendant used the following reasons:

• the high intensity of cross-border services in Liechtenstein,
• the protection of service recipients including consumers and
• the prevention of social dumping.

These reasons are not included in the list contained by Article 16(1)(b) and Article 16(3) of the Directive. Moreover, such reasons would not be served in a proportionate manner by the measures involved. 

Articles 31 EEA (49 TFEU) and 36 EEA (56 TFEU)

For the case of services not covered by the Directive, the EFTA-Court examined the compatibility of the schemes involved in relation to the fundamental freedoms enshrined in Articles 31 and 36 EEA. In order to admit the compatibility of a derogation from the freedoms, the exercise of the freedoms must be safeguarded. Since a scheme that relies on a series of general presumptions will be prone to adversely affect the objectives of the fundamental freedoms, it will breach the principle of proportionality. Thus the prior authorisation schemes imposed by Liechtenstein involve a breach of obligations arising from the EEA Agreement both in relation to services covered by Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 and services falling outside the scope of EU/EEA secondary law.